BILLING CODE: 4810-AM-P
BUREAU OF CONSUMER FI NANCIAL PROTECTION
12 CFR Part 1024 [Docket No. CFPB-2012-0034]
RIN 3170-AA14 2012 Real Estate Settlement Procedures Act (R egulation X) Mortgage Servicing Proposal
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Proposed rule with request for public comment.
SUMMARY: The Bureau of Consumer Financial Protect ion (the Bureau) is proposing to amend Regulation X, which implements the Real Esta te Settlement Procedur es Act of 1974 (RESPA) and the official interpretation of the regulation. The proposed amendments implement the DoddFrank Wall Street Reform and Consumer Protec tion Act (Dodd-Frank Act) provisions regarding mortgage loan servicing. Specifically, this proposal requests comment regarding proposed additions to Regulation X to addr ess seven servicer obligations: (1 ) to correct errors asserted by mortgage loan borrowers; (2) to provide informa tion 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’ applic ations for available loss mitigation options. This proposal would also modify and st reamline certain existing servicing-related provisions of Regulation X. For instance, the proposal would revise pr ovisions relating to a mortgage servicer’s obli gation to provide disclosures to borro wers in connection with a transfer2 of mortgage servicing, and a mortgage servi cer’s obligation to ma nage 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 Trut h 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 anal ysis 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, identifie d by Docket No. CFPB-2012-0034 or RIN 3170-AA14, by any of the following methods:

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

comments.

 Mail/Hand Delivery/Courier: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Burea u, 1700 G Street, NW, Washington, D.C. 20552.
Instructions: All submissions must include the ag ency name and docket number or Regulatory Information Number (RIN) for this ru lemaking. 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 documen ts by telephoning (202) 435-7275.3 All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclo sure. Sensitive personal information, such as account numbers or Social Security numbers, should not be included. Comments will not be edited to remove any identif ying or contact information. e-Rulemaking Initiative The Bureau is working with the Corne ll 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 rule makings 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 rulemaki ng process and strongly en courages all parties interested in this rulemaking to visit the Regulation Room website, http://www.regulationroom.org, to learn about th e Bureau’s proposed mortgage servicing rules and the rulemaking process, to di scuss 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 disc ussion 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 mean s 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 participan ts will have a chance to review a draft and suggest changes before the summary is submitte d. For questions about this project, please contact Whitney Patross, Attorney, O ffice of Regulations, at (202) 435-7700.4 FOR FURTHER INFORMATION CONTACT: Regulation X (RESPA): Jane Gao, Mitchell E. Hochberg, a nd Michael Scherzer, Counsels at (202) 435-7700 ; Office of Regulations , Division of Research, Markets, and Regulations , Bureau of Consumer Financial Pr otection; 1700 G Street, NW , Washington, DC 20552. Regulation Z (TILA): Whitney Patross, Attorney and Ma rta Tanenhaus, Senior Counsel at (202) 435-7700; Office of Regulations , Division of Research, Markets, and Regulations , Bureau of Consumer Financial Pr otection; 1700 G Street, NW , Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Overview A. Background The recent financial crisis exposed pervasiv e 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 reso urces and infrastructure necessary to service large numbers of delinquent loans. Existing weaknesses in servicer practices, including inadequate recordkeeping an d 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 th ings 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.5 The Dodd-Frank Act (Public Law 111-203, Ju ly 21, 2010) adopts seve ral new servicing protections. 2 The Bureau has the authority to prom ulgate regulations to implement the new servicing protections. These changes will significan tly improve disclosures to make it easier for consumers to monitor their mortgage loans and se rvicers’ activities. The changes also address critical servicer practi ces, including error resolu tion, prompt crediting of payments, and “forceplacing” insurance where borrowers have allowe d their hazard insurance policies to lapse. The Dodd-Frank Act also gives the Bureau di scretionary authority to develop additional servicing rules. The Bureau proposes to use th is authority to adopt re quirements relating to reasonable information management policies and procedures, early interv ention with delinquent borrowers, continuity of contact, and procedures for evaluating and responding to loss mitigation applications when the servicer makes loss mitigati on options available in the ordinary course of business. These proposals address fundament al problems that underlie many consumer complaints and recent regulatory and enforcement actions. The Bureau believes these changes will reduce avoidable foreclosures and improve ge neral customer service. The proposals cover nine major topics, as summarized below. The Bureau’s proposal is split into tw o 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 po licies and procedures, ea rly 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.6 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 clos ed-end mortgage lo ans, 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 pe riodic statement and ad justable-rate mortgage (ARM), disclosure provisions appl y 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 ex cluded from the ARM disclosure requirements. As discussed below, the Bureau is seeking comme nt on whether to exempt small servicers from certain requirements or modify certain requirements for small servicers. C. Summary The proposals cover nine major topics, summari zed below. More details can be found in the proposed rules, which are split into two not ices issued under the Truth in Lending Act (TILA) and Real Estate Settlement Pr ocedures Act (RESPA), respectively.
1. Periodic billing statements. The Dodd-Frank Act generally mandates that servicers of closed-end residential mortgage loans (other th an reverse mortgages) must send a periodic statement for each billing cycle. These statem ents must meet the timing, form, and content requirements provided for in the rule. The propos al contains sample forms that servicers could use. The periodic statement requirement generally would not apply for fi xed-rate loans if the servicer provides a coupon book, so long as the coupon book contains certain information7 specified in the rule and certain other informa tion is made available to the consumer. The proposal also includes an exception for small serv icers that service 1000 or fewer mortgage loans and service only mortgage loans th at they originated or own.
2. Adjustable-rate mortgage inte rest-rate adjustment notices. Servicers would have to provide a consumer whose mortgage has an adjust able 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 th an this initial notice, servicers would no longer be required to provide an annual notice if a rate ad justment 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 pa yment, 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 woul d require the servicer to apply the funds to the oldest outstand ing payment owed. A servicer al so 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 borr ower would be required at least 45 days before charging for forced-place insurance coverage, and a second notice would be required no earlier8 than 30 days after the first notice. The proposal contains model forms that servicers could use. If a borrower provides proof of h azard 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 woul d 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 charge s 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 act ually performed. Add itionally, 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 de fines specific types of claims which constitute an error, such as a claim that the servicer mi sapplied 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. Se rvicers would have to correct or respond to the borrower with the results of the investigation, gene rally 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 inform ation 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 re lates to the servicer’s improperly proceeding with a foreclosure sale during a borrower’s evaluation for alternatives to foreclosure.9 6. Information management policies and procedures. Servicers would be required to establish reasonable information management polic ies and procedures. Th e reasonableness of a servicer’s policies and procedures would take into account the servicer’s si ze, scope, and nature of its operations. A servicer’s policies and procedures would sa tisfy the rule if the servicer regularly achieves the document retention and servicing file re quirements, 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 pers onnel to have prompt access to documents and information submitted in connection with loss mitig ation applications. In addition, a servicer must reta in records relating to each mortgage until one year after the mortgage is discharged or servic ing is transferred and must create a mortgage servicing file for each loan containing certain specif ied 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 requ ire servicers to make a good faith effort to notify the borrower orally and to let the borrower know that loss m itigations 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, includin g 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 th e borrower about the foreclosure process. The rule contains model language serv icers could use for these notices. 8. Continuity of contact with delinquent borrowers. Servicers would be required to provide delinquent borrowers with access to personne l to assist them with loss mitigation options where applicable. The proposal would require se rvicers to assign dedica ted contact personnel for10 a borrower no later than five days after providi ng the early intervention notice. Servicers would be required to establish reasonabl e policies and procedures designed to ensure that the servicer personnel perform certain specified functions wh ere applicable, such as access the borrower’s records and provide the borrower with informa tion 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 ensu re 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 a pplication 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, an d, 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 wh ich to appeal the decisi on. The proposal would require that appeals be decided within 30 days by different pers onnel than those responsible for the initial decision. A servicer that receives a complete appli cation for a loss mitigation option could not proceed with a foreclosure sale unle ss (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 a ccept 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 applicati on for a loss mitigation option be no earlier than 90 days before a scheduled foreclosure sale.11 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 perm itted by law. Informed by this process, the 2012 TILA Servicing Proposal contains an exempti on 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. Howe ver, the Bureau understands that the final rules will require servicers to make revi sions to their software and to re train 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 Servic ing Market and Market Failures The mortgage market is the single largest market for consumer financial products and services in the United States, with approxi mately $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/.12 servicers play a vital ro le within the broader market by unde rtaking the day-to-day management of mortgage loans on behalf of lenders who hold th e loans in their portfolio s or (where a loan has been securitized) investors who ar e 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 resp ect to delinquent borrowers. Indeed, without dedicated companies to perform these activities, it is questiona ble whether a secondary market for mortgage-backed securities would exist in this country. 6 Several aspects of the mortgage servici ng 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, indus try compensation practices and the structure of the mortgage servicing industr y create wide variati ons in servicers’ incentives to provide effective customer service to borrowers. Al so, because borrowers cannot choose their own servicers, it is particularly difficult for them to protect th emselves 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 issu ed 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 re sults 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 lo an. 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 tr ust 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 involv ed 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 perfor med by banks, thrifts, credit unions, and non-bank servicers under a variety of business models. In some cases , creditors service mort gage loans that they originate or purchase and hold in portfolio. Other creditors se ll the ownership of the underlying mortgage loan, but retain the mortgage servicing ri ghts 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 originati on 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 reso urces in its servicing operations, or does not properly service the borrower’s loan. Although th e mortgage servicing industry has numerous participants, the industry is hi ghly concentrated, with the five largest servi cers servicing approximately 55% percent of outstandi ng mortgage loans in this country. 8 Small servicers generally operate in discrete se gments of the market, for example, by specializing in servicing delinquent loans, or by servici ng loans that they originate. 9
Contracts between the servicer and the mo rtgage loan owner specify the rights and responsibilities of each party. Inthe context of securitized loan s, the contracts may require the servicer to balance the competing interests of different classes of i nvestors when borrowers become delinquent. Certain provisions in servici ng 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 (2 011) (Thompson), available at h ttp://digital.law.wash ington.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 pur e 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 prof it through a net servici ng 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 disburseme nt, and cross-marketi ng other products and services to borrowers. Under this business model, servicers act primarily as payment collectors and processors, and provide minimal customer serv ice to ensure profitability. Servicers also have an incentive to look for opportunities to impose fees on bo rrowers 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 betwee n 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, whic h, 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 recoveryof expenses. Moreover, the foreclosure process itself generates significant income for servicers.”), availabl e at http://www.nclc.org/images/pdf/pr-reports/reportservicers-modify.pdf.15 These attributes of the servicing market creat ed 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 prac tices, and improper foreclosure and bankruptcy practices. 14 When the mortgage crisis erupted, many serv icers were ill-equippe d to handle the high volumes of delinquent mortgages, loan modification requests, and foreclosures they were required to process. These servicers lacked th e infrastructure, traine d staff, controls, and procedures needed to manage effectively the flo od of delinquent mortgages they were forced to handle. Consumer harm has manifested in many di fferent areas. Major se rvicers 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 th at failed to comply with applicable law, (2) failed to devote sufficient financial, staffing and managerial resources to proper administration of foreclosures processes, (3) fa iled to devote to its foreclosur e processes ade quate oversight, internal controls, policies and procedures, comp liance 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 outs ide 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 fo reclosure related documentation. 17 Servicers have also misled, or failed to co mmunicate with, borrowers, lost or mishandled borrower-provided documents supporting loan m odification requests, and generally provided inadequate service to delinquent borrowers. These problems became pervasive in broad segments of the mortgage servicing i ndustry 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 ba sed 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 m odification, and a higher likelihood of inaction by a servicer. 19 Specifically, “liquidation and modifica tion of securitized first mortgages are 60% [to] 70% less likely respectivel y 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 h ttp://www.occ.treas.gov/news-issua nces/news-releases/2011/nrocc-2011-47.html. In addition to eight servicers, the O CC 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: Fu rther 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 bo th 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 thes e 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 servicer s provide high levels of custom er service because they rely on providing other products and services to consumers and thus have an intere st in preserving their reputations and relationships with their consumers. For example, as discussed further below, small servicers that the Bureau consulted as pa rt of a process required under SBREFA described their businesses as requiring a “high touch” mode l of customer service both to ensure loan performance and maintain a strong re putation in their local communities. 21 B. Mortgage Servicing Consumer Protecti on Regulation Before the Recent Crisis Prior to the adoption of the Dodd-Frank Act, the mortgage servicing industry was subject to limited Federal consumer fina ncial 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 re quired disclosures at application concerning whether the lender intended to se rvice the mortgage loan and di sclosures upon an actual transfer of servicing rights. 22 RESPA further imposed substantiv e 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 request s 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 Bo ard 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 ob ligations under other Federal laws , including, for example, the Servicemembers Civil Relief Act. 25 Although TILA and RESPA did not impose ma ny requirements on servicers, servicers were still required to navi gate overlapping requirements governing their servicing responsibilities. In addition to Federal law, se rvicers were required to consider the impact of State and even local regulation on mortgage serv icing. Servicers also had to comply with investor requirements to the extent they servi ced 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 (G SEs), as well as servicing guidelines required by the Government National Mortgage Association (Ginnie Mae); (2) government insured program guidelines issued by the Federa l Housing Administration (FHA), Department of Veterans Affairs (VA), and the Rural Housing Serv ice; (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 a nd subservicing contract s); and (4) bank or institution policies. All those requirements remain in effect today and going forward.
C. The National Mortgage Settleme nt and Other Regulatory Actions In response to the unprecedented mortgage cr isis and pervasive pr oblems in mortgage servicing, including the systemic violation of State foreclosur e laws by many of the largest servicers, State and Federal regulators have enga ged 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 Fe deral agencies including the Bureau, entered into a National Mortgage Se ttlement (National Mortgage Settlement) with the nation’s five largest se rvicers in February 2012. 27 The National Mortgage Settlement applies to loans held in portfolio and serviced by the five largest se rvicers. Loans owned by GSEs, private investors, or smaller servic ers 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 servicer s 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 oversigh t; (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 Am erica, JP Morgan Chase, Wells Fargo, CitiMortgage, and Ally/GMAC. 28 See http://www.nationalmortgagesettlement.com/.20 In addition to the settlement, other Federal regulatory agenci es 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 th rough regulations and guidance. The Bureau’s proposed rules under Regulation Z and X represent another important step towards establishing uniform minimum national st andards. When adopted in final form, the Bureau’s rules will apply to all mortgage se rvicers, 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 impl ementing the specific mortgage servicing requirements of the Dodd-Frank Act and on addr essing broader systemic problems that the Bureau believes are critical to ensure that the mortgage serv icing 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 Mortga ge 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 Representativ es (Jan. 20, 2012), available at http://www.fhfa.gov/webfiles/ 23056/PrincipalForgivenessltr12312.pdf; Guidance, Home Affordable Modification Program, available at: https://www.hmp admin.com/portal/programs/guidance.jsp. FHFA, Frequently Asked Questions—Servici ng Alignment Initiative, available at: http://www.fhfa.gov/webfiles/2 1191/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 Reserv e Board, Press Release (May 24, 2012), available at: http://www.federalreserve.gov/newsev ents/press/enforcement/20120524a.htm ; Federal Reserve Board, Press Release (Feb. 27, 2012), available at: http://www.federalreserve.gov/newsev ents/press/enforcement/20120227a.htm; Office of the Comptroller of the Currency, News Release 2011-47 (Apr. 13, 2011), av ailable at: http://www.occ.gov/news-issuances/newsreleases/2011/nr-occ-2011-47.html

.21 and bankruptcy information and documentation, (4) lo ss 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 settle ment standards into rules or guidance, either alone or in conjunction with other Fede ral regulatory agencies; certain requests for comment in this propo sal reflect these considerations. The Bureau is also continuing ongoing discussions with other regulators to ensu re 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 protectio ns for homeowners in the servicing of their loans. The Act requires new disclosure s, specifically periodic statements (unless coupon books are provided in certain circumstances), not ices prior to the rese t 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 th eir obligations and avoi d unnecessary problems. The Dodd-Frank Act also imposes new requireme nts on servicers to respond in a timely way to borrowers who assert that th eir 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 rela ting to the prompt crediting of payments, so that consumers are not wrongly penalized with la te 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 standard s 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 alte rnatives to foreclosure. For example, servicers have frequently neglected to reach out or respond to such borrowers to discuss alternatives to foreclos ure, lost or misplaced the documents of borrowers who have sought modifications or ot her relief, failed to keep track of borrower communications, and forced borrowers who have invested s ubstantial time communicating with an employee of the servicer to repeat the process with a different employee. 32 To address these concerns, the Bureau is propos ing 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, facilita ting oversight of, and compliance by, service providers, and facilitating servicing transfers. Second, servicers would ha ve to intervene early with delinquent borrowers to provide them w ith information about, and encourage them to explore, available alternatives to foreclosure. Third, servicers would have to provide delinquent borrowers with a point of cont act 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, includi ng 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 time ly manner, that borrowers are notified of the results, and that borrowers have a right to a ppeal the denial of a lo an modification option. Servicers would also be require d to provide borrowers who su bmit incomplete loss mitigation applications with timely notice a bout 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 require ments 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 informati on. First, the statute pr ohibits 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 ch arge 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 notic es to the borrower, at least 30 days apart. The notices must remind borrowers of their obligation to main tain hazard insurance on the property, alert24 borrowers to the servicer’s lack of evidence of insurance coverage, tell borrowers what they must do to demonstrate that they have coverage, and st ate that the servicer may obtain coverage at the borrower’s expense if the borrower fails to provi de evidence of coverage. Servicers must terminate force-placed insurance coverage a nd refund to borrowers any premiums charged during any period when the borrower had private in surance 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 federall y 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 paymen ts, final balances for purposes of paying off the loan, avoiding foreclosure, or othe r standard servicer duties. Finally, the statue requires a servicer of a federally relate d mortgage to respond within ten business days to a request from a borrower to provide the identity, addr ess, and other relevant contact information about the owne r or assignee of the loan. The statue also reduces the amount of time that servicers of federally related mort gages 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 servi cer of a federally related mortgage must “comply with any other obligation found by th e 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 prot ection purposes of this Act.” 34 This provision gives the Bureau broad authority to ad opt additional regulations to govern the conduct of servicers of federally related mortgage loan s. In light of the systemic problems in the mortgage servicing industry, th e Bureau is proposing to exerci se this authority to require servicers of federally related mortgages to: establish reasonable information management policies and procedures; undert ake early interventi on 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 th e 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 ad justs 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-Fr ank 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 mo rtgage loan to transmit to the borrower, for each billing cycle, a periodic statemen t that sets forth certain specified information in a conspicuous and prominent manner. The st atute also gives the Bu reau 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 fo r 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 Regul ation Z requirements for the pr ompt crediting of mortgage payments received by servicers in connection with consumer credit transactions secured by a consumer’s dwelling. The statute also requires a cr editor 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 outreac h in developing the mortgage servicing proposals. Bureau staff met with mortgage serv icers, force-placed insurance carriers, industry trade associations, consumer advocates, other Fede ral regulatory agencies , and other interested parties to discuss various aspects of th e statute and the se rvicing industry. In preparing this proposed rule, the Bureau so licited input from sma ll servicers through a Small Business Review Panel (Small Business Re view Panel) with the Chief Counsel for Advocacy of the Small Business Administration (S BA) 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 r ecommendations 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 (1 996) (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 Bu siness Review Panel Report). 36 The Bureau also engaged in other meetings and roundtables with a variety of other stakeholders to gather factual information abou t 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 th e 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 mort gage servicing, the Bure au will continue to seek input from all interested parties. In addition, the Bureau engaged ICF Macro (Mac ro), a research and consulting firm that specializes in designing disclosures and cons umer 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 deve lop and test disclosures that would satisfy the requirements of the Dodd-Frank Act and prov ide information to cons umers in a manner that would be understandable and useful. These disc losures related to the ARM notices, the forceplaced insurance notices, and th e periodic statements. Macro conducted three rounds of one-onone cognitive interviews with a total of 31 participants in th e Baltimore, Maryland metro area (Towson, Maryland), Memphis, Tennessee, and Los Angeles, California. Participants were all consumers who held a mortgage loan and repres ented 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 in terest rate adjustment notices for the new disclosures required by Dodd-Frank Act secti on 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 we ll 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 re quirements 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 sect ions 4(a) of RESPA and 105(b) of TILA, as amended by Dodd-Frank Act sections 1098 and 1100A, resp ectively. 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 proc ess of developing a proposal to implement provisions of the Dodd-Frank Act requiring certain creditors and mortgage loan originators to meet duty of care qua lifications and prohibiting mortgage loan originators, creditors, and the affiliates of both from receiving compensation in various forms (including based on the terms of the tr ansaction) and from s ources other than the consumer, with specified exceptions, pursuan t 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 developi ng a proposal to implement Dodd-Frank Act requirements concerning appraisals for highe r-risk mortgages, appraisal management companies, and automated valuation mode ls, 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 addi tion, 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 cr editors provide applicants with a free copy of written appraisals and valuations deve loped in connection with applications for

39 Id30 loans secured by a first lienon 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 cred itors to determine that a consumer can repay a mortgage loan and establishing standards for compliance, such as by making a “qualified mortgage,” purs uant 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 fi nalizing a proposal issued by the Board to implement provisions of the Dodd-Frank Act requiring certain escrow account disclosures and exempting from the higher-p riced mortgage loan escrow requirement loans made by certain small creditors, among ot her provisions, pursuant to TILA section 129D as established by Dodd-Frank Act sect ions 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 refere nced 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, co ordinated, 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 Bu reau receives comments with sufficient time remaining to issue final rules by January 21, 2013. Because the precise da te this notice will be31 published cannot be predicted in a dvance, setting the deadlines base d 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. Accord ingly, 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, ea ch of them may include other provisions the Bureau considers necessary or appropriate to ensure that the overall undertaking is acco mplished efficiently and that it ultimately yields a regul atory scheme for mortgage cred it that achieves the statutory purposes set forth by Congress, while a voiding unnecessary burdens on industry. Thus, many of the rulemakings listed above i nvolve 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 a pproach to certain issu es 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. Ac cordingly, 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 comp rehensive and informed public comment on the Bureau’s several proposals, including provisions th at may have some relation to more than one rulemaking but are being proposed for comment in only one of them.
D. Small Servicers32 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 approachto providing consumer information, resolving errors and working with delinquent borrowers to find alternatives to foreclosure. Nevertheless, they indicate d that some elements of the proposals under consideration were not consistent with their current business practices and expressed concern about the need to begin provi ding 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 burde ns of complying with the period ic 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 we ll as other contextual factors. The Bureau does not believe that these provisions, described more fully in the section-by-section analys is of the applicable proposal, would impair consumer protection. The Bureau is also seekin g 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 th e appropriate effective date for each of the servicing-related rules contained in this proposal and the 2012 TI LA Servicing Proposed Rule. As discussed above, the Dodd-Frank Act se rvicing requirements take effect automatically on January 21, 2013, unless final rules ar e 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 implemen tation period is left to the discretion of the
Bureau. Given the significant consumer benefits offe red 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 se rvicers 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 Bure au therefore seeks detailed comment on the nature and length of implementation process for e ach individual servicing rule and in light of interactions between the rules. The Bureau is particularly inte rested in analyzing the impacts on both consumers and servicers of a staggered im plementation sequence as compared to imposing a single date by which all rules must be implemented. The Bureau also notes that some companie s 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 mort gage origination than there is between the servicing proposals and the origination proposals. However, the Bu reau 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 en tities that are subject to both sets of rules will complicate implementation. Finally, the Bureau seeks comment on any pa rticular implementati on challenges faced by small servicers, and on whether an extended im plementation 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 eff ective date would provide significant relief if the vendors will have to develop software soluti ons 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 numb er of significant revisions to Regulation X. As a preliminary matter, the Bureau proposes to re organize Regulation X to include three distinct subparts. Subpart A (General) would include general provisions of Regulation X, including provisions that apply to both s ubpart B and subpart C. Subpart B (Mortgage settlement and escrow accounts) would include provisions relati ng to settlement services and escrow accounts, including disclosures provided to borrowers relating to sett lement services. Subpart C (Mortgage servicing) would include provisions relating to obligati ons 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-relate d 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 with in the proposed subpart C as proposed §§ 1024.33-1024.34. The35 Bureau also proposes to move cer tain clarifications in these pr ovisions that were previously published in 12 CFR 1024.21 to the commentary to conform the organizati on 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 informati on. The requirements would be set forth in proposed §§ 1024.35-1024.36. As proposed, these secti ons would require servicers to respond to errors and information requests from borrowers, wh ich would include qualif ied written requests. The Bureau’s goal is to conform and consolidat e the pre-existing proce dures applicable to qualified written requests with the new requirements imposed by the Dodd-Frank Act to respond to errors and information requests under sec tion 6(k)(1)(C) and 6(k)(1)(D) of RESPA. The Bureau proposes to create a unified require ment for servicers to respond to errors and information requests provided by borrowers, withoutregard 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 adjust ing the timeframes applicable to respond to qualified written requests, as well as errors and information request s 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” mechanis m 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 pro cesses, including requirements applicable to “qualified written requests.” Although a borrow er would still be able to submit a “qualified written request,” under the proposed rule, a “qualified written request” would be subj ect to the same error resolution or information request requirements applicable to any other type written error noti ce or information request to a servicer and a servicer’s liability for failure to respond to a qualified written reques t would be the same as for any other written error or information request notice.36 borrowers at certain timeframes before a serv icer could impose a charge on a borrower. See proposed § 1024.37. Further, the proposed rule w ould require that charges related to forceplaced insurance, other than char ges subject to State regulation as the business of insurance or authorized by Federal flood laws must be bona fi de and reasonable. Finally, and as set forth in more detail below, the proposed rule would al so reduce the instances in which force-placed insurance would be needed by amending curren t § 1024.17 to require that where a borrower has escrowed for hazard insurance, servicers mu st generally advance funds to maintain the borrowers’ own hazard insu rance 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 wh en 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: reas onable information management policies and procedures, early intervention for delinquent bo rrowers, 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 indust ry and the difficulties that borrowers, particularly deli nquent borrowers, have encountered when dealing with servicers. The early intervention for delinquent borrower pr ovisions 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 borro wers direct phone access to personnel who could assist borrowers in pursuing loss mitigation options. The reasonable information management policies and procedures would requi re servicers to implement policies and procedures to manage37 documents and information to achieve defined obj ectives that ensure borrowers are not harmed by servicers’ information management operations . These objectives include providing accurate information to borrowers, correcting errors on bo rrower accounts, providing oversight of service providers, protecting borrowers from lost inform ation during servicing tr ansfers, and ensuring that servicers have access to all information n ecessary to evaluate loss mitigation options, as appropriate. The information management policie s 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 woul d 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 th at receives a complete application for a loss mitigation option may not proceed with a foreclosur e 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 withthe terms of a loss mitigation agreement. The proposed new protections would significan tly improve the transparency of mortgage servicing operations, provide substantive prot ections, enhance borrowers ’ ability to obtain information from and assert erro rs to servicers, and provide bo rrowers, 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-Fra nk Act creates statutory manda tes under new sections 6(k),38 6(l) and 6(m) of RESPA. S ection 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 forc e-placed insurance unless there is a reasonable basis to believe the borrower has failed to co mply with the loan cont ract’s requirements to maintain property insurance; (ii) charging fees for responding to valid quali fied 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 fr om 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 insuranc e coverage. Section 6( l) of RESPA requires servicers to provide written noti ces to a borrower before a charge for a force-placed insurance policy may be imposed on the borrower. Section 6(l) of RESPA also re quires a servicer to accept any reasonable form of written confirma tion from a borrower of existing insurance coverage. Section 6(l) of RESPA further require s a servicer, within 15 da ys of the receipt of such confirmation, to terminate force-placed in surance 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 charge s 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 RESP A. Section 6(e) is amended by decreasing the response times currently applicable to a serv icer’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, sectio n 6(g) is amended to protect borrowers by obligating servicers to refund escrow ba lances 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 a ppropriate to carry out the consumer protection purposes of the title. RESPA is a remedial c onsumer protection statute and imposes obligations upon servicers for servicing federally related mo rtgage loans that are intended to protect borrowers. RESPA has established a consumer pr otection paradigm of requiring disclosures to consumers, and establishing servic er 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 amo ng mortgage servicers, and force-placed insurance. Obligations limiti ng 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 purpo ses: (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 rule making address these purposes. RESPA section40 19(a) authorizes the Bureau to pr escribe such rules and regulations , to make such interpretations, and to grant such reasonable exemptions for cl asses 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) author izes the Bureau to establish any requirements necessary to carry ou t the purposes of section 6 of RESPA. The Bureau uses the specific statutory author ities 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 deta il 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) in clude: §§ 1024.17(k)(5), 1024.30 – 1024.41. 44 The Bureau’s proposal also in cludes official Bureau interp retations in a supplement to Regulation X. RESPA section 19(a) authorizes the Bureauto make such reasonable interpretations of RESPA as may be necessary to achieve the consumer protection purposes of RESPA. Good faith compliance with the interpreta tions would afford servicers protection from liability under section 19 (b) of RESPA. The Bureau’s propose d practice of setting forth official Bureau interpretations in the supplement subs titutes 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 secti on-by-section analysis for proposed § 1024.37, the Bureau is proposing disclosures and model forms for for ce-placed insurance no tices 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 interp retations 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 fi nancial product or service, both initially and over the term of the product or se rvice, 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 disclo sure of the “features” of consumer financial products and services generally. Accordingl y, 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 evid ence about consumer awareness, understanding of, and responses to disclosures or communicatio ns about the risks, co sts, 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 pro posal, the Bureau has considered available studies, reports, and other evid ence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and be nefits of consumer financial products or services. The Bureau has consider ed the evidence developed through its consumer testing of the force-plac ed insurance notices. In addition, Dodd-Frank Act s ection 1032(b)(1) provides that “any final rule prescribed by the Bureau under this [section 1032] requiring disclosures may in clude a model form that may be used at the option of the covered person for provision of the required di sclosures.” 12 U.S.C.42 5532(b)(1). Any model form i ssued pursuant to that author ity 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 sect ion-by-section analysis for proposed § 1024.37, the Bureau is proposing model forms for force-placed in surance notices. As discussed in this notice, the Bureau is proposing these model forms pur suant 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 subp arts within Regulation X. Subpart A titled “General” would include gene ral provisions as well as provi sions that are applicable to both subpart B and subpart C of Regulation X. Subpart B titled “Mor tgage 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 provision s 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 se ts forth definitions that are applicable to transactions covered by this regu lation, including the definition of federally related mortgage43 loan that is referenced in the proposed definiti on 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 fo r “Federally related mort gage loan” in light of the definition of the term “m ortgage loan” in proposed § 1024.31. Conforming edits have also been proposed for the definitions of “Origina tion service,” “Servicer,” and “Servicing.” Conforming edits have also been propos ed for current §§ 1024.7(f)(3), 1024.17(c)(8), 1024.17(f)(2)(ii), 1024.17(f)(4 )(iii), 1024.17(i)(2), a nd 1024.17(i)(4)(iii). The deletion to the definition of “Mortg age 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 fo r 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 correspo ndents 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 re quest 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 Administrati on (NCUA) as conservator or li quidating agent of a servicer or in its role of providing special assistance to an insure d credit union. The definition of

46 See 75 FR 20718.44 “Servicer” currently provides that the Federa l Deposit Insurance Corpor ation (FDIC) is not a servicer (1) with respect to assets acquired, assi gned, sold, or transferre d 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 assign ment, 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 whic h the servicer is owned or controlled). The addition to the definition of “ser vicer” clarifies similarly that the NCUA is not a servicer (1) with respect to assets acquired, assigned, sold, or tr ansferred, pursuant to s ection 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 se rvicing of the mortgage loan is preceded by commencement of proceedings by the NCUA fo r appointment of a conservator or liquidating agent of a servicer (or an entity by which the serv icer is owned or controll ed). The definition of “servicer” also has been edited to clarify that it relates to servicer s 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 su ch 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 uni on or in its role as conservator or liquidating agent of an insured credit union, th e 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 c onservator or receiver of an insure d 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 pr ocess for the public to submit questions or suggestions regarding RESPA or to receive copi es 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 do cuments, 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, Wash ington, DC 20552 or by email to CFPB_RESPAInquiries@cfpb.gov. Further, th e Bureau has proposed including contact information to request copies of Public Gu idance 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 perm its electronic disclosures to consumers if certain conditions are met, appl y 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 relati ng 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 st aff interpretations but th at such interpretations do not provide protection under section 19(b) of RE SPA and that staff will not ordinarily provide46 such interpretations on matters adequately covere d by Regulation X, offici al interpretations or commentaries. The Bureau’s policy is to as sist the public in understanding the Bureau’s regulations, including, but not lim ited to, Regulation X. The Bureaubelieves that this provision, which states Bureau policy, is more appropria te for the commentary and, accordingly, proposes to include the substance of this provision in the intr oduction to the commentary. Current § 1024.5 sets forth exemptions with re spect to the applicabil ity of Regulation X. The Bureau proposes to make a technical corr ection to current § 1024.5(b)(7) to reflect that mortgage servicing related provisions of Regulat ion 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 provis ion of Regulation X, or its applic ation to any particular person or circumstance is held invalid, the remainder of Regulation X or the appli cation 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 th e 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 se verable 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 Bure au’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 provisi ons of Regulation X re lating to settlement services and escrow accounts w ithin 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 serv icer must follow when making payments from a borrower’s escrow account. The Bureau propos es to add a new § 1024.17(k)(5) to Regulation X to address circumstances in which servicers ar e required to make payments from a borrower’s escrow account to continue a borrower’s hazard in surance policy. The Bureau has reviewed a number of issues concerning force-placed insura nce in order to implement the new Dodd-Frank Act requirements on force-placed insurance discusse d 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 paymen t 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 serv icer to pay the hazard insurance premium of such borro wer unless the borrower’s hazard insurance has been canceled or not renewed for reasons other than nonpaym ent 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 f unds 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) withrespect 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 fr om 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 propos al 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 servic er 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 be lieve 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 borrowe r’s hazard insurance being canceled or not renewed for reasons other than the nonpayment of pr emium charges, to the extent permitted by State or other applicable la w. Proposed comment 17(k)(5)-2.i describes a situation in which the borrower can cels 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 haza rd insurance before its expira tion date or chooses not to renew the insurance because it decides to st op writing insurance for all properties in the49 community where the borrower’s property is located. Proposed comment 17(k)(5)-2.iii describes a situation in which the insurance company can cels or chooses not to renew the borrower’s hazard insurance based on its underwriting cr iteria, which may include, for example, a borrower’s claim history, a change in the occupa ncy status of the propert y, 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 adva nces 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 appropriat e to require servicer s to continue paying for a borrower’s existing hazard insurance whenpracticable if the borrower has an escrow account established to pay for hazar d insurance. As discussed in greater detail in the discussion of the Bureau’s proposed definition of “for ce-placed insurance” in proposed § 1024.37(a)(1), a servicer is already contractually required to ob tain alternative hazard in surance to protect the interest that the owner or assign ee of a mortgage loan has in th e 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 ingreater detail in the Bureau’s proposed definition of force-placed insu rance, servicer’s purchase of force-placed insurance under certain circumstan ces could harm borrowers. The Bureau also believes that the approach the Bureau is proposing would be ge nerally 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-pla ced 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 lo an 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 unders tands that servicer s currently advance hazard insurance premiums for a borrower with an escrow account es tablished to pay for hazard insurance even if they are not required by Regulati on X to do so. The Bureau notes that when it solicited input from small servicers through the Small Business Re view 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 ex pressed 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 servic er to make an unbiased decision on when to buy [force-placed insu rance],” and hence, national servicing standards should be established to requ ire 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 re commended 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 a dvancing a borrower’s hazard insurance premium payment, the Bureau’s proposal would not prohib it a servicer from seeking such reimbursement. The Bureau, however, invites comment on an alternative to the re quirement in proposed § 1024.17(k)(5) that servicers must advance f unds 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 servic er 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 reas ons other than nonpayment of premiums. As discussed above, the Bureau unde rstands that for a borrower w ho 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 can celed or not renewed fo r reasons other than nonpayment of premium charges. In other words, the Bureau recognizes that there could be situations where it would not be practicable fo r a servicer to continue paying for a borrower’s existing hazard insurance even though the borro wer has escrowed for hazard insurance because the borrower’s hazard insurance has been cance led or not renewed for reasons other than

51 See Small Business Review Panel Report at 22.52 nonpayment of premium charges. Accordingl y, as discussed above, proposed § 1024.17(k)(5) clarifies that a servicer ’s obligation to make payments fr om a borrower’s escrow account in a timely manner to pay the premium charge on a bo rrower’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 paymen ts. The Bureau notes that for such servicer, the servicer is subject to proposed § 1024.37’s cons umer protections with respect to servicer’s purchase of force-placed insurance. The Bureau believes that “reasonable basis” rather than actual knowledge s hould be the standard for determining whether the servicer is required to make timely payments. The Bureauunderstands that notices of cancellation or nonrenewal vary in the level of de tail. Hence a servicer may not be able to determine why a borrower’s hazard insurance was canceled or no t renewed based on information provided in a notice of cancellation or non-renewal. Additiona lly, the Bureau notes that the new Dodd-Frank requirements, discussed below, onl y require a servicer to have a “reasonable basis” to believe a borrower has failed to maintain hazard insura nce pursuant to the terms of the borrower’s mortgage loan contract before the servic er 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. Proposed53 comment 17(k)(5)-2, discussed above, contains th ree examples of a borrower’s hazard insurance being canceled or not renewed for reasons othe r 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 c onsumer protection paradigm of establishing servicer obligations intended to protect consumers re garding 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 hazar d insurance, when practicable , is more protective of the borrower’s interest than providing servicers w ith 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 Bur eau has additional authority pursuant to section 6(j)(3) of RESPA to establish any requirements necessary to ca rry 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 reas onable exemptions for classes of transactions, as may be necessary to achieve the cons umer 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 haza rd insurance premium, the Bureau additionally relies on its authority under RE SPA section 6(g). RESPA secti on 6(g) provides that when a borrower is required by the terms of a federally re lated mortgage loan to pay into an escrow account to assure payment of taxes, insurance pr emiums, and other charge s with respect to the54 property, the borrower’s servicer must make tim ely 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 circum stances, 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 fr om 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 insu rance 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 protecti ons 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 cons umer 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 es tablished an escrow account to pay for other items but not for hazard insurance premiums, the Bureau is proposing to set fort h that hazard insurance obtained by a borrower but renewed at the service r’s discretion is not fo rce-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, th e GSEs, and regulators on whether it is practicable to require servicers to pay insura nce premiums for borrowers who have not escrowed for hazard insurance. Consum er advocates have urged the Bureau to require55 servicers to advance funds to pay in surance premiums for such borrowers. 52 But servicers have testified that requiring servicers to pay insu rance premiums for bo rrowers 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 homeown er’s existing policy [for borrowers who have escrowed for hazard insurance], unless the bo rrower or insurance company cancels the existing policy.” 54 On the other hand, Fannie Mae has revised it s 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 pr operty 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 pr emium, the servicer must advance its own funds to pay the past-due premium and re instate the borrower insurance coverage, revoke the waiver and begin escrow depos it collections to pay further premiums. 55 With respect to a borrower who has not es crowed for hazard insurance, the National Mortgage Settlement only requires a servicer to disclose in the no tices 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 consen t. 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.ncl c.org/images/pdf/regulatory_refo rm/ib-force-placed -insurance.pdf. 53 See 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.co m/sf/guides/ssg/annltrs/pdf/2012/svc1204.pdf. Fannie Mae originally required that servicers im plement 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.co m/sf/guides/ssg/annltrs/pdf/2012/ntce052312.pdf.56 to obtain insurance if a borrower fails to mainta in insurance coverage re quired by Freddie Mac. Freddie Mac does not require the servicer to advance funds to maintain a borrower’s hazard insurance coverage. The guidelines state, “[i f] the borrower does not or cannot obtain such coverage, then the servicer must do so. The se rvicer 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 borrowe r who has not escrowed for hazard insurance with respect to paying the borrower’s hazard insurance prem ium 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 re quire servicers to pa y the hazard insurance premiums of borrowers who have not escrowed fo r 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 year s 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 stat ements to borrowers. The Bureau believes that, in light of th is 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 propose d 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 mo rtgage 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 po licies and procedures that include a standard requirement to retain records that document act ions 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 tran sferred by the servicer to a transferee servicer. Such documents include thos e 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 re garding a borrower’s escrow account. Moreover, the Bureau has authority to supervise mortga ge 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 § 1 024.17(l) should be removed from Regulation X. Subpart C—Mortgage Servicing Currently, section 6 of RESPA sets forth prot ections 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 (Oct ober 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 regard ing misdirected paymen ts during a servicing transfer. See RESPA section 6(d). Section 6 of RESPA also curre ntly requires a servicer to respond to qualified written requests asserting errors or reque sting information regarding the servicing of a mortgage loan and sets forth obligations on servicers regard ing 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 fede rally related mortgage loans. Section 6(k) of RESPA prohibits servicers from: (i) obtaining for ce-placed insurance unless there is a reasonable basis to believe the borrower has failed to co mply with the loan cont ract’s requirements to maintain property insurance; (ii) charging fees for responding to valid quali fied 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 fr om 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 ch arge 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 (i ii) within 15 days of the receipt of such confirmation, to terminate force-placed insuranc e 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 charge s 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 obliga tion to respond to qualified writ ten requests and a servicer’s administration of an escrow account. Furthe r, section 1463 of the Dodd-Frank Act amended section 6(f) of RESPA to increa se the dollar amounts of damage s 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 pr ovisions 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 RE SPA, applies to a “mortgage serv icing loan” as that term is defined in current § 1024.21(a). The term “mortg age 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. Th e term “mortgage servicing loan” does not include60 subordinate-lien loans or open-end lines of cr edit (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 “m ortgage 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 serv icing loan,” the term “mortgage loan” would include subordinate-lien closed-end mortgage loan s. 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 fi rst 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 ne w servicer obligations with respect to subordinate-lien closed-end mort gage loans under Regulation X. The Bureau believes that borrowers of subordi nate lien closed-end mortgage loans should be entitled to the protections that w ould be set forth in subpart C. The use of subordinate-lien closed-end mort gage loans grew subs tantially during the housing boom. Subordinate-lien closed-end mort gage loans were commonly originated as “piggyback loans”—that is, a subordinate-lien mort gage loan originated concurrently with a first-lien mortgage loan to finance a home pur chase in excess of an 80% loan-to-value ratio. 58 By taking “piggyback loans,” a borrower could a void 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, s ubordinate-lien closed-end mort gage loans were used as “piggyback loans” for 22% of one-to-four fam ily owner-occupied home purchases, with higher percentages reported in high-cost housing areas. 59 Because borrowers with simultaneouslyoriginated subordinate-lien clos ed-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 firs t-lien and subordinate-lien loans are owned by separate entities or serviced by separate servicers. There are no unique characteristics of subordi nate-lien closed-end mortgage loans that should require servicers to treat a borrower of such a mortgage lo an differently than a first-lien mortgage loan borrower with re spect to protections for mortga ge servicing transfers, error resolution, information requests, force-placed insurance, reasonable information management policies and procedures, early inte rvention 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 ha s not identified any countervai ling reasons why borrowers of subordinate-lien closed-end mortga ge loans should not benefit from the protections afforded by the provisions of proposed subpart C. Howe ver, 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 lo ans should be included within the scope of proposed subpart C. The Bureau proposes to maintain the exclus ion for open-end lines of credit (home-equity plans) covered by TILA and Regulation Z, includ ing open-end lines of cr edit secured by a first lien, from the servicer requirements of Regulatio n X. Home equity lin es of credit (HELOCs) tend to reflect better credit quality than subordi nate-lien closed-end mortgage loans and share risk characteristics more similar to other open- end consumer financial pr oducts, such as credit cards, because of the access to additi onal unutilized credit provided by a HELOC. 61 The Bureau understands from discussions withservicers and industry represen tatives that th e servicing of HELOCs tends to differ significantly from closed -end mortgage loans, in cluding with respect to information systems used, lender remedies (including restricting access to the line of credit), and borrower behavior. Further, the Bureau unde rstands that although a household may finance a property solely with an open-e nd line of credit, the proportion that do so is very small. 62 Open-end lines of credit have been historica lly excluded from regulations applicable to mortgage servicing under Regulation X. See current § 1024.21(a) (defin ing “mortgage servicing loan”). Further, open-end lines of credit are already regulated under Regulation Z. Certain provisions of Regulation Z would duplicate the serv icer obligations that would be set forth in subpart C, including, for example, b illing error resolution procedures. See 12 CFR 1026.13. In addition, the protections proposed in Regul ation X may not necessa rily be appropriate for open-end lines of credit. A borrower is in c ontrol 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 ma intain 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 requirem ents set forth for early intervention with delinquent borrowers, continuity of contact, a nd loss mitigation procedures on servicers for open-end lines of credit. Further, open-end li nes of credit tend to differ from closed-end mortgage loans with respect to servicing information systems util ized and servicer processes, such that information management policies and procedures may be better targeted toward different objectives for open-end lines of cred it 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 fo rce-placed insurance on behalf of open-end lines of credit because such lines of credit are typica lly secured by a subordinate lien. Accordingly, the Bureau believes that exempting open-end li nes of credit (home-equ ity plans) from the Bureau’s proposed force-placed insu rance regulations is appropriate. Although the Bureau believes that maintaini ng 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 cr edit (home-equity plans) should be excluded from any of the provisions of proposed subpart C. The Bureau proposes to interpret the app lication of the servic er obligations and

63 Id. at 11.64 prohibitions in section 6 of RE SPA pursuant to its authority in section 19(a) of RESPA to prescribe such rules and regulati ons, 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 furt her relies on its authority in section 6(j)(3) of RESPA to set forth requirements necessary to carry out sec tion 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 th e following terms: consumer reporting agency, day, hazard insurance, loss mitigati on application, loss mitigation options, master servicer, mortgage loan, qualifie d written request, reverse mortga ge transaction, subservicer, service provider, transferee servic er, and transferor servicer. Consumer reporting agency. The Bureau proposes to define the term “consumer reporting agency” to have the same meaning set fo rth 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 re levant 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, an d Sundays).” Because Congress excluded legal public holidays, Saturdays, and Sundays in ce rtain circumstances, the Bureau believes that Congress intended the term “day” by itself to in clude these days, and therefore, believes a definition of “day” as a calendar day reflects Congress’s intent.65 The Dodd-Frank Act, however, amended sect ion 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 otherwis e appear in section 6 of RESPA. 64 Rather, section 6 of RESPA uses the terms “day” and “day (excl uding legal public holid ays, 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 te rm “day” within section 6 of RESPA and RESPA generally. The Bureau believes thata 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 eas ing compliance burden associated with different understandings of the meaning of the term “day.” The Bureau relies on its authority in secti on 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 securi ng a mortgage loan that protec ts the property against losses caused by fire, wind, flood, earthquake, theft, fall ing objects, freezing, and other similar hazards for which the owner or assignee of such loan re quires 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 RESP A section 6(k)-(m). Accordingly, the Bureau proposes to define “hazard insurance” pursuant to its authority under se ction 6(j)(3) of RESPA, which authorizes the Bureau to establish any requ irements necessary to ca rry 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 re lies 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 protec tion purposes of RESPA, and section 19(a) of RESPA gives the Bureau the authority to prescrib e 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 disc ussion 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 D odd-Frank Act section 1463 does not define “hazard insurance,” it provides that a se rvicer of a federally related mortgage must not obtain “forceplaced hazard insurance unless ther e is a reasonable basis to belie ve 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 cont ract, 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 borrowe rs are required to have homeowner’s insurance in place as a condition of obtai ning a mortgage loan. Homeowne r’s insurance policies typically insure mortgaged properties against loss caused by all hazards other th an those specifically excluded by the policies. The Bu reau 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 separa te insurance policies that protect the property against loss caused by hazards specifically exclud ed from coverage by homeowner’s insurance policies. The Bureau understands that losses caused by earthquake or flood hazards, and in many coastal areas, losses cause d by wind, are typically excluded. 66 Insurance written to cover loss caused by specifically-excluded hazards is typi cally narrowly written to protect a mortgaged property against loss caused by a single, specifica lly-excluded hazard. A single hazard insurance policy, such as a hazard insurance policy to pr otect 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 whet her a definition of “hazard insurance” that specifically excludes hazard insura nce 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:\\w ww.naic.org/documents/consum er_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 premiu ms; 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 proposedsubpart 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 borrowe r requesting evaluation for a loss mitigation option, as that term is defined in proposed § 1024.31, in accordance with procedur es established by the servicer for the submission of such requests. Th e Bureau has set forth a separate definition of loss mitigation application to i ndicate that a loss mitigation app lication 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 a nd that a servicer may undertak e reasonable procedures to determine if a purported representati ve 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 fo reclosure.” Proposed comment 31(loss mitigation options)-1 clarifies that loss mitigation options include temporary and long-term relief, and options that allow borrowe rs to remain in or leave their homes, such as, without limitation, refinancing, trial or permanen t 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 sponsor ed by a State or the Federal Government. Proposed comment 31(loss mitigation options)-2 clar ifies 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 m itigation 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 aw are of all of their options. T hus, the proposed definition sets forth examples of loss mitigation options “without limitation.” The Bureau has not defined each of the examples of loss mitigati on options to account for alternativ es that may vary depending on69 the underlying loan documents, any se rvicer obligations to the lender or assign ee 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 m itigation option will be available to each individual borrower. Thus, the Bureau has lim ited 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 “lo ss 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 discu ssed above on proposed § 1024.30, the term “mortgage loan” would not ex clude subordinate-lien closed-end mortgage loans but would maintain the exclusion for open-e nd 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 de finition 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 s ubordinate-lien closed-end mortga ge loans under Regulation X. The Bureau proposes to interpret the app lication of the servic er obligations and prohibitions in section 6 of RESP A pursuant to its authority in section 19(a) to prescribe such rules and regulations, to make su ch interpretations, and to grants such reasonable exemptions for classes of transactions as may be necessary to achieve the consumer protection purposes of70 RESPA. Reverse mortgage transaction. The Bureau proposes to a dd a definition for the term “reverse mortgage transaction.” A “reverse mortgage transaction” would have the same definition used in Regulation Z, which implemen ts 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 serv icing 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, Satu rdays, 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-RES PA Proposal would be reverse mortgage transactions . Accordingly, the Bureau pr oposes to apply the current requirements of § 1024.21(b)-(c) only to reve rse mortgage trans actions, 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 m eans any party retained by a serv icer that interacts with a borrower or provides a service to a servicer fo r 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 pr ovide appraisals or property inspections.71 Definitions of master servicer, qualified wri tten request, subservicer, transferee servicer, and transferor servicer. Currently, definitions of the terms “master servicer,” “subservicer,” “transferee servicer,” and “trans feror servicer,” are set forth in § 1024.21(a). The proposed rule would include the definitions of these terms cu rrently 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 corr espondence 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 rela ting to the servicing of the mortgage loan sought by the borrower. The definition further states th at 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 se rvicing of a mortgage lo an is transferred or a mortgage loan is paid in full, whichever date is applicable. All of the el ements of this definition are currently set forth in § 1024.21(e)(2) and th e 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 reque st)-1 clarifies that a qualifie d written request may request information without asserting an er ror with respect to th e servicing of a mort gage 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 RE SPA 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 erro r resolution and information72 request processes, including “qualified writt en 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 in formation request requireme nts applicable to any other form of written notice of error or informati on 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 “qua lified 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 propos ed § 1024.32(a)(1) would require th at disclosures provided by servicers be clear and conspicuous, in writing, an d in a form the consumer may keep. This standard is consistent with disc losure 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 provi ded 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, includi ng 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 provi sion is appropriate to enab le servicers to integrate disclosures required by subpart C with requi rements imposed by other federal regulatory agencies, including through the Nati onal Mortgage Settlement, and w ith 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 n ecessary to achieve the consumer protection purposes of RESPA. Section 1024.33 Mortgage Servicing Transfers Proposed § 1023.33 implements the mortgage se rvicing transfer disclosure requirements in section 6(a)-(d) of RESPA. The mortgage se rvicing 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 commentar y 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 th e 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 servic ing that must be provided to applicants within three days (excluding lega l public holidays, Saturd ays, and Sundays) of application. If the 2012 TILA-R ESPA 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 loan s that currently receive mortgage servicing transfer disclosures that w ould not receive the disclosure through the new integrated TILA/RESPA disclosure form would be cl osed-end reverse mortgage transactions. 68

68 Currently, mortgage servicing transfer disclosure s 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-RESPA74 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 implemen t through commentary a clar ification relating to providing a servicing disclosure statement for co-applicants. Regulation X currently provides that if co-applicants provide the same addre ss 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 serv icing disclosure statement shoul d be provided to each of the co-applicants. The Bureau believes this requirem ent is unduly burdensome, especially in light of the reduced scope of the serv icing disclosure statement to closed-end reverse mortgage transactions. The Bureau proposes instead to re quire that if co-appli cants provide different addresses, a servicing disclosure statement need only be provided to the primary applicant. This requirement is consistent with disclosure requir ements 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 borro wer-occupied residences. The servicer of a closed-end reverse mortgage transaction is no t responsible for making on-going payments to reverse mortgage borrowers, and borrowers of cl osed-end reverse mortgage transactions do not have on-going mortgage loan payment obligations during the life of th e 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 borrowe rs with different addre sses receive a separate mortgage servicing disclosure statement will re move 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 notic es 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 reta in the requirement to provide toll-free telephone numbers). The Bureau believes the collect-c all telephone number requirement is obsolete. The Bu reau also proposes to remove th e requirement currently set forth in § 1024.21(d)(3)(vii) for a statement of the borro wer’s rights in conn ection with complaint resolution. The expanded error resolution and information request requirements set forth in proposed §§ 1024.35-1024.36 provide tools for borro wers 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 th e 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 beli eve that the timing for providing a servicing transfer disc losure 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 propos ed § 1024.33(c) with the requirements in proposed § 1024.39 by clarifying that a borrower’s account may be c onsidered late for purposes of contacting the borrower for ear ly intervention, but may not be considered late for any other purpose, including imposing late fees. The Bureau proposes to add a requirem ent in proposed § 1024.33(c)(2) that, in connection with a servici ng transfer, a transferor servicer shall promptly either transfer a payment it has received incorrectly to the tran sferee servicer for application to a borrower’s mortgage loan account or returnthe payment to the person th at made the payment to the transferor servicer. The Bureau understands th at many servicers already transfer misdirected payments to the appropriate servicer in conn ection 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 implem ent requirements on the timing and method by which payments are retu rned 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. Pr oposed comment 33(b)(3)-2 clarifies that a notice of transfer should be delivered to the mailing addr ess listed by the borrower in the mortgage loan documents, unless the borrower has notified the servicer of a new a ddress pursuant to the servicer’s requirements for receiv ing a notice of a change of a ddress. 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 chan ge of mailing address, the lender is required to send the Good By e 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 be st served by reducing the content of the form so that borrowers receive a form that clearly sets fo rth the required content re garding the transfer of servicing and the address to which the next payment should be sent. The Bureau proposes to exerci se 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 n ecessary to achieve the consumer protection purposes of RESPA. Section 1024.34 Timely Pa yments 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 implem ent the Dodd-Frank Act amendm ent 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. Se ction 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 oblig ation and document creating the lien. For loans originated by a mortgage broker that closes a fede rally related mortgage loan in its own name in a table funding transaction, the lend er is the person to whom the obl igation 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 mo rtgage 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 es crow 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” cons istent with secondary market practices. Accordingly, for purposes of section 6(g), the Bur eau believes that a servi cer should be able to credit an escrow account for a prior mortgage lo an to a new mortgage loan where the lender for the new mortgage loan is (i) the same as the lender for the prior mo rtgage loan, (ii) the same as the current owner or assignee of th e 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 escr ow account for a new mortgage loan if the lender for the new mortgage loan is the owner or assignee of the prior mort gage 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 allowan ce 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 mo rtgage loan, the credit should occur as of the settlement of the new mortgage loan. Proposed comment 34(b)(2)-1 clarifies that a se rvicer is not required to credit an escrow79 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 circumst ances, to return funds in an escrow account to the borrower pursuant to proposed § 1024.34(a). The Bureau requests comments regarding wh ether 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 requirement s to implement section 6(g) of RESPA pursuant to its authority in section 6(j)(3) of RE SPA to set forth requirements necessary to carry out section 6 of RESPA. The Bureau further reli es on its authority in se ction 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 resoluti on requirements that servicers would be required to follow for a notice of error from a borro wer. In general, this proposal provides an opportunity to clarify servicer ob ligations to correct errors and respond to information requests to provide certainty to borrowers re garding their rights and to servic ers regarding their obligations. Currently, section 6(e) of RESPA requires se rvicers to respond to “qualified written requests.” Qualified written request s must be in writing and must re late 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 a80 qualified written request. 70 The Dodd-Frank Act adds another layer ofcomplexity. Section 1463(a) of the DoddFrank Act amends RESPA to add s ection 6(k)(1)(C), which states th at 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 forecl osure, or other standard servicer’s duties.” Further, section 1463(a) of the Dodd-Frank Act am ends RESPA to add section 6(k)(1)(D) which states that a servicer shall not fail to provide information rega rding 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 re quest 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 de fine a servicer’s obligation to correct errors or respond to information reque sts. To that end, the Bureau proposes §§ 1024.35 (Error resolution procedur es) and 1024.36 (Requests for informa tion) 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 th e 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 writte n request provisions obsolete. Any valid qualified written reques t 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 implem enting 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 erro rs relating to allocation of payments, final balances for purposes of paying off the loan, avoi ding foreclosure, or other standard servicer’s duties, and to fail to comply with any other ob ligation found by the Bureau to be appropriate to carry out the consumer prot ection purposes of RESPA. 35(a) Notice of Error Proposed § 1024.35(a) states that a notice of er ror 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 s ection 1463(a) of the Dodd-Frank Act, refers generically to servicers’ failures to respond to requests of borrowe rs to correct certain errors. However, unlike section 6(e) of RESPA, which contains the statutory language regarding qualified written requests, sect ion 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 bo rrower to make a notice of error either orally or in writing. The Bureau believe s this approach is warranted because, based on its discussions with consumers, cons umer advocates, servicers, and industry trade associations, it appears that the vast majority of borrower compla ints are generated orally instead of in writing. A requirement that a notice of error must be inwriting 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 Bu reau believes it is important for consumers to receive the benefit of required corr ection or investigation from servicers of orally asserted errors. Servicers and servicer represen tatives stated that allowing a no tice of error to be provided orally would create new burdens for servicers regarding track ing the notices of error and monitoring that a borrower receive s written acknowledgements and re sponses. In addition, small entity representatives with whom the Sma ll 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 borrowe rs provided error notices in writing. 72 The Small Business Review Panel also recommended that th e Bureau consider adopting a more flexible process for tracking errors and demonstrating co mpliance that could be used by small servicers. 73 The Bureau recognizes the burdens on servic ers 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 appropri ate 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 flexibilit y in the manner in which small servicers comply with the error reso lution requirements. The Bureau further believes that elements of the proposed rule assist in mitigating burden for all servicers. These elements include, for ex ample, a limitation on the types of errors that servicers would be required to reso lve to a finite list, as well as a proposal to allow servicers to designate a specific telephone number for receiving oral notic es of error. The Bureau believes the error resolution (as well as the information management) requirement provides appropriate flexibility fo r 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 th e Small Business Review Panel Report. 74 The Bureau solicits comments regarding whet her servicers should be required to apply the error resolution requirements to notices of er ror received orally. The Bureau further solicits comments regarding whether small servicers (as th at 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 requi re a servicer to treat notices of error, whether oral or written, the sa me 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 ch arge a fee for responding to a notice of error, a servicer must acknowledge receipt of a notice of error within fi ve days (excluding legal public

74 See Small Business Review Panel Report at 29.84 holidays, Saturdays, and Sundays) and must re spond to the notice of error within 30 days (excluding legal public holidays, Saturdays, and Sundays). Moreover, a servicer’s potential liability for failure to re spond to a notice of error is the same as the po tential liability for failure to respond to a qualified written request. T hus, under proposed § 1024.35( a), there is no reason for a borrower to send a qualified wr itten request as opposed to an or al or written notice of error nor is there a reason for a servi cer 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, in cluding, 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 th at a notice of error submitted by a person acting on behalf of the borrower is consider ed 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 re quest” or “notice of erro r”) 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 requirem ents. Further, to the extent the requirements are also applicable to qualified written requests, th e Bureau relies on its aut hority 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 a nd 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 erro rs). 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 en sure that servicer resources can be dedicated to responding to erro rs that are capable of correction, to the benefit of a borrower. For example, the Bureau considered whether to de fine 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 attemp t 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 crea te burden and impose costs on servicers without offering concomitant benefit for borrowers. The Bureau further considered the impact of the proposed error reso lution requirements if86 the types of covered errors were not limited. The proposal expa nds servicer’s obligations to respond to error notices and information request s 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 respon d 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 servicer s 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 dispr oportionate 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 th e enumerated list of errors. In general, the SERs commented favorably on the Bureau’s proposal to incl ude a finite list of errors. The SERs indicated that if the Bureau we re 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) wh ether the list of cove red errors should not be finite and should include a catch-all provision for other type s of errors not set forth in the rule. Covered errors. Paragraph 35(b) defines the types of covered errors for which the error87 resolution procedures apply. As di scussed below, the proposed rule se ts 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 “rel ating to allocation of payments, final balances for purposes of paying o ff the loan, or avoiding foreclosure, or other standard servicer’s duties.” See RESPA section 6(k)(1)(C). Proposed comment 35(b)-1 clarifie s 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 rela ting to the originatio n 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 mo rtgage loan other than the transfer of information for a borrower’s mort gage 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 comme nt regarding whether any errors that may fall within the examples of excl uded errors should instead be included as covered errors. Paragraph 35(b)(1) Proposed paragraph 35(b)(1) includes as a co vered error a servicer’s failure to accept a payment that conforms to the servicer’s wri tten requirements for the borrower to follow in making payments. Section 6(k)(1)(C) of RESPA prohibits a serv icer from failing to take timely action to respond to a borrower’s request to correct errors relating to the allocat ion of payments for a88 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 app lication 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 fort h in section 6(e) of RESPA and current § 1024.21(e) of Regulation X. The Bureau further believes that proper acc eptance of borrower payments is a standard servicer duty as set forth in section 6(k)(1)(C) of RE SPA. Section 6(k)(1)(C) of RESPA states that a servicer shall not fail to take timely action to res pond to a borrower’s request to correct errors relating three specific categories as well as those relating to “oth er standard servicer duties.” The Bureau believes that standard servicer duties are thos e typically undertaken by servicers in the ordinary course of business. Su ch duties include not only the obligations that are specifically identified in section 6(k)(1)(C), but also those duties that ar e 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 “servici ng” 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 borro wers regarding mortgage loan problems, to report data on loan performance to investors a nd guarantors, and to wo rk with investors and borrowers on options to mitigate losses for defa ulted 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 dutie s to reflect the plain language connotation that such duties are89 those typically performed by servicers in the normal course of business. As set forth above, the Bureau is pro posing § 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 sec tion 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 interp retations 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 se rvicer’s failure to apply an accepted payment to the amounts due fo r principal, interest, escrow, or other items pursuant to the terms of the mort gage loan and applicable law. Section 6(k)(1)(C) of RESPA prohibits a serv icer from failing to take timely action to respond to a borrower’s request to correct errors relating to the allocat ion of payments for a borrower’s account. Paragraph 35(b)(2) implemen ts 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 se ction 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 e rror a servicer’s failure to credit a payment90 to a borrower’s mortgage loan accoun t 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 manda tes that servicers shall not fail to cr edit a payment to a consumer’s loan account as of the date of r eceipt, except when a delay in crediting does not result in any charge to the consumer, or in th e 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 wr itten requirements, but nonetheless are accepted by the servicer, in which case the servicer shall cred it 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 serv icer from failing to take timely action to respond to a borrower’s request to correct errors relating to the allocat ion of payments for a borrower’s account. Paragraph 35(b)(3) implemen ts this prohibition. A failure to credit a payment will necessarily have implications for th e correct application of borrower payments. A servicer’s failure to properly credit a paymen t 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 credi ting of borrower payments is, by definition,91 “servicing,” as that term is defi ned in section 6(i)(3) of RESPA a nd, 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 aut hority 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 se ction 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 ta xes, insurance premiums (including flood insurance), or other charges, including charges that the borrower and serv icer have voluntarily agreed that the servicer shoul d collect and pay, as required by current § 1024.17(k), or to refund an escrow account balance in a timely manner as requi red by proposed § 1024.34(b). In the normal course of business, servicers typically engage in co llecting payments from borrowers to fund escrow accounts and disbur se payments from escrow accounts to pay borrower obligations for taxes, insurance premiums, and other ch arges. Servicers typically undertake this obligation on behalf of investors because a borr ower’s maintenance of an escrow account reduces risk for investor s 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 insurance92 coverage that present risk for i nvestors 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 pur suant to section 10 of RESPA. The Bureau further obser ves that proper disbursement of escrow funds is, by definition, “servicing,” as that term is de fined in section 6(i)(3) of RESP A and, therefore, is currently subject to the qualified written re quest procedure set fo rth 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 fort h requirements necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of RESPA to se t 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 consum er 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 th at are not in a delinquen cy status that would justify the charge, charges for services from se rvice providers that we re not actually rendered with respect to a borrower’s mortgage loan account, and charges for force-placed insurance93 where a servicer lacks a reasonable basis to impo se the charge on the borrower as set forth in proposed § 1024.37. Improper fees harm both mortgage loan borro wers 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 cu rrent. Further, imprope r fees reduce recovery values available to investors from for eclosures or loss mitigation activities. Servicers that operate in good faith in th e normal course of business refrain from imposing charges on borrowers that the servicer do es not have a reasonable basis to impose and correct errors relating to those f ees 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 se t 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 consum er protection purposes of RESPA. Paragraph 35(b)(6) Proposed paragraph 35(b)(6) incl udes as an error a servicer ’s failure to provide an accurate payoff balance to a borrower upon reque st 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 borro wer repays a mortgage loan and servicers94 routinely provide payoff statements for borrowers to refinance or pay in full mortgage loan obligations. However, consumer advocates have indicated servic ers have failed, or refused, to provide payoff statements to cert ain 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 impedi ng a borrower’s ability to pay a mortgage loan obligation in full. Servicers already have an obligation to co mply with the timing requirements of section 129G of TILA with respect to any mortgage lo an 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 servi cer’s failure to correct errors relating to final balances for purposes of paying off the loan, a se rvicer should be required to comply with the requirements within a reasonable time frame. Becau se 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 believ e that requiring servicers to co rrect 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 sec tion 6(k)(1)(C) of RESP A with respect to a servicer’s obligation to correct errors relati ng to final balance for purposes of paying of a mortgage loan. The Bureau also relies on its aut hority 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 Hearin g 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 se ction 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) includ es as an error a servicer’s failure to provide accurate information to a borrower with respect to loss m itigation 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 lo an, 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 genera lly believe a failure to provide a required disclosure to a borrower should constitute an error requiring comp liance with the error re solution 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 provid ed information to the borrower. By correcting this error and providing the borrower with accura te information regarding loss mitigation options that may be available to the borrower, a servic er 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 bo rrower’s mortgage loan.96 Proposed paragraph 35(b)(7) implements s ection 6(k)(1)(C) of the Dodd-Frank Act. Specifically, proposed paragraph 35(b)(7) implements a servicer’s obligati on to correct errors relating to avoiding foreclosure. Further, the Bureau believ es that the National Mortgage Settlement, servicer participa tion in Home Affordable Modifi cation Program (HAMP) sponsored by the U.S. Department of the Treasury (Treasur y) and HUD, and service participation in other loss mitigation programs required by Fannie Mae a nd Freddie Mac demonstrate that servicers typically provide borrowers with information regarding loss mitigation options and foreclosure and that providing such information to bo rrowers 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 se ction 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 bor rower’s mortgage loan account to a transferee servicer. In the normal course of business, servicers t ypically anticipate that they will be required to transfer servicing for some mortgage loans th ey service. Owners or assignees of mortgage loans typically have rights to tran sfer servicing for a mortgage loan pursuant to the requirements set forth in mortgage servici ng agreements. Servicers are re quired to develop capacity for transferring information to transf eree servicers in order to comp ly with such obligations to97 owners or assignees of mortgage loans. Furthe r, servicers are required to develop capacity to onboard data for transferred mortgage loans on to the servicer’s se rvicing platform. Borrowers may be harmed, however, if info rmation that is tran sferred to transferee servicers is not accurate or curren t. In certain circumstances, su ch failure may cause errors to occur relating to allocating paym ents, calculating final balances for purposes of paying off a mortgage loan, or avoi ding foreclosure. Pursuant to proposed § 1024.38(a), servicers would be required to have policies and procedures to achieve the obj ectives set forth in proposed § 1024.38(b), which includes an objective of facilitating servici ng transfers. An objective of the servicer’s policies and procedures would be to timely transfer all info rmation and documents re lating 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 cont ractual 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 lo an account to a transferee servicer, a borrower will have a remedy to ensure that a transferor se rvicer will update the information transferred to provide information to a transf eree 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 serv icer’s obligation to take timely action to correct errors relating to typica l servicer duties pursuant to se ction 6(k)(1)(C) of RESPA. The Bureau also relies on its authority in secti on 6(j)(3) of RESPA to set forth requirements98 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 m itigation options to borro wers in the ordinary course of business would be prohibited from pro ceeding 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 optio n (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 consid er whether to include as an error a servicer’s evaluation of a borrower for a loss mitigation option. The Bu reau observes that the manner in which a borrower is evaluated for a loss mitigation optio n 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 (d emonstrating 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 borro wer for a loan modification program. The Bureau requests comment regarding whet her to include as an error a servicer’s failure to correctly evaluate a borrower for a lo ss 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 servic er should be required to comply with the servicer’s own standards, st andards promulgated by major in vestors and guarantors, and standards promulgated in connection with Federa l- or State-sponsored loss mitigation options. Proposed paragraph 35(b)(9) implements s ection 6(k)(1)(C) of the Dodd-Frank Act. Specifically, proposed paragraph 35(b)(9) implements a servicer’s obligati on 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 ca rry 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 choose s to establish a separate telephone number and address for receiving errors, a servic er must provide the borrower a written notice that states that the borrower may assert an erro r at the telephone number and address established by the servicer for that purpose. Proposed comme nt 35(c)-2 would clarify that the written notice to the borrower may be set forth in another written notice provide d 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 servic ers to direct oral a nd written errors to ap propriate personnel that have been trained to ensure that the servicer responds appropriately. At larger servicers with other consumer financial servi ce affiliates, many personnel simply do not typically deal with mortgage servicing-related issues. For inst ance, 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 establishe s a telephone number and address that a borrower must use, a servicer w ould 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, howe ver, that if a servicer has not designated a telephone number and address that a borrower must use to assert an error, th en a servicer will be required to comply with the erro r resolution requirements for any notice of error received by any office of the servicer. The Bureau believes it is reasonable, especi ally in light of th e expanded burden of requiring compliance with error reso lution for oral notices of error, to allow servicers to manage the intake of notices of error to designated tele phone numbers and addresses. Further, allowing a servicer to designate a specifi c telephone number and address is consistent with current requirements of Regulation X with respect to qua lified 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 be lieves that identifying a specific telephone number and address for receiving erro rs 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 addr essing errors identified by consumers. The101 Bureau is proposing in the concurrent 2012 TI LA Servicing Proposal to require that any telephone number or address identi fied 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 fo r receiving notices of error for receiving information requests pursuant to proposed § 1024.36(b), and vice versa. The Bureau believes that if servicers designate se parate telephone numbers and addr esses for notices of error and information requests, borrower attempts to provid e notices of error and information requests to servicers could be impeded. Further, proposed comment 35(c)-3 clarif ies 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 clar ifies that a servicer may not determine that a notice of error is invalid if it was received at any telephone number or ad dress 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 co mment 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 er rors 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 es tablish a process for receiving notices of error through email, website, or other online methods. If a servicer establishes a proce ss for receiving notices of error through online methods, comment 35(c)-4 is intended to clarify that the pro cess established is the only online intake process that a borrower can use to assert an erro r. Thus, a servicer would not102 be required to provide a written notice to a borro wer in order to gain th e benefit of the online process being considered the ex clusive online process for receiving notices of error. Proposed comment 35(c)-4 further clarifies that a service r’s decision to accept notic es 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 requirem ents. Further, to the extent the requirements are also applicable to qualified wr itten 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 a nd 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 servic er to provide a borrower a written acknowledgement of a notice of error within five days (exc luding 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 ame nded 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 wr itten request to any notice of error. The Bureau relies on its authority in sect ion 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 au thority pursuant to section 6(j)(3) of RESPA to103 establish any requirements necessary to carry out section 6 of RESPA and has authority under section 19(a) of RESPA to prescr ibe such rules and regul ations and to make such interpretations as may be necessary to achieve the c onsumer protection purposes of RESPA. 35(e) Response to Notice of Error Proposed § 1024.35(e) would set forth requ irements on servicer s for responding to notices of error. 35(e)(1) Investigation a nd Response Requirements Proposed paragraph 35(e)(1) woul d require a servicer to corr ect an error within 30 days unless the servicer concludes after a reasonable investigatio n that no error occurred. Notices to borrower. If a servicer corrects the error identified by the borrower, it must provide the borrower with writte n notification that indicates th at the error was corrected, the effective date of the correction, and a telephon e number the borrower can use to get further information. If a servicer determines that no error o ccurred, it is required to have conducted a reasonable investigation and to provide the borro wer 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 ca n provide further assistance. A servicer would also be required to inform the borrower in th e notice that the borrower may request documents relied on by the servicer in re aching its determination and how the borrower can request such documents. Borrower right to request documents. Proposed § 1024.35(e)(4) w ould require that if a servicer determines no error occurred, the servic er is required to include a statement in its response that the borrower can request documents relied upon by the servicer. A servicer must104 provide the documents within 15 days of the serv icer’s receipt of the bor rower’s request. The Bureau believes that this requi rement strikes an appropriate ba lance that does not subject the servicer to undue paperwork burden while assu ring that the borrower can access the underlying documentation if necessary. Further, in certa in cases, a borrower may determine that the servicer’s response resolves anissue and that reviewing docum ents 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 se rvicer need only provi de documents actually relied upon by the servicer to de termine 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 s hould provide print-outs reflecti ng 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 th at no error has occurre d. Proposed paragraph 35(e)(1)(i) would not require a se rvicer who determines that an error has occurred, and corrects the error, to provide documents to a borrower that were the basi s for that determination or to provide a statement in the notice to the borro wer 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 in formation 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 cl arifies that if a notice of error asserts multiple errors, a servicer may respond to those errors thr ough a single or separate written responses that address the alleged errors. The Bu reau believes that the pu rpose of the rule, which105 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, a nd send a notice regarding the correction of that error, while an investigation is in process regard ing another error that is the subject of the same notice of error. Further, a servicer’s obliga tion to provide a borrower with documents relied upon by the servicer only rela tes to any asserted errors that the servicer determines are not errors. A servicer is not required to provide documents with respect to any othe r 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 inves tigation, determines that a different or additional error has occurred, a servicer is required to correc t that different or additional error and provide a borrower a written notice about th e error, the correctiv e action taken, the eff ective date of the corrective action, and contact information for furthe r assistance. Because the servicer would be correcting an error, a servicer would not be required to pr ovide documents to the borrower regarding the error id entified 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 requirem ents. Further, to the extent the requirements are also applicable to qualified written requests, th e Bureau relies on its aut hority 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 a nd regulations and to make such interpretations as may be necessary to achieve the consumer protection purposes of RESPA. 35(e)(2) Requesting docume ntation from borrower106 Proposed § 1024.35(e)(2) states that a servicer could request thata borrower provide documentation if needed to inves tigate an error but may not require the borrower to provide such documentation as a condition of inve stigating 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 a llow servicers to obtain informati on 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 th e 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 e rror, with two exceptions: errors relating to accurate payoff balances and errors relating to fa ilure to suspend a scheduled foreclosure sale where a borrower has submitted a complete application for a loss mitigation option. Shortened time limit to correct erro rs relating to payoff balances. Pursuant to proposed paragraph 35(e)(3)(i)(A), if a borrower submits a notice of error asserti ng 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 noti ce of error not later than five days (excluding legal public holidays, Saturdays, and Sundays) after the borrower notif ies the borrower of th e alleged error. The Bureau believes that a 30-day deadline for res ponding to this type of notice of error does not provide adequate protection for a borrower because th e servicer’s failure to correct the error will prevent a borrower from pursuing options that pr otect the borrower, including, for example, a refinancing transaction. Based on discussions with servicers, the Bureau believes that a five day107 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 auth ority in sections 6(k)(1 )(C) and 6(k)(1)(E) with respect to error resolution requirements to ma ndate 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 es tablish any requirements necessary to carry out section 6 of RESPA and has au thority 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 achiev e the consumer protection purposes of RESPA. The Bureau requests comment regarding wh ether 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 certai n errors relating to foreclosure. Pursuant to proposed paragraph 35(e)(3)(i)(B), if a borrowe r submits a notice of er ror asserting that a servicer has failed to suspend a scheduled foreclosure sale, a se rvicer would be required to investigate and respond to the not ice 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.108 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, befo re the end of the 30-da y period set forth in proposed § 1024.35(e)(3)(i)(C), the se rvicer notifies the borrowe r 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 extens ions 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 pr oposed § 1024.35(e)(3)(ii) w ould implement this provision. The Bureau proposes not to apply the extension allowance of proposed § 1024.35(e)(3)(ii) to investigate a nd respond to errors relating to payoff statement or to a servicer’s failure to suspend a scheduled forecl osure 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 pr ovide 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 wr itten requests, as well as its au thority 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 serv icer’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 protection109 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. Firs t, a servicer th at 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 requir ed. Second, a servicer that receives a notice of error for failure to suspend a scheduled foreclos ure sale, pursuant to paragraph 35(b)(9), seven days or less before a scheduled fo reclosure, 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 al ternative compliance methods for two reasons. First, feedback from servicers, and especially small serv icers, indicates that the majority of errors are addressed promptly after a borrower’s communica tion and generally within five days. SERs communicated to the Small Business Review Pa nel that small servicers have a high-touch customer service model, which made it very eas y 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 redu ce unnecessary burden of an ac knowledgement on servicers, and especially small servicers, that are able to corr ect borrower errors withinfive days consistent with the Small Business Review Panel recommenda tion 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 re quirements are appropr iate when servicers receive a notice of error that may impact a schedule d foreclosure scale less than five days before a scheduled foreclosure sale. Only notices of errors identified in pr oposed paragraph 35(b)(9) implicate this concern. Numerous entities, incl uding other federal agencies and SERs during the Small Business Review Panel outreach, expressed concern about borrower us e of error resolution requirements as a procedural tool to impede proper forecl osures and promote litigation. 79 The Bureau believes that reducing the procedural re quirements 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 resoluti on procedures may be used in unwarranted litigation. 80 Further, the Bureau understands the timi ng 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 sect ion 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 au thority 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 prescr ibe such rules and regul ations 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 c onsumer protection purposes of RESPA. The Bureau requests comment regarding wh ether 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 e rror resolution requirements of proposed § 1024.35 would not apply to certain types of noti ces 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 identifie d in proposed § 1024.35(g)(1). 35(g)(1) In General Proposed paragraph 35(g)(1) would state that a servicer is no t required to comply with the requirements of § 1024.35(d) and (e) if the serv icer 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 requir ements 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 serv icer has previously complied w ith its obligation to respond to the notice of error pursuant to § 1024.35(e)(1), unless the borro wer provides new and material information. New and material information means information that was not reviewed by the servicer in connection with investigating the pr ior notice of error and is reasonably likely to112 change a servicer’s determination with respect to the existence of an error. The Bureau believes that both elements of this requirement are importa nt. 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-ope n 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 becau se 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 duplica tive investigations of notices of error unless there is a reasonable basis for re-opening a prior investigati on 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 in formation and, consequently, does not require a servicer to re-open a prior, resolved investigation of a no tice 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 requir ements 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 erro r is overbroad if a se rvicer cannot reasonably determine from the notice of erro r the specific covered error that a borrower asserts has occurred on a borrower’s account. A notice of error is undul y burdensome if a dilige nt servicer could not respond to the notice of error without either exce eding the maximum timeframe permitted by113 paragraph (e)(3)(ii) or incurring costs (or dedicating resources) that would be unreasonably in light of the circumstances. Consumers, consumer advocates, servicers, a nd servicing industry representatives have indicated to the Bureau that the current qualified written request pr ocess is not typically utilized by consumers to resolve errors. Rather, the proc ess is more frequently used strategically to obtain documents and a servicer’s responses to cl aims as a preliminary form of civil litigation discovery. During the Small Business Review Pa nel outreach, SERs expr essed 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 writte n requests are unreasonable and unduly burdensome. SERs in the Small Busine ss 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 concer ned that, in light of the expa nded 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 overbro ad or unduly burdensome may harm consumer and frustrate servicers’ ab ility 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 applic able 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.114 borrowers may cause servicers to expend fewer re sources to address othe r errors that may be more clearly stated and more cl early require servicer attention. Further, the Bureau does not believe that the error resolution procedures are the appropriate fo rum for borrowers to prosecute wide-ranging complaints against mortgage servicers that are mo re appropriate for resolution through litigation. Proposed paragraph 35(g)(1)(ii) provides that if a servicer determin es that a notice of error is overbroad or unduly bur densome, the servicer is requ ired to notify the borrower, pursuant to proposed § 1024.35(g)(2), th at it is not required to comp ly with the requirements of proposed § 1024.35(d) and (e). Further, the noti ce must state that th e notice of error was overbroad or unduly burdensome, but does not need to state the specif ic basis for such a determination. Proposed comment 35( g)(1)(ii)-1 sets forth characteri stics that may indicate if a notice of error is overbroad or unduly burdensome. If a servicer can iden tify a proper assertion of a covered error in a notice of error that is otherwise ove rbroad or unduly burdensome, a servicer would be required to respond to the covered erro r submissions it can identify. The Bureau requests comment regarding whet her a servicer should not be required to undertake the error resolu tion 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 overbro ad or unduly burdensome notices of error and on the appropriate indicia for identifying notices of error th at should be subjec t 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 requ irements 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 the115 mortgage loan that is the subj ect of the notice of error was tr ansferred 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 erro rs for a mortgage loan. The purpose of the proposed paragraph is to ac hieve the same goal that currently exists in Regulation X with respect to qua lified written requests. Specif ically, 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 servici ng 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 informi ng 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 determinati on 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 Bur eau also believes borrowe rs should know the basis for the servicer’s determination. By providi ng borrowers with notice of the basis for the servicer’s determination, a borro wer will know the servicer’s basi s and will have the opportunity to bring a legal action to challe nge that determination where a ppropriate. The Bureau requests comment regarding the requirement that servic ers provide a notice to the borrower and the116 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 requ irements in proposed § 1024.35(g). Further, to the extent the requirements are al so 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 RE SPA 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 exem ptions for classes of transactions as may be necessary to achiev e 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 ow ed 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, secti on 1463(a) of the Dodd-Frank Act a dded section 6(k)(1)(B) to RESPA, which prohibits a servicer from charging fees fo r responding to valid qualifi ed written requests. Proposed § 1024.35(h) would implement that provision with respect to qualified written requests. Second, the Bureau believes that a servicer’s pr actice of charging for responding to a notice of error impedes borrowers from pursuing valid noti ces 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 in formation requested by a borrower. The Bureau believes that a servicer should be required to correct errors notwith standing the payment status of a borrower’s account. The Bureau relies on its authority in sect ion 6(k)(1)(B), (C), and (E) of RESPA to117 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 ca rry out section 6 of RESPA and has authority under section 19(a) of RESPA to pres cribe such rules and regulations, to make such interpretations, and to grant such reasonable exem ptions for classes of transactions as may be necessary to achieve the consum er 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 no tice of error to any consumer reporting agency for 60 days after receipt of a not ice of error. RESPA section 6(e) sets forth this prohibition on servicers w ith respect to a qualified written request that asserts an error. Proposed § 1024.35(i)(1) would implem ent 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 reso lved 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 addi tional information provided to the borrower. The Bureau relies on its authority in secti on 6(e)(3), 6(k)(1)(C), and 6(k)(1)(E) of RESPA to implement the adverse information requirement s 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 th at a service r’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 correc tion 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 sche duled foreclosure sale in the ci rcumstances described in proposed § 1024.41(g). Failure to suspend a potential fore closure sale during su ch 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 sect ion 17 of RESPA. The Bureau observes that the requirements of pr oposed § 1024.41 would not impede a lender’s or servicer’s ability to pu rsue a foreclosure action, or mainta in a scheduled foreclosure sale. Rather, the requirements in proposed § 1024.41 establ ish 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. Furt her, 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 evaluate119 the borrower for a loss mitigation option before the date of a scheduled foreclosure sale, a servicer may comply with the requirement s 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 requ irements. 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 Bu reau further has authority pursuant to section 6(j)(3) of RESPA to establish any requirements necessary to ca rry out section 6 of RESPA and has authority under section 19(a) of RESPA to pres cribe such rules and regulations, to make such interpretations, and to grant such reasonable exem ptions for classes of transactions as may be necessary to achieve the consum er protection purposes of RESPA. Section 1024.36 Requests for Information Proposed § 1024.36 contains requirements serv icers 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 carryout the consumer prot ection purposes of RESPA pursuant to section 6(k)(1)(E) of RESPA. 36(a) Information Requests Proposed § 1024.36(a) would requi re a servicer to comply with the requirements of proposed § 1024.36 for an information request fro m a borrower that includes the borrowers name, enables the servicer to identify the borro wer’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 ma ke an information request either orally or120 in writing. Based on the Bureau’s discussions with consumers, consumer advocates, servicers, and industry trade associations, it appears that the vastmajority of borrowers orally request information from servicers. As is the case for not ices of error, a requirement that an information request must be in writing generally serves as a barrier that unduly re stricts the ability of borrower to have errors resolved. Further, as with notices of error, servicers and servicer representatives stated that allowing an informa tion request to be provide d orally would create new burdens for servicers. The Bureau recogniz es the burdens on servicers to ensure compliance with this proposed rule and in corporates the discussion above w ith respect to oral notices of error. Responding to oral information requests w ill impose costs on servicers to ensure that such requests receive responses, but the Bureau believe s it is important for consumers to receive the benefit of a requirement that servicers pr ovide 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 exam ple, a proposal to allo w servicers to designate a specific telephone number for receiving oral information requests and an alternative compliance provision that allows a servicer to pr ovide information orally if the information is provided within five days of the borrower’s requ est. The Bureau has learned from discussions with servicers, including the SERs in the Sm all Business Review Panel outreach, that most information requests are responded to by servicer s 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 informati on requests orally significantly re duces burden associated with the proposed information request requirements on serv icers. Further, the Bureau believes that this requirement provides flexibility for small se rvicers 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 whet her 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 fromthe 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 wr itten request that requests information. The Bureau’s intention is to propose se rvicer obligations appl icable 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 se nd a qualified written re quest nor is there a reason for a servicer to reject a qualified wr itten request because it does not meet the requirements for a qualified written request in se ction 6(e) of RESPA wh en 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 substantia lly similar as the current requirement existing under section 6(e)(1)(A) of RESPA for a qualified written re quest. Specifically, section 6(e)(1)(A) of RESPA states that a qualified wr itten 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 info rmation request procedures. In general, any information requested by a borrower is subj ect to the information requestrequirements in proposed § 1024.36 unless such information is subject to propos ed § 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 ow ner 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 part y is the owner or assignee of a mortgage loan for different forms of mortgage loan ownership. These include s ituations when a mortgage loan is held in portfolio by an affiliate of a servi cer, when a mortgage loan is owned by a trust in connection with a private label securitization transaction, and when a mort gage loan is held in connection with a GSE or Ginnie Mae guarantee d 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 in terest in a borrower’s mortgage loan other than the owner or assignee of the mortgage loan. Servicers generally have not expressed concer ns to the Bureau regarding the obligation to provide borrowers with the type of information su bject to the information request requirements. Specifically, in the Small Business Review Panel out reach, 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 SE Rs stated that servicer s 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 bo rrowers, and that a typical servi cer 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 guaranto rs of mortgage loans, including other federal agencies, have expressed similar concerns to the Bureau. The Bureau understands the concerns a sserted by servicers, owners, assignees, guarantors, and other federal agen cies that requiring servicers to provide this information to borrowers may confuse borrowers and lead to atte mpts 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 a ssignee of a mortgage loanwas added as section 6(k)(1)(D) of RESPA by the Dodd-Fr ank Act and is not a discretiona ry exercise of the Bureau’s authority. The Dodd-Frank Act clearly requires that information re garding the owne r or assignee of a mortgage loan must be provided to borro wers. 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 Bu reau further has authority pursuant to section 6(k)(1)(D) of RESPA to implement information re quest requirements for requests for the identity of the owner or assignee of a mo rtgage loan. The Bureau furt her 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 prescr ibe such rules and regulations, to make such interpretations, and to grant such reasonable exem ptions for classes of transactions as may be

87 Id.124 necessary to achieve the consum er protection purposes of RESPA. 36(b) Contact Informat ion 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 requ est information. If a servicer chooses to establish a separate telephone number and address for receiving inform ation requests, a servicer must provide the borrower a written notice that stat es that the borrower should only a ssert 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 not ice 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 borrowe r 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 clarifie s that if a servicer has not designated a telephone number and address that a borrower must us e 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, especi ally in light of th e 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 numb er and address is consistent with current requirements of Regul ation X with respect to qualifi ed 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 qualif ied written requests.” Moreover, the Bureau believes that125 identifying a specific telephone number and address for receiving errors an d 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 Servic ing Proposal to require that any telephone number or address identified by a servicer mustappear 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 esta blishes 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 be nefit of the online process being considered the exclusive online process for receiving information requests. Multiple offices. Proposed § 1024.36(b), similar to pr oposed § 1024.35(c) for notices of error, would require a servicer to use the sa me telephone number and address it designates for receiving notices of error for receiving info rmation requests pursuant to proposed § 1024.36(b), and vice versa. Further, proposed comment 36( b)-3 clarifies that a ny telephone numbers or address designated by a servicer for any borrowe r 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 a ny telephone number or address designated by the servicer for receipt of informa tion requests just because it was not received by the specific phone126 number or address identified to a specific borrower. Proposed co mment 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 requesti ng 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 requirem ents. To the extent the information request requirements relate to qualified written requests, th e Bureau also relies on its authority in section 6(e) and 6(k)(1)(B) of RESPA. The Bureau furt her has authority pursuant to section 6(k)(1)(D) of RESPA to implement information request requ irements for requests for the identity of the owner or assignee of a mortgage loan. The Bureaufurther relies on sectio n 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 prescr ibe such rules and regul ations, 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 serv icer to provide a borrower a written acknowledgement of an informati on request within five days (e xcluding legal public holidays, Saturdays, and Sundays) of receiving an in formation request. Pr oposed § 1024.36(c) would implement section 1463(c) of the Dodd-Frank Ac t which amended the current acknowledgement deadline of 20 days for qualified written reque sts to five days. Proposed § 1024.36(c) would further apply the same timeline applicable to a qualified written reque st to any information request. The Bureau relies on its authority in s ection 6(k)(1)(E) of RESPA to implement the127 information request requirements. Further, to th e extent the requirements are also applicable to qualified written requests, the Bureau relies on its authority in sect ion 6(e), including the amendment to section 6(e) of RESPA set forth in section 1463(c) of the D odd-Frank Act, as well as section 6(k)(1)(B) of RESPA. The Bureau furt her 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 a nd 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 requ irements on servicer s for responding to information requests. 36(d)(1) Investigation a nd 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 s earch 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 canno t 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 writi ng to the borrower (or electronical ly with the borrower’s consent) if the servicer is providing the information reque sted by the borrower. The Bureau believes that the goal of providing information to borrowers is furthered by allowing servicers to respond128 orally. Additionally, allowi ng oral communication reduces burden on servicers. A servicer could demonstrate its complian ce with this requirement by, for example, retaining a copy of any writtencorrespondence to the borrower that includes the information, retaining tapes of telephone c onversations during which the borro wer is provided the requested information, or by making a notation in a collecto r’s notes that the information requested was provided to the borrower. The Bureau believes th at the flexibility for a servicer to develop systems that are appropriate for that servic er 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 servic er if the information is not in the servicer’s possession or control and the servicer cannot retrie ve the information in the ordinary course of business through reasonable efforts. The purpose of the information request requirem ents is to provide an efficient means for borrowers to obtain information regarding their mortgage loan accounts an d the Bureau believes that imposing obligations on servicers to provide information in response to an information request is an efficient means of achieving th e goal of providing a borrower with access to requested information. The Bureau believes th at burden for information requests will greatly increase, however, if a servicer is required to undertak e 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 i nvestigations may incur. Accordingly, the Bureau believes that se rvicers should not be required to provide documents in response to an information request th at are not in the possession or control of the servicer and cannot be retrieved through reasonable efforts in the or dinary course of business. Proposed comment 36(d)(1)(ii)-1 provides exampl es of when documents should and should not be considered to be available to a servicer in response to an in formation request. The Bureau has authority pursuant to section 6(k)(1)(E) of RESPA to set forth servicer obligations to provide informati on in response to information requests. The Bureau further has authority pursuant to section 6( j)(3) of RESPA to set forth requi rements 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 pr otection 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 (e xcluding legal public holidays, Saturdays, and Sundays) after the servicer receives the information reques t, 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 qua lified written re quest within 30 days. Proposed paragraph 36(e)(e)(i) would impl ement this provision of RESPA with respect to qualified written requests. Shortened time limit to provide informati on regarding the identity of the owner or130 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 adde d section 6(k)(1)(D) to RESPA, which sets forth a ten business day limitation on a servicer to respond to an in formation request with respect to the owner or assignee of a mortgage loan. Pr oposed 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 in terprets the “10 business day” requirement in section 6(k)(1)(D) of RESPA to me an ten calendar days with an exclusion for intervening legal public holidays, Saturdays, and Sundays, and pr oposes to implement that interpretation in proposed § 1024.36(d)(2)(i)(A). Sec tion 19(a) of RESPA provides th e Bureau with authority to make interpretations that are necessary to ach ieve the consumer prot ection 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 requ est 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 exte nsion and the reasons for the delay in responding. Section 1463( c)(3) of the Dodd-Frank Act am ended section 6(e) of RESPA to provide a 15-day extension of time and pr oposed § 1024.36(d)(2)(ii) would implement this provision with respect to qualifie d written requests. The Bureau has authority pursuant to section 6(k)(1)(E) and 6(j)(3) of RESPA to appl y the extension of time provision to information requests as well. The Bureau further has author ity under section 19(a) of RESPA to make such131 rules and regulations, and to ma ke 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 resp ect 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 extens ion 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 dete rmine where to direct mortgage loan payments and reports with re spect to the performance of servi ced assets. The benefit to the borrower of obtaining the information, which C ongress has required, outweighs the costs to servicers of complying within ten days (exc luding legal public holid ays, Saturdays, and Sundays). 36(e) Alternative Compliance Proposed § 1024.36(e) would provide that a servicer is not re quired to comply with the requirements of paragraphs (c) and (d) of pr oposed § 1024.36 if the information requested by a borrower is provided to the borrower within fi ve days along with contact information the borrower can use for further assistance. A servic er may provide the information requested either orally or in writing (including el ectronically, with the borrower’s consent). A servicer’s records should indicate that a servicer has provided th e information requested to the borrower. A servicer may demonstrate its compliance with th is requirement by, for example, retaining a copy of any written correspondence to the borrower that includes the information, retaining tapes of telephone conversations during wh ich the borrower is provided the requested information, or by making a notation in a collector’s notes that the information requested was provided to the132 borrower. As discussed above, the Bureau believes that the flexibility for a servicer to develop systems that are appropriate for that servic er 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 inform ation request requirem ents of proposed § 1024.36 would not apply to certain types of inform ation requests if the servicer complies with proposed § 1024.36(f)(2). The types of informa tion 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) woul d state that a servicer is no t required to comply with the information request requirements in proposed § 1024.36(c) and (d) if th e 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 unreasonabl e determination and resulting failure to comply with proposed § 1024.36(c) and (d). Paragraph 36(f)(1)(i) Proposed paragraph 36(f)(1)(i) w ould state that a servicer is not required to comply with the information request requirements in propos ed § 1024.36(c) and (d) with respect to an

89 Small Business Review Panel Report at 30.133 information request that requests information th at is substantially the same as information previously requested by or on beha lf of the borrower, and for whic h the servicer has previously complied with its obligation to re spond to the information request . The purpose of this proposed paragraph is to ensure that a servicer is not required to expe nd resources conducting duplicative searches for documents. Paragraph 36(f)(1)(ii) Proposed paragraph 36(f)(1)(ii) pr ovides that a servicer is no t required to comply with the information request requirements in propos ed § 1024.36(c) and (d) with respect to an information request that requests confidential, pr oprietary, or general cor porate information of a servicer. The Bureau believes that the purposes of th e provision, which is to provide borrowers with a means to request information regardi ng a borrower’s mortgage loan account, are not furthered by permitting borrowers to request conf idential, 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; othe r mortgage loans than the borrower’s; investor reports; compensation, bonuses, and personnel acti ons for servicer pers onnel; the se rvicer’s training programs; investor agreements; the eval uation or exercise of any owner or assignee remedy; the servicer’s servicing program guide; investor instruc tions or requirements regarding loss mitigation options, examination reports, complia nce 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 information134 requests for confidential, proprie tary, 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 inproposed § 1024.36(c) and (d) with respect to a request for information that is not directly rela ted to the borrower’s mortgage loan account. The Bureau believes the protection inproposed paragraph 36(f)(1)(iii) is appropriate to fulfill the purpose of the proposed rule, whic h is to provide a means for bo rrowers to obtain information from servicers regarding their own mortgage loan accounts. Paragraph 36(f)(1)(iv) Proposed paragraph 36(f)(1)(iv) pr ovides that a servicer is no t required to comply with the request for information requirements in pr oposed § 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 in formation 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 diligen t servicer could not respond to the information request without either exceeding the maximum timeframe permitted by paragraph (e)(3)(ii) or incurring costs (or dedicati ng 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 pr ocess is not typically utilized by consumers to request information. During the Small Business Review Panel outreac h, SERs expressed that typically qualified135 written requests received from borrowers we re 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 writte n requests are unreasonable and unduly burdensome. SERs in the Small Busine ss 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 requirem ents. 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 informa tion requests, including requests made orally to a servicer and requests for info rmation that do not specifically relate to “servicing” as defined in RE SPA. Requiring servicers to re spond 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 supp lant civil litigation document requests and should not be used as a forum for pre-litigation discovery. Proposed paragraph 36(f)(1)(iv) pr ovides that if a servicer de termines that an information request is overbroad or unduly burdensome, the servicer is re quired 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). Furt her, 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 th at the information request was overbroad or unduly burdensome. Proposed comment 36(f)(1)(iv)-1 sets forth charac teristics that may indicate if an information request is overbroad or unduly burde nsome. A servicer bears the ri sk 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 respon d to those information requests it could identify. The Bureau requests comment regarding whet her 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 delivere d to a servicer more than one year after either servicing for the mortgage loan that is the subject of the informa tion request was transferred from the servicer to a transferee servicer or the mortgage loan amount was paid in full, wh ichever 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 re quests with respect to a mortgage loan. The effect of the proposed paragraph is to achieve the same limita tion that currently exists in Regulation X with respect to qua lified written requests. Specif ically, 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 servici ng or the date that the137 mortgage servicing loan amount was paid in full, whichever date is applicable.” The Bureau requests comment regarding the requirement that servicers provide a noti ce to the borrower and the appropriate content for the notice. 36(f)(2) Notice to Borrower Proposed § 1024.36(f)(2) provides th at if a servicer determin es it is not required to comply with the information request requireme nts in proposed § 1024.36(c) and (d) with respect to an information request because the inform ation requests meets one of the categories in proposed § 1024.36(f)(1), the servic er must provide a notice to the borrower informing the borrower of the servicer’s determination. The not ice must be sent not later than five days (excluding legal public holidays, Saturdays, and Sundays) after the servi cer’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 othe rwise respond to the information requests and that borrowers are informed of the basis for the servic er’s determination that it is not required to comply with the information request requi rements 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 clai ms the borrower may have with re spect to the re asonableness 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 requirement s. Further, to the extent the information request requirements apply to qua lified written requests, the Bureau further relies on its authority138 in section 6(e) and 6(k)(1)(B) of RESPA with resp ect 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 reli es on its authority in se ction 19(a) of RESPA to make such rules and regulations necessary to achieve the consumer pr otection 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 ow ed on a borrower’s account, as a condition of responding to an information request. The Bure au is implementing this provision for three reasons. First, section 1463( a) of the Dodd-Frank Act adde d section 6(k)(1)(B) to RESPA, which prohibits a servicer from charging fees fo r responding to valid qualifi ed written requests. Proposed § 1024.36(g) would implement that provision with respect to qualif ied 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 reque st requirements, which is to pr ovide a tool for borrowers to obtain information regarding their mortgage lo an 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 st atus 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, pursuan t 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 requi rements to carry out section 6 of RESPA or to make such rules and regulations as appropriate to achieve th e consumer protection purposes of RESPA. The Bureau requests comment regarding whet her the Bureau should carve out from the prohibition on charging fees for responding to an information re quest any fees charged in connection with providing payoff statements or State law beneficiary notices. The Bureau further requests comment regarding whether ot her 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 existen ce 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 pr ohibitions on furnishing adverse information only apply to qualified written requests th at assert an error with respec t to a mortgage loan, not to a qualified written request that reque sts information. The Bureau reli es 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 Insurance140 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 se rvicer of a federally related mortgage when the borrower has failed to maintain or renew hazar d insurance on such property as required of the borrower under the terms of the mortgage.” Th e 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 be half of the owner or assignee of a mortgage loan on a property securing such loan. The Bureau’s definition of force-placed insu rance is broader than the statutory definition of force-placed insurance. Virt ually all mortgage loan contract s 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 fa il 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 assi gnee 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 s hould 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 Gu ide, Part II, Ch. 2 (2 012) (“Part of a servicer’s responsibility for protecting Fannie Mae’s interest in th e security property is to ensure th at 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 prope rty, the servicer should obtain alternative insurance coverage (so-called “force-placed” or “l ender-placed” insurance) to protect Fa nnie Mae’s interests, available at https://www.efanniemae.com/sf/gui des/ssg/svcg/svc031412.pdf.141 hazard insurance. 94 The Bureau has met with servicer s and insurance companies that write force-placed insurance. They have told the Bu reau that when they detect a gap in borrowerobtained hazard insurance coverage, they typi cally communicate with th e borrower to confirm the absence of borrower-obtained hazard insurance before obtaini ng force-placed insurance. According to industry, force-placed in surance 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 ad vance notice before a servicer renews or replaces existing force-placed insurance. As disc ussed further below, the Bureau pr oposes to exercise its authority under RESPA sections 6(j)(3), 6(k)(1)(E) a nd 19(a) to add new § 1024.37(e), which would require servicers to follow an advance notice pr ocess before they renew or replace existing forceplaced insurance. The Bureau also believes that obtaining fo rce-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 im properly obtained force-placed insurance when it knew or should have known that borrowers already had insuranc e), available at http://ftc.g ov/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 insuran ce 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 Insu rance (Assurant Specialty Property), available at http://newsroom.assurant.com/releasedetail.cfm? ReleaseID=645046&ReleaseType=Featured%20News. According to Assurant, approximately 13 percent of the lo ans it monitors are identified as loans with a potential lapse in insurance, but appr oximately 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 Bu siness 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 substant ially 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 bo rrowers into default. 99 According to Fannie Mae, “[force-placed insurance] should only be issued after the se rvicer has exhausted all means to keep the borrower’s insurance policy in force.” 100 The Bureau also notes th at 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 serv icers 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 th at writes force-placed insurance. 102 For similar reasons, the Bureau is propos ing to require that servicers continue paying for a borrower’s hazard insurance when pr acticable 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?Re leaseID=645046&ReleaseType=Featured%20News 98 See id. (“Lender-placed insurance provides coverage for the st ructural property. It typi cally 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 homeown er’s additional living expenses while the home is being repaired, and covers a homeowner’s personal liability for injuri es 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.n clc.org/images/pdf/regul atory_reform/ib-force-pl aced-insurance.pdf. 100 See Fannie Mae March 2012 Servicing Gu ide 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 previ ously, 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 di scussed above, the Bureau has concluded that defining force-placed insurance broadly is appr opriate to carry out the consumer protection purposes of the new Dodd-Frank requir ements 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 exclus ion for all open-end lines of credit (home-equity plans) from the servicer requirements of Regulation X. Although virtually all mortgage loan contracts requ ire 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 beha lf 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 lin es of credit (home-equ ity plans) from the Bureau’s proposed force-placed insurance regul ations. The Bureau understands that the one exception to servicers obtaining fo rce-placed insurance for open-e nd lines of credit (home-equity plans) is when flood insurance is required by the FDPA. As discusse d below, however, the Bureau is proposing to exempt hazard insura nce to protect against flood loss obtained by a servicer as required by the FDPA from the Bu reau’s proposed definition of force-placed insurance. The Bureau, however, invites co mment 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 previo usly, 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 sec tion 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. S ection 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 pr otection 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 achie ve the consumer protection purpose of RESPA. 37(a)(2) Types of Insura nce 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 th at pursuant to sectio n 102(e) of the FDPA, lenders or the servicers acting on the lenders’ behalf must obtai n 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 Insu rance 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 insurance145 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 subj ect to regulations when obtaini ng 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 th e FDPA from the defin ition of force-placed insurance for purposes of proposed § 1024.37. As discussed previously, to implemen t Dodd-Frank Act section 1463, the Bureau’s proposed definition of “hazard insurance” would in clude 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 obtai ned by a servicer as required by the FPDA, such insurance would be considered “force-placed insurance” under the definition of “force-placed insurance” set fo rth in proposed § 1024.37(a)(1). In turn, servicers who obtain force-placed flood insurance as required by the FD PA would be subject to the Bureau’s proposed § 1024.37 as well if the Bureau does not propose th e exemption. Without the Bureau’s proposed exemption, the Bureau believes the result woul d 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. Additio nally, 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 Supervisi on (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 rela ted fees paid by the borrower during any period when the borrower had insurance coverage in force within 30 days of rece iving 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 Ac t section 1463 with resp ect to servicers’ purchase of force-placed insura nce 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 discusse d above, the FDPA requi res advance notice to consumers, and provides consumers with 45 days to provide evidence of flood insurance. Also as discussed above, the FDPA no w contains termination and ref und provisions with respect to force-placed flood insurance obtained by servicer s as required by the FDPA. Accordingly, the Bureau believes it is consistent with the cons umer 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 th an 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 exempti on 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 mo rtgaged 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 doe s 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 requir ed to comply with the FDPA and when it is required to comply with proposed § 1024.37. As discussed above, the Bu reau invites comment on whether the Bureau’s definition of “hazard in surance” should exclude hazard insurance to protect against flood loss. An alternative to ex cluding 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 defini tion of “force-placed insurance.” The Bureau also seeks comment on this alternative. The Bur eau 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, th e 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 th e FDPA from the defin ition 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 Fl ood 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. Sec tion 19(a) of RESPA provides the Bureau with authority to prescribe such rules and regulations, to make such in terpretations, and to grant such reasonable exemptions for classes of transactions as may be necessary to achieve the purposes of RESPA. As previously discusse d, the FDPA has esta blished a separate consumer protection paradigm to protect consumers when servicers are required by the FDPA to obtain force-placed flood insurance. Furthermore, for reasons disc ussed above, the exemption will reduce regulatory burden. Paragraph 37(a)(2)(ii) Proposed § 1024.37(a)(2)(ii) provides that h azard 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 se rvicer that complies with § 1024.17(k)(1), (k)(2) or proposed § 1024.17(k)(5) would be c ontinuing 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 forc e-placed insurance for purposes of § 1024.37. The Bureau believes that proposed § 1024.37(a)(2)(iii) would provide an ince ntive for servicers to work with non-escrowed borrowers to renew haza rd 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 RE SPA. 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 property149 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 wo rk 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 se ction 6(k)(1)(E) of RESPA to pr escribe regulations that are appropriate to carry out the consumer protecti on purposes of RESPA, a nd 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 Ac t, which requires a servicer to have a reasonable basis to believe that the borrower ha s failed to comply with the loan contract’s requirement to maintain property insurance befo re obtaining force-placed insurance. Proposed § 1024.37(b) sets forth that a servicer may not obt ain force-placed insuran ce unless the servicer has a reasonable basis to believe that the borrowe r has failed to comply with the mortgage loan contract’s requirement to ma intain hazard insurance. Proposed comment 37(b)-1 provides examples of “reasonable basis” for borrowers with escrow. The comment clarifies that a servicer ha s a reasonable basis to believe that a borrower with an escrow account establishe d for hazard insurance has faile d 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 se rvicer has not receive d a renewal bill. It also sets forth that the receipt by a servicer of a notice of cancellation or non-renewal from the150 borrower’s insurance company before payment is due for the borrower’s hazard insurance provides a servicer with a reason able basis to believe that the borrower has failed to maintain hazard insurance. Proposed comment 37(b)-2 provides an ex ample of “reasonable basis” for borrowers without escrow. The comment provides that a servicer has a reasonabl e basis to believe a borrower without an escrow account established for hazard insurance has failed to maintain hazard insurance if, for example, a servicer re ceives a notice of cancellation or non-renewal from the borrower’s insurance company. The Bureau believes it is appropriate to distinguish situ ations where the borrower has escrowed for hazard insurance from situati ons 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 th e insurance lapses. When a borrower has not escrowed for hazard insurance, the Bureau unders tands 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 Bureauis 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 author ity under RESPA section 6(j)(3) to establish any requirements necessary to carry out th e purposes of section 6 of RESPA. The Bureau has additional authority under section 6(k)(1)(E ) of RESPA to prescribe regulations th at are appropriate to carry out the consumer protection purposes of RESPA, and unde r section 19(a) of RESPA to prescribe such rules and regulations, to make su ch interpretations as may be n ecessary to achieve the purposes of RESPA.151 37(c) Requirements for Charging Bo rrower Force-Placed Insurance 37(c)(1) In General Section 1463 of the Dodd-Frank Act ame nded section 6 of RESPA by setting forthcertain requirements a servicer must follow before imposing any charge on a borrower for forceplaced insurance with respect to any propert y 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 serv icers 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) perm its a servicer to charge a borrower for forceplaced insurance at the end of th e 45-day notice period only if the servicer has not received any demonstration of hazard insurance cove rage during the 45-day notice period. Legal authority. The Bureau proposes to implemen t 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 secti on 6(k)(1)(E) of RESPA to prescribe regulations that are appropriate to carry out the consumer protecti on purposes of RESPA, a nd 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-pla ced insurance unless: (1) The servicer delivers to the borrower or places in the mail a written notice with the disclosure s set forth in proposed § 1024.37(c)(2) at least 45 days before the prem ium charge or any fee is assessed; (2) the152 servicer delivers to the borrower or places inthe mail a written notice in accordance with § 1024.37(d)(1); and (3) during the 45-day notic e period, the servicer has not received verification that the borrower has hazard insura nce in place continuously. Determining whether the borrower has hazard insuranc e 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 not ice required by RESPA section 6(l)(1)(A) and 6(l)(1)(B). In some situations, a borrower w ho receives the written noti ce 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 th at the servicer delivers or mails the notice to the borrower and expires 45 days later. The servicer may a ssess 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 insuranc e lenders obtain if borrowers fail to maintain hazard insurance coverage, and th at the obligation to obtain th e 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 retroactiv ely charge a borrower for force-placed insurance obtained during the 45-d ay notice period. The Bureau notes, however, pursuant to proposed § 1024.37(g) discussed below, if a servicer receives verification th at the borrower had hazard insuran ce 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 serv icer 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 th e borrower’s hazard insurance was in place. The servicer would also have to remove all force-placed insu rance 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 pr ior hazard insurance might have expired on January 2. But so long as a borrower’s current h azard insurance takes eff ect 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 ex tends the effectiveness of the borrower’s prior hazard insurance to June 10. Accordingly, so lo ng as the borrower obtains hazard insurance, effective June 11, then the borrower has h azard 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 secu ring the federally related mortgage; (2) a statement that the servicer does not have evidence of insurance c overage of such property; (3) a clear and conspicuous statement of the procedur es by which the borrower may demonstrate that the borrower already has insuranc e 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 cove rage in a timely manner.154 Additionally, RESPA section 6(l) (2) requires a servicer to ac cept 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 th at 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 informa tion 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 sec tion 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 wi th the insurance polic y number and the name, mailing address and phone number of the borro wer’s insurance company or the borrower’s insurance agent. Proposed § 1027.37(c)(2) would require servicer s to provide, in the notice required by proposed § 1024.37(c)(1)(i), the following disclosu res: (1) The date of the notice; (2) the servicer’s name and mailing address; (3) the borrower’s na me and mailing address; (4) a statement that requests the borrower to provide hazard insurance information for the borrower’s property and identifies the propert y 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 insuranc e coverage past the expiration date. For a borrower that has more than one type of hazard insurance on the pr operty, the servicer must identify the type of hazard insurance for which for which the servicer lacks evidence of coverage; (6) a statement155 that hazard insurance is required on the borrower’s property and that the servicer has obtained or will obtain, as applicable, insurance at the borro wer’s expense; (7) a statement requesting the borrower to promptly provide the servicer wi th the insurance polic y number and the name, mailing address and phone number of the borro wer’s insurance company or the borrower’s insurance agent; (8) a descripti on 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) th e cost of the force-placed insurance, stated as an annual premium. If the cost of the force-plac ed insurance is not known as of the date of the disclosure, a good faith estimate shall be disclose d and be identified as such; (10) a statement that insurance the servicer obtains may cost si gnificantly more than hazard insurance obtained by the borrower and may not provide as much cove rage 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 disc losure requirements proposed § 1024.32, including, for example, proposed § 1024.32’s clear and conspic uous requirement. As discussed previously, proposed § 1024.32 also permits servicers to combin e 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 a nd 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 insu rance 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 ar e 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 the156 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-Fr ank Act in three rounds of c onsumer testing. Participant response in consumer testing suggests that knowi ng about higher cost of force-placed insurance could motivate borrowers to act promptly and thus avoid being charged with force-placed insurance. All participants sa id that they would immediately c ontact 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 highe r 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 sh ould 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 unde r § 1024.37(c)(2)(ix) and th e 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 deli nquency 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 prop osed 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 disclo se 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 pr ovide as much coverage as hazard insurance obtained by the borrower. As discussed previous ly, the consequences of servicers obtaining force-placed insurance may be si gnificant and negative for borrow ers. Accordingly, the Bureau believes it is appropriate to inform borrowers ab out the fact that force-placed insurance may not provide as much coverage as insurance borrowe rs 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 se ction 6(j)(3) of RESPA to impl ement 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 addi tional authority under sec tion 6(k)(1)(E) of RESPA to prescribe regulations that ar e appropriate to carry out the consumer protection purposes of RESPA, and under section 19(a) of RESPA to prescr ibe such rules and regulations, to make such158 interpretations as may be necessary to achieve the purposes of RESPA. The disclosures in proposed § 1024.37(c)(2) are additionally propose d pursuant to Dodd Frank Act section 1032. Consistent with this provision, th e Bureau believes that proposed disclosures will ensure that the costs, benefits, and risks associated with the serv ice that servicers provide in servicing the loan by obtaining force-placed insura nce are fully, accurately, and eff ectively 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 bol d text, except that the physical address of the borrower’s property may be in regular text. The Bureau beli eves the use of highlighting (bold text) to bring attention to important information allows bo rrowers 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 understand ing of the cost to them of the service that servicers provide in obtaining force-placed in surance. The Bureau further believes it is important for borrowers to understand that the se rvicer’s purchase of force-placed insurance arises from the borrower’s obligation to maintainhazard insurance. Although the notice contains additional information that are important, the Bur eau believes the useful ness of highlighting in focusing a borrower’s attention on important info rmation 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 chargi ng a borrower for force-placed insurance. The Bureau believes that model forms facilit ate compliance with the new Dodd-Frank Act requirements concerning force-placed insura nce disclosures and th e Bureau’s proposed supplemental disclosures. To implement sectio n 6(l)(1) of RESPA, the Bureau is proposing a new § 1024.37(c)(3) to Regulation X pursuant to its authority under secti on 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 prescrib e regulations that are appropri ate to carry out the consumer protection purposes of RESPA, a nd 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 pu rsuant 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. Specifical ly, 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 pr ior to a servicer charging a borrower for force-160 placed insurance. The servicer may not deliver or place the written notic e required pursuant to § 1024.37(d)(1) in the mail until 30 days after delive ring 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 verifi cation that the borrower has hazard insurance coverage continuously must pr ovide the disclosures set fo rth in § 1024.37(c)(1)(ii). Proposed comment 37(d)(1)-1 explains when a se rvicer 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 th e servicer has received from the borrower. For example, on June 1, the servicer places in the mail the written noti ce required pursuant to § 1024.37(c)(1)(i) to Borrower A. The servicer do es not receive any insurance information from Borrower A. The servicer must deliver to Borro wer 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 exam ple 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 base d on the information Borrower A provided ( e.g., the servicer cannot verify that Borrower A had cove rage 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 char ging Borrower A for force-placed insurance it obtains for the period between June 10 and June 15.161 Legal authority. The Bureau proposes to implemen t 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 prescrib e regulations that are appropri ate to carry out the consumer protection purposes of RESPA, a nd 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 sect ion 6(l)(1)(B). It provides that a servicer that has not re ceived any insurance information from the borrower within 30 days after delivering or placing in the mail the notice requi red pursuant to § 1024.37(c)(1)(i) must provide a reminder notice that contains the disclosures fort h in § 1024.37(c)(2)(ii) to (c)(2)(xi), the date of the notice, and a statement that the notice is th e second and final notice. The Bureau believes that the date of the notice and a statement that the notice is th e 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 in surance 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 implemen t section 6(l)(1)(B) of RESPA by adding new § 1024.37(d)(2)(i) pursuant to its author ity under section 6(j)(3) of RESPA. Section 6(j)(3) of RESPA authorizes the Bureau to establish any requirem ents necessary to carry out the purposes of section 6 of RESPA. The Bureau ha s additional authority un der section 6(k)(1)(E) of RESPA to prescribe regulations that are a ppropriate to carry out the consumer protection162 purposes of RESPA, and under section 19(a) of RE SPA to prescribe such rules and regulations, to make such interpretations as may be neces sary to achieve the purposes of RESPA. The disclosures in proposed § 1024.37(d)(2)(i) are ad ditionally proposed pursuant to Dodd-Frank Act section 1032. Consistent with th is provision, the Bureau believes that proposed disclosures will ensure that the costs, benefits, and risks associ ated 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 previ ously, 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 afte r delivering to the borr ower or placing in the mail the written notice set forth § 1024.37(c)(1)(i), but not veri fication that the borrower has hazard insurance in place continuously, must deli ver or place in the mail a written notice that contains the following: (1) The date of the notic e; (2) a statement that the notice is the second and final notice; (3) the disclosu res 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 r eceived the hazard insurance information that the borrower provided; and (5) a statement that indicat es to the borrower that the servicer is unable to verify that the borrower has hazard insuranc e in place continuously; and (6) a statement that the borrower will be charged for insurance the servicer obtains for the period of time where the163 servicer is unable to verify hazard insurance coverage unless the borrower provides the servicer with hazard insurance inform ation for such period. As discussed previously, new RESPA secti on 6(l)(1) requirements added by section 1463 of the Dodd-Frank Act require servicers to provi de advance written notice to borrowers 45 days before charging a borrower for force-placed insura nce. RESPA section 6(l)(1)(B) provides that the notice required pursuant to RE SPA section 6(l)(1)(B) must cont ain all of the information set forth in the first written notice. The Bureau be lieves that a borrower th at provides his or her servicer with the information requested after re ceiving the initial wri tten notice might become angry and confused if he or sh e receives a second notice contai ning information they previously received. However, if a borrower’s servicer canno t 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 r eceive the reminder notice requ ired 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 implemen t section 6(l)(1)(B) of RESPA by adding new § 1024.37(d)(2)(ii) pursuant to its authorit y under section 6(j)(3) of RESPA. Section 6(j)(3) of RESPA authorizes the Bureau to establish any requirem ents necessary to carry out the purposes of section 6 of RESPA. The Bureau ha s additional authority un der section 6(k)(1)(E) of RESPA to prescribe regulations that are a ppropriate to carry out the consumer protection purposes of RESPA, and under section 19(a) of RE SPA to prescribe such rules and regulations, to make such interpretations as may be neces sary to achieve the purposes of RESPA. The164 disclosures in proposed § 1024.37(d)(2)(ii) are additionally proposed pursuant to Dodd-Frank Act section 1032. Consistent withthis provision, the Bureau be lieves that proposed disclosures will ensure that the costs, benefits, and risks asso ciated with the service that servicers provide in servicing the mortgage loan by obtaining for ce-placed insurance are fully, accurately, and effectively disclosed to borrowers, in li ght 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 previ ously, 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 disclo sures set forth in pa ragraph (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. Di sclosures 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 pr oposing 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 prev iously discussed. Legal authority . As previously discussed, section 6(l) (1) of RESPA requires a servicer to provide a borrower with two notices before char ging a borrower for force-placed insurance, and that the Bureau believes that model forms f acilitate compliance withthe new Dodd-Frank Act requirements concerning force-placed insura nce disclosures and th e Bureau’s proposed165 supplemental disclosures. To implement sectio n 6(l)(1) of RESPA, the Bureau is proposing a new § 1024.37(d)(3) to Regulation X pursuant to its authority under secti on 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 prescrib e regulations that are appropri ate to carry out the consumer protection purposes of RESPA, a nd 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 a dditionally 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 not ice required pursuant to § 1024.37(d)(1) has been put into production, the servicer is not required to update the no tice 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 pursua nt to § 1024.37(d)(1) in advance of delivering or placing the notice in the mail. If the noti ce has already been put into production, the servicer is not required to update the notice with insurance informa tion received from the borrower after production has started so long th e 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 circumst ances, a longer time frame is reasonable.166 Legal authority . The Bureau recognizes that serv icers may receive borrower’s hazard insurance information after they have put th e notices required pursuan t 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 usi ng its authority under RESPA sectio ns 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 co nsumer protection purposes of RESPA. The Bureau has additiona l authority under sec tion 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 ru les and regulations, to make su ch 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 serv icer may not charge a borrower for renewing or replacing existing for ce-placed insurance unless: (1) Th e servicer delivers or places in the mail a written notice to the borrower withthe 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 th at the borrower has obtained hazard insurance. Proposed § 1024.37(e)(1) further provides that no twithstanding § 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 rene wal or replacement promptly after the servicer receives verification that hazard insurance obtai ned 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 exis ting 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 e xpired force-placed insurance policy with a new force-placed insurance polic y effective January 13. On February 5, the servicer receives verification th at the borrower obtained hazard insurance effective January 31. The servicer may charge the bo rrower for force-placed insurance from January 13 to January 30, as early as February 5. Legal authority . As discussed previously, there do es not appear to be an industry standard that applies to renewa l procedures for force-placed insurance. Moreover, incentives like commissions paid to servicers or their insu rance affiliates may cause servicers to prefer renewing or replacing existing force-placed insu rance 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 hi s or her servicer renewi ng or replacing existing force-placed insurance because the proposal prov ides for advance notice that allows a borrower the time the borrower may need to buy hazard in surance before being charged for the cost of force-placed insurance. The Bureau propos es to add new § 1024.37(e)(1) pursuant to its authority under RESPA section 6(k)(1)(E), which au thorizes 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 prescribe168 such rules and regulations, to make such interp retations 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 se rvicers 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 se t forth in proposed § 1024.37(c)(2) and proposed § 1024.37(e)(2) is thatin proposed § 1024.37(e)(2), servicers must provide a statement that: (1) The servicer pr eviously 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 haza rd 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 belie ves the differences are necessary to distinguish the notice required pursuant to § 1024.37(e)(1) from the notice re quired pursuant to proposed § 1024.37(c)(1). Paragraph 37(e)(2)(vii) Proposed § 1024.37(e)(2)(vii) would require a serv icer 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 provid es 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 prescr ibe regulations that are appropri ate to carry out the consumer169 protection purposes of RESPA. As discussed above, the Bureau’s proposal to require servicers to provide a written notice before charging a bo rrower for the renewal or replacement of existing hazard insurance could help a borrower avoid incurri ng the cost to the borrower associated his or her servicer renewing or replacing existing for ce-placed insurance. The Bureau has additional authority under section 6(j)(3) of RESPA to establish any requireme nts 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 withthis provision, the Bureau be lieves that proposed disclosures will ensure that the costs, benefits, and risks asso ciated with the service that servicers provide in the loan by obtaining force-placed insurance to re new or replace existing force-placed insurance are fully, accurately, and effectively disclose d to borrowers, in li ght 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 previ ously, 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 disc losures set forth in § 1024.37(e)(2) must be in a format substantially si milar to form MS-3(D), set forth in appendix MS-3. Disclosures made pursuant to § 1024.37(e)(2)(v i)(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 the170 property may be in regular text. The Bureau di scussed the usefulness of highlighting (bold text) important information to borrowers previously, a nd 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 prot ection purposes of RESPA. The Bureau has additional authority under section 6(j)(3) of RESPA to establish any requirements necessary to carry out th e 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 th e 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 chargi ng a borrower for renewing or replacing existing force-placed insurance more th an 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 pe riod. Additionally, the Bureau notes that because it is proposing to require a servicer to state the annual costof force-placed insurance, the borrower would be informed of the annualized costof the force-placed insurance. Accordingly, the Bureau does not believe that receiving more than one renewal or replacement notice every171 12-month period would significantly benefit bo rrowers. 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 fo rce-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. S ection 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe regulations that are appr opriate to carry out the consumer protection purposes of RESPA. For reasons discussed abov e, 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 ou t the purposes of section 6 of RESPA, and under section 19(a) of RESPA to prescr ibe such rules and regul ations, 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 previous ly, 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 requir ements 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 s ection 6(k)(1)(E) of RESPA to prescribe regulations that are appropriate to carry out the co nsumer protection purposes of RESPA, and under section 19(a) of RESPA to prescr ibe such rules and regulations, to make such interpretations as may be necessary to achieve the purposes of RESPA. 37(g) Cancellation of fo rce-placed insurance Section 1463 amended RESPA by adding new s ection 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) Terminat e the force-placed insurance; and (2) refund to the borrower all force-placed insurance premiu m charges and related fees charged to the borrower during any period in wh ich the borrower’s insurance a nd 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) Ca ncel force-placed insurance obtained for a borrower’s property; and (2) fo r any period during which the borrower’s hazard insurance was in place, refund to the borrower al l force-placed insuranc e 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 su ch period that the servi cer 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 for ce-placed insurance, effective January 1, and the premium and related charges are paid by the borrowe r in monthly installmen ts, due on the first of173 each month. After the borrower paid the April installment, the servi cer receives insurance information from the borrower, and verifies that the borrower had obtaine d hazard insurance and that the insurance had been in place since Ma rch 15. To comply with § 1024.37(g), within 15 days of receiving such verification, the servicer mu st: (1) Cancel the force-placed insurance; (2) provide a refund for force-placed insurance pr emium 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 insuranc e 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 requir ements 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 s ection 6(k)(1)(E) of RESPA to prescribe regulations that are appropriate to carry out the co nsumer protection purposes of RESPA, and under section 19(a) of RESPA to prescr ibe 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 amende d RESPA section 6 by adding new section 6(m) to RESPA to require that all charges, apar t from charges subject to State regulation as the business of insurance, related to force-placed insurance imposed on th e borrower by or through the servicer must be bona fide and reasonable. Proposed § 1024.37(h)(1) provides that except for charges subject to St ate regulation as the business of insurance and charges authori zed by the FDPA, all charges related to forceplaced insurance assessed to a borrower by or through the servicer must be bona fide and174 reasonable. Proposed § 1024.37(h)(2) provides that that a bona fide and reasonable charge is a charge for a service actually perf ormed that bears a reasonable relationship to the servicer’s cost of providing the service, and is not ot herwise 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 regu late charges authorized by the FDPA. As discussed previously in the discussion of proposed § 1024.37(a )(2)(i), certain servicer s 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 wh ether 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 i ssuing regulations that would ove rlap with regulations issued pursuant to the FDPA. Accordingly, the Bureau proposes to use its exem ption authority pursuant to RESPA section 19(a) to exem pt charges authorized by the FD PA from proposed § 1024.37(h). Also as previously discussed, force-placed in surance is substantially more expensive than hazard insurance a borrower could obtain for himsel f and some servicers may be incentivized to obtain force-placed insurance even though help ing a borrower to renew hazard insurance obtained by the borrower when practicable is better for the borrowe r and the owners and assignees of mortgage loans. The Bureau believe s it is important to ensure that these servicers do not try to inflate the already-high cost of force-placed in surance by assessing charges to borrowers that are not for servi ces actually performed, do not bear a reasonable relationship to the servicer’s cost of providing the service, and is prohibited by applicable law. Accordingly, the175 Bureau believes its proposed defi nition of bona fide and reasonab le 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 Regul ation 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 pr otection 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 ex emptions, as may be necessary to achieve the purposes of RESPA. 37(i) Relationship to Flood Di saster Protection Act of 1973 Section 1463 of the Dodd-Frank Act ame nded RESPA section 6 to add new section 6(l)(4) to provide that the new Dodd-Frank Act requirements concerning fo rce-placed insurance do not prohibit servicers from sending a simultaneous or concurrent notice of a lack of flood insurance pursuant to secti on 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 requireme nts of § 1024.37 may deliver to th e 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 requir ements necessary to carry out section 6 of RESPA by adding § 1024.37(i) to Regul ation X. Section 1024.37(i) is additionally proposed pursuant to the Bureau ’s authority under section 6(k)(1 )(E) of RESPA to prescribe176 regulations that are appropriate to carry out the consumer pr otection 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 ex emptions, as may be necessary to achieve the purposes of RESPA. Section 1024.38 Reasonable Information M anagement 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 investor s and under applicable law, unless it maintains accurate information regarding a mortgage loan account, including accurate and timely information with respect to borrower paymen ts. Notwithstanding these obligations, recent evaluations of mortgage servicer practices have indicated that bo rrowers have been harmed as a result of servicer’s lacking ad equate practices to provide serv icer personnel with appropriate borrower information. Federal regu latory agencies reviewing mort gage servicing practices have found that certain servicers demonstrated “signi ficant 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 applic able law, information relating to borrower mortgage loan accounts in connectio n with foreclosure proceedings. 110 Examinations by prudential regulators found “critical deficiencies in foreclos ure governance processes, document preparation processes, and oversight and mon itoring 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/newsev ents/testimony/tarullo20101201a.htm. 110 The National Mortgage Settlement is available at http://www.nationalmortgagesettlement.com/.177 [examined] exhibited similar deficiencies, a lthough the number, nature, and severity of deficiencies varied by servicer.” 111 38(a) In General Proposed § 1024.38(a) would requi re a servicer to establ ish reasonable policies and procedures for maintaining and managing info rmation and documents relating to borrower mortgage loan accounts. The propos ed rule would provide that a se rvicer meets this requirement if the servicer’s policies and pr ocedures are reasonably designed to achieve the objectives set forth in proposed § 1024.38(b) and are reasonab ly 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 princi pal balance of mortgage loans serviced, the credit quality, including the defa ult risk, of the mortgage loan s 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 wa s discussed with SERs during the Small Business Review Panel outreach, the SERs were supportiv e 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 servi cer does not engage in a pattern or practice of failing to achieve any of th e objectives set forth in proposed § 1024.38(b) and does not engage in a pattern or practice of failing to comply w ith 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 po licies and procedures are reason able. Thus, servicers have flexibility to develop policies a nd procedures that a servicer de termines are appropriate so long as those policies and procedures do not result in a pattern or pr actice 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 policie s and procedures are not reasonable. Proposed comment 38(a)(1)-1 provides examples of potenti al pattern and practice failures by servicers. Proposed comment 38(a)(2)-1 clarifies that in the ev ent a servicer fails to comply with the safe harbor in proposed § 1024.38(a)(2) because the servic er has a pattern or pr actice 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 sti ll comply with the requirements of proposed § 1024.38 if the service r’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.179 A servicer’s failure to ac hieve each of the objectives harms borrowers because such failures create the potential fo r 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 borrowe rs, and the potential for fraud upon courts through inaccurate or unverifiable legal pleadings. The Bureau relies on its authority in secti on 6(k)(1)(E) of RESPA to establish obligations appropriate to carry out the consumer protec tion purposes of RESPA to propose § 1024.38(a). The Bureau further has authority pursuant to section 6(j)(3) of RE SPA 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 consum er protection purposes of RESPA. 38(b) Objectives 38(b)(1) Accessing and Providi ng 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) pr ovide borrowers with requested information, (4) provide owners or assignees of mortgage loans with accurate and current inform ation about any mortgage loans they own, and (5) submit documents or filings re quired for a foreclosure process that reflect accurate and current information and comply with applicable law. For the reasons stated above in th e background to proposed § 1024.38, the Bureau believes it is necessary to achieve the consumer protection purposes of RESPA that servicers180 implement policies and procedures to achie ve the objectives set forth in proposed § 1024.38(b)(1). These objectives provide reasonab le 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 informati on reporting about the mortgage loans they own. Owners and assignees can play an important ro le in ensuring that servicers comply with requirements of the owner or assignee, which ma y inure to the benefit of consumers. For example, when a servicer improperly obtains fo rce-placed insurance for a delinquent borrower, the costs of that insurance may push a borro wer further into delinquency and ultimately foreclosure, where the costs of the more expensiv e policy will reduce the u ltimate recovery to the owner or assignee. The Bureau requests comment regarding whether the Bureau had identified the appropriate objectives and whether objectives s hould 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 RE SPA 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 for181 maintaining and managing information and documents must be designed to enable the servicer to (1) provide accurate information to borrowers re garding 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 borrowe r in connection with a loss mitigation option, (4) identify documents and information that a bo rrower 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 po licies and procedures to maintain and manage information and documents that are designed to en able the servicer to evaluate borrower’s for loss mitigation options facilitates complian ce with proposed § 1024.41. Further, such policies and procedures will lead to processes that are more protective of consumers by requiring servicers to consider, inadvance of the potential delinquency of a particular mortgage loan, the loss mitigation optio ns that are generally av ailable 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 th e 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 mortga ge loans that are incl uded in securitizations guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae, or insured by FHA or other government sponsored insurance programs, will be familiar w ith policies that will be set forth by those entities regarding the requirements for loss mitigation options.182 Servicers that service mortga ge loans that are securitized through private label securities will be required to undertake more burdensome effo rts to identify which, if any, loss mitigation programs offered by the servicer ar e 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 opt imal loss mitigation efforts. The Bureau believes that regulations relating to the evaluation of borro wers for loss mitigation options, including the requirements of proposed § 1024.38(b)(2) and propos ed § 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 pr ocessing and default management—encourage servicers to underinvest in default management capabilities, leaving them with limited ability to mitigate losses.” 114 Direct servicing compensation is generall y fixed per loan. A servicer of a prime mortgage loan may earn 25 basis points for servici ng 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 wi th consumers, servicers, GSEs, investors, and other federal regulators indicates that servicers have failed to i nvest in systems and processes necessary to undertake the work necessary to se rvice mortgage loans that are not performing.

114 Levitin and Twomey, 28 Yale J. on Reg. 69 (2011). 115 Robert 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.pdf183 Further, mortgage servicing cash flows, incl uding servicer expenses like advances to investors, incentivize servicers to pursue forecl osure. Servicers are required to advance payments to investors so long as a mortgage loan has not been “charged of f.” When a servicer modifies a mortgage loan on behalf of an inve stor, it is sometimes unc lear how the modified payment amounts should be treated and whether a serv icer must continue to advance funds to the investor to make up for any deficiency be tween a borrower’s modified payment and the scheduled payment owed to an investor. The Bureau observes that servic ers have begun to alter the manne r in which they invest in infrastructure and are changing their approach to default mana gement. 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 bo rrowers 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 h ousing markets recover, leading to continued inadequate infrastructure during future regional or national housing dow nturns, which may lead to future borrower harm. The Bureau requests comment regarding wh ether the Bureau had identified the appropriate objectives and whether objectives s hould 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 authority184 pursuant to section 6(j)(3) of RE SPA 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) Facilitati ng Oversight of, and Compli ance 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 pe rsonnel with accurate and curren t information reflecting actions performed by service providers, faci litate 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 prac tices 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 superv ised by the Board of Governors of the Federal Reserve System and the Office of the Co mptroller of the Currency did not monitor thirdparty vendor foreclosure law firm s compliance with the servicer’s standards, did not retain copies of documents maintained by third-party law firms, and di d not provide formal guidance, policies, or procedures govern ing the selection, ongoing manageme nt, and termination of law firms used to manage foreclosures. 117 Similar failures were present in connection with servicer relationships with default mana gement service providers and Mo rtgage 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 st aff, and management and over sight 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 serv ice providers and servicer loss mitigation personnel. The Bureau requests comment regarding whether the Bureau had identified the appropriate objectives and whether objectives s hould 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 RE SPA 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 documen ts 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/newsev ents/testimony/tarullo20101201a.htm.186 requirements of subpart C and the terms of the tr ansferee servicer’s cont ractual obligations to owners or assignees of the mortgage loans. Further, proposed § 1024.38(b)(4) provides that a transferee servicer shall have doc uments 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 servicerwith respect to potential recovery from a nonperforming mortgage loan, as a ppropriate (typically called a fi nal recovery determination). Servicing transfers give rise to potential harms to consumers. Servicers may experience problems relating to inaccurate transfer of past payment info rmation, 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 servic ers 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 gene rally 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 w ithout adversely impac ting 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 mortga ge loan accounts are identified and transferred to a transferee servicer in a manner that permits the transferee se rvicer to continue providing appropriate service to the borrower.187 The Bureau requests comment regarding wh ether the Bureau had identified the appropriate objectives and whether objectives s hould 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 RE SPA 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 fort h in proposed § 1024.38(b), proposed § 1024.38(c) sets forth two standard require ments that servicers must incl ude in the required policies and procedures. These include provisi ons for record retention and iden tification of a servicing file. With respect to record retent ion, proposed § 1024.38(c)(1) would re quire 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 mo rtgage loan was transferred to a successor servicer. The Bureau observes that proposed §§ 1024.35 and 1024.36 require se rvicers 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 se rvicer 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 inorder to provide accurate payoff balances to188 borrowers or to exercise a right to fo reclose for a mortgage loan account. The Bureau requests comment regarding whethe r 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 servic er to provide a borrower upon request a servicing file, which shall contain a schedule of all payments credit ed 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 serv icer personnel reflecting communi cations with borrowers about the mortgage loan account; a repor t of any data fields relating to a borrower’s mortgage loan account created by a servicer’s electronic systems in connecti on with collection practices, including records of automatically or manually di aled telephonic communi cations; and copies of any information or documents provided by a borro wer to a servicer in accordance with the procedures set forth in §§ 1024.35 or 1024.41. While document and information manageme nt practices vary among servicers, many large servicers maintain documents and inform ation relating to a borrower’s mortgage loan account in many different places and forms, in cluding on separate electronic systems. The Bureau understands that in the absence of a requi red convention for storag e of servicing related documents and information, servicers have diffi culty 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 docu ments, and account debit and credit information, including escrow account informa tion. Proposed § 1024.38(c)(2) would require servicers, as part189 of the reasonable information management policie s and procedures to adopt practices to provide an accurate, complete, and defined “servicing f ile” to a borrower upon request and would create a commonly understood industry convention. The Bureau requests comment regarding whet her servicers should be required to adopt reasonable information management policies and pr ocedures that facilita te providing a defined servicing file to a borrower upon request. The Bureau requests comment on the burden of adopting this requirement. Further, the Bureaurequests comment regarding whether the Bureau has identified the appropriate comp onents 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 RE SPA 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 Re quirements for Certain Borrowers Background. How a servicer manages a borrower’s delinquency plays a significant role in whether the borrower cures the de linquency or ends up in foreclosure. 120 However, for a variety of reasons, servicers have not been consistent in managi ng delinquent accounts to provide borrowers with an opportunity to a void 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 institutio nal capacity to manage delinquent accounts. 121 While servicers have gained some experience managing loss mitigation programs, incentives remain that may discourage servicers from addr essing a delinquency quickly, and in some cases may even cause them to favor foreclosure. 122 For their part, delinquent borrowers may not ma ke contact with servic ers to discuss their options because they may be unaware that they have options 123 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 th em to reach out. There is significant risk to consumers as a result of this delay because th e 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 ot her programs, such as HAMP, align serv icer 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, Chie f, 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/forecl osure_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: Improv ing 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 Comp troller of the Currency, Remarks Before the NeighborWorks America Symposium on Promoting Foreclosure Solutions (June 25, 2007), available at www.occ.gov/news-i ssuances/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 Housing191 Private lenders and investors, Fannie Mae and Freddie Mac, and Federal agencies, such as FHA and VA, already have early interventi on 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 thatservicers 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 servicer s to provide delinquent borrowers with two notices. First, proposed § 1024.39(a), would re quire servicers to notify or make good faith efforts to notify a borrower orally that the borro wer’s payment is late and that loss mitigation options may be available, if applicable. Servic ers would be required to take this action 30 days after the payment due date, unless the borrower sa tisfies the payment during that period. Second, proposed § 1024.39(b) would require se rvicers 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 mitig ation options that may be available to the borrower. The servicer would be required to pr ovide the written notice not later than 40 days after the payment due date, unless the borrower sa tisfies the payment during that period. These two notices are designed primarily to encourage de linquent borrowers to work with their servicer to identify their options for avoi ding foreclosure. The Bureau recognizes that no t all delinquent

Pol’y Debate 245; Amy Crew s 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 Singl e-Family Seller/Servicing Guide, Volume 2, Chapters 64-69 (2012).192 borrowers who receive these notices may respon d 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 suff icient 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 “l oss 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 suggest s that one of the ba rriers to communication between borrowers and servicers is that borrowers do not know thatservicers may be helpful or that they have options to avoid foreclosure. By notifying borrowe rs 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, proposedcomment 39(a)-1.ii explains th at the servicer would not be required to describe any particul ar 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 e xplained in proposed comment 39(a)-1.ii, nothing would preclude the servicer from providing more de tailed information that the servicer believes193 would assist the borrower. During the Small Business Panel Review process, small servicer representatives explained that they are able to distinguish be tween 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 re quire 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 ab out loss mitigation options unless the servicer indicates that help may be availa ble at the time of the proposed or al notice. The Bureau invites additional comment on how servicer s 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 expl ains that the oral notice wo uld have to be made through live contact with the borrower, such as by telephoning or meeti ng in-person with the borrower, and that oral contact does not include a recorded message deliv ered 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 delinquen cy through an intera ctive conversation and thus, for example, would be better able to help the borrower identif y 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 maki ng a payment. This oral notice is intended to work in concert with the writte n periodic statement proposed in the Bureau’s 2012 TILA Mortgage Servicing Proposal, which would in form 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 appear ing on the periodic statement the borrower would receive. In addition, by providing this noti ce through live contact , a servicer could learn about the circumstances of the borrower’s delinquency and th e 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 pr ovide the oral notice, or make good faith efforts to do so, if the borrower is late in making “a payment sufficient to cover principal, inte rest, 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 de fault solely because of accumula ted late charges if they are otherwise current with resp ect to principal, interest , and escrow payments. Regulation Z § 1026.36(c)(1)(ii) ge nerally 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 ri se to charging excessive or unwarranted fees to borrowers who may be unable to catch up on payments. 129 However, b ecause this practice is prohibited under Regulation Z and other regulations, the Bureau doe s not expect that borrowers would be likely to be pushed into foreclosure sole ly 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 paym ent. 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 afte r a payment due date, ev en 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 re quired to notify or make good faith efforts to notify the borrower not later th an 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, addresse s 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. T hus, 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 ma ke 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 requir ed to notify or make good faith efforts to notify196 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 be lieves it would be unnecessary for a servicer to notify a borrower of a previously missed paym ent if the borrower is performing under a loss mitigation option designed to cure that delinquency. 30-day period. Proposed § 1024.39(a) would require se rvicers 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 th e 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 sm all 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 proposi ng an outer bound timeframe for se rvicers to comply with the proposed oral notice. In particular, the Bureau sought to harmonize the ti ming of the oral notice with existing early intervention standards es tablished by the GSEs, FHA, and VA so that servicers already complying with those standards that meet th e Bureau’s proposed requirements could comply with proposed § 1024.39. Fannie Mae and Freddie Mac generally recomme nd 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 cont act borrowers within 3 days of a missed payment, unless the servicers uses a behavior modeling tool that would support an alte rnate approach. Fannie Mae recommends servicers contact197 HUD generally requires that serv icers of FHA loans take “pro mpt action” to collect on delinquent loans. 132 Although servicers may satisfy the “prompt action” requirement through a variety of means, HUD recommends that servicer s 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 wr itten delinquency noti ce by the 20th day of a borrower’s delinquency. 134 In order to provide servicers with flexib ility in contacting bor rowers 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-da y 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 co mpliance 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 requi ring servicers to contact all borrowers too soon. Borrowers may not think of themselves as being de linquent 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 Gu ide, 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 f unds, a short-term payment difficu lty, or some other reason. The Bureau believes these borrowers frequently would be able to self-cure wi thin 30 days of a missed payment. 136 At the time the Bureau proposed its earl y intervention require ments 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 propos ing 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 cons ider 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 Bure au does not believe a 30-day deadline for the proposed oral notice will present a significant bu rden. 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, th e 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 re quire small servicers to change their early intervention practices. The Bureau invites comment on whether th e proposed 30-day time period provides borrowers with adequate notice of loss mitiga tion options while providing servicers sufficient flexibility in managing delinquent bo rrowers with different risk prof iles. The Bureau also invites comment on whether the 30-day requirement woul d pose a substantial conflict with existing servicer practices. The Bureau invites commen t 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 th e servicer about a late payment, proposed comment 39(a)-5 explains that, if the borrower c ontacts the servicer at any time prior to the end of the 30-day period to explain that the borrowe r 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 avai lable. The Bureau recognizes that borrowers may contact the servicer proactiv ely 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 bo rrower of the delinquency. However, the Bureau believes that borrowers who contact the servicer proactiv ely 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 th e 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 ex amples to clarify how servicers would comply with proposed § 1024.39(a) for borrowers who contact the servicer a bout 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 notif ied or made good faith efforts to notify the borrower that loss mitigation options may be availabl e. 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 Februa ry 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 w ithin the 30-day period. The Bur eau 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 Bur eau does not believe it would be necessary to explain that loss mitigat ion 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 expl ain the March 1 missed payment and the borrower remains late on that payment during the 30 days af ter 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 Ma rch 1 payment and that loss mitigation options, if applicable, may be available. This comment is in tended 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 the201 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 e fforts to make contact. Thus, under proposed § 1024.39(a), if a borrower is late in making a paym ent, 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 th at if the servicer attempts to notify the borrower by telephone, good faith efforts would require calling the borro wer 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 se rvicer 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 ca ll not later than the 28 days af ter 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 c ontact. The Bureau is proposing to define good faith efforts as requiring that each attempt by pho ne 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 serv icers 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 th an oral contact that would promote a dialogue between the borrower and the serv icer 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 informa tion 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 opti ons and encouraging servicers to work with borrowers to identify any appropriate loss mitiga tion 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 servi cers 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 necessa ry to carry out section 6 of RESPA and has authority under section 19(a) of RESPA to prescr ibe such rules and regulations, to make such interpretations, and to grant such reasonable exem ptions for classes of transactions, as may be necessary to achieve the consumer protection purposes of RESPA. 39(b) Written Notice203 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 containi ng 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 no tice would be required to be provided not later than 40 days after the payment due date. The pr oposed content requirements are discussed in more detail below in the discussi on of proposed § 1024.39(b)(2). Proposed comment 39(b)(1)-1 explains that th e written notice would be required even if the servicer provided information about loss miti gation 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 ad equately assess and recall detailed information provided orally. In addition, a wr itten disclosure would provide borrowers with the ability to review the information or di scuss it with a housing counsel or or other advisor. Based on feedback received during the Small Bu siness 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 serv icers may provide written information to borrowers because each borrower may present unique situations. However, as discussed in more detail below, the Bureau believes borrowers w ould benefit from receiving written information about loss mitigation options, if applicable, and th e 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 pr oposed generally applicable minimum content requirements that can be tailored to specific situ ations, 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 de linquent borrowers.204 detail in the section-by-section analys is 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 deve loping 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 th at under proposed § 1024.32, discussed above, servicers would be permitted to provide the written notice to borrowers in electronic form, subject to complia nce with the consent and other pr ovisions 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, in terest, and, if applicable, escrow. However, unlike the oral notice, the writte n 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 pa yment late in the same manner as would they would for purposes of calculating when the oral notice must be provide d. 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 th an 40 days after January 1— i.e ., by February 10. 40-day time period. As with the oral notice, the Bur eau is proposing to permit servicers to provide the written notice at any time duri ng the 40-day period. Some servicers may choose

142 See id.205 to provide the written notice earlie r 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 notic e and other information to the borrower’s individual circumstances foll owing the oral notice. Some servicers may choose to provide the written not ice prior to the oral notice. The Bureau believes servicers should retain flexibility in determini ng when to provide the written notice. In addition, the Bureau has selected a 40-da y time period to provide borrowers with a reasonable opportunity to cure th e delinquency within ten days af ter servicers would be required to provide the oral notice under proposed § 1024.39(a). Accordingly, proposed comment 39(b)(1)-3 explains that a servi ce would not be required to provi de the written notice unless the borrower is late in paying the amount owed in fu ll during the 40 days after the payment due date. Proposed comment 39(b)(1)-3 provides an exampl e 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 se rvicer would not be required to provide the written notice 40 days after January 1— i.e ., by February 10. In addition, propos ed comment 39(b)(1)-5 clarifies that a servicer would not be require d under § 1024.39(b)(1) to notify a bo rrower who is performing as agreed under a loss mitigation op tion designed to bring the borro wer 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 recommen ded timing for the delivery of similar written notices under standards for serv icers of FHA, VA, and GSE loans. HUD generally requires servicers of FHA-insured loans to provide each mortgagor in default HUD’s “Avoiding206 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 for eclosures 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 wr itten package soliciting delinque nt 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 prov iding the solicitation package to certain lowerrisk borrowers as late as th e 65th day of their delinquency. 146 The Bureau also understands that section 106(c)(5) of th e Housing and Urban Development Act of 1968, as amended, generally requires creditors to provide notice of homeownership counse ling to eligible delinquent borrowers not later than 45 da ys after a borrower misses a payment due date. 12 U.S.C. 1701x(c)(5)(B). Similar to the information requi red 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 a nd the borrower’s State housing finance authority, although servicers would be required to provide th e 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 repres entatives that service for Fannie Ma e 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 earl y intervention require ments for the Small Business Panel, the Bureau considered requiring servicers to provide de linquent borrowers with written information not later than 45 da ys after the borrower misses a payment. 147 The Bureau is not proposing a 45-day period for the deadline fo r 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 re ceiving 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 af ter 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 s till providing delinque nt 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 repres entatives explained that they are generally in touch with delinquent borrowers well ahead of th e 45-day time period initially considered by the
Bureau. 148 During informal consultation, some commente rs expressed concern that servicers may have difficulty complying with the Bureau’s proposed 40-day deadline in light of existing servicer requirements. The Bureau understand s that a single deadline for sending the written notice may require some servicers to change thei r 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 propos ed by Bureau overlap wi th 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 th at 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 bo rrower’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 c ould 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 peri od 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 invi tes comment on whether extending the 40-day deadline for the written notice to 45 days, 65 da ys, 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 no t later than five days after a borrower contacts the servicer about the borrower’s antici pated difficulty with making a payment. 149 The Bureau has not proposed this requirement but instead is proposing a single 40-da y deadline in order to

149 See Small Business Review Panel Report at 12.209 balance the need to provide borro wers with assistance at the early stages of a delinquency with the need to provide clear and enforceable standard s. The Bureau is conc erned 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 dead line would ensure servi cers are accountable to a clear standard that avoids the question of wh ether borrowers had, in fact, communicated that they expect to have difficulty making payment. In addition, as previous ly 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 opport unity to self-cure. Finally, the Bureau believes that proposed § 1024.36, which would require servicers to respond to information requests, will ad dress 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, no twithstanding this limitation, a se rvicer would stil l be required to provide the oral notice required under § 1024.3 9(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 servi cer provides the writte n disclosure 40 days after March 1— i.e ., by April 10. If the borrower subseque ntly 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 writte n notice again for the 180-day pe riod beginning on April 10, the210 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 peri ods beginning on March 1 and April 1. During the Small Business Panel Review pro cess, 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 sa me written notice every month. The Bureau expects borrowers would be able to retain the disclosure becaus e, as discussed above, proposed § 1024.32 would require that the disclosure be pr ovided in a form the borrower may keep. However, the Bureau does not believe servicer s 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 th e written disclosure once during a ny six-month period is generally consistent with HUD’s requirements for servicer s 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 unl ess 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 du ring 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 informa tion 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 th at servicers provide borrowers with a written notice about their options by requiri ng 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. Accordingl y, 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 esta blish any requirements necessary to carry out section 6 of RESPA and has authority pursu ant to section 19(a) of RESPA to prescribe such rules and re gulations, 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 informati on 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 servic er’s mailing address and telep hone 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 expl aining how the borrower can obtain additional information about those options. Proposed § 1024.39(b)(2)(v) would requ ire 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 estimate212 for when the servicer may start the foreclosure pr ocess. This estimate would be required to be expressed in a number of days from the da te of a missed payment. Finally, proposed § 1024.39(b)(iv) would require serv icers to include contact info rmation for any State housing finance authorities, as defined in FIRREA sec tion 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 Foreclosur e” brochure that servicers of FHA loans are required to send by end of the second month of a borrower’s delinquency. 152 Additionally, during th e Small Business Panel Review proces s, small servicer representatives expressed concern that the information containe d in the written notice may differ from written information they currently pr ovide to delinquent borrowers. 153 Small servicers representatives were generally concerned that overly-prescr iptive 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 fl exible early intervention requirements for small servicers in light of their existing practices. 154 To accommodate existing servicer requi rements and practices, proposed comment 39(b)(2)-1 explains that a servicer may provi de additional information beyond the proposed content requirements that the servicer determin es 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 attempte d 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 provide d by the Federal agencies or the GSEs, the Bureau solicits comment on whether such info rmation would be bene ficial to delinquent borrowers. The Bureau solicits comment on th e 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 re quire the written notice to include a statement encouraging the borrower to c ontact 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 enc ouraging the borrower to call would remove this barrier to borrower-serv icer 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 emphasi ze 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 specifica lly request the borrower to cont act the servicer regarding any214 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 pe rsonnel for assistance with curing a delinquency or avoiding a delinquency, defa ult, or foreclosure for any borrower whom a servicer is required to notif y 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 explai ns that borrowers are likely to benefit from examples that permit them to remain in their hom es and examples of options that would require that borrowers end their ownership of the property in order to avoi d 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 earl y intervention require ments for the Small Business Panel, the Bureau consid ered requiring servicers to provi de 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 th ey 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 e ffect of encouraging borrowers to contact their servicer to discuss their options. To addr ess 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 housi ng finance authority. Housing counselors and State housing finance authorities may be able to provide th e 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 ma y 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 qualificatio ns 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 th at an example of loss mitigation option may be described in one or more sentences. Proposed comment 39(b)(2)(iii)-2 al so explains that if a servicer offers several loss mitigation programs, the servicer may provide a generic description of each option instead of providing detailed descri ptions of each program. For example, if a servicer provides several loan modificati on programs, it may simply provide a generic description of a loan modification. The Bur eau recognizes that loss mitigation options are complex and providing comprehensive explanat ions to borrowers about each option may overwhelm a delinquent borrower with informati on. Thus, the Bureau does not believe that216 borrowers would benefit from a disclosure with vo luminous 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 contac t 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 woul d be helpful to delinquent borrowers, and if more detail would be valuable, what sp ecific information should be required. Explanation of how the borrower may apply for loss mitigation options. Proposed § 1024.39(b)(2)(iv) would require th e 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 mi nimum, a servicer coul d comply with this requirement by directing the borrower to contact the servicer for more information, such as through a statement like, “contact us fo r 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, su ch as by listing repres entative documents the borrower should make available to the servicer, su ch as tax filings or income statements, and by providing estimates for when the servicer expect s 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 Bu reau considered requiri ng 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 that217 apply. 156 However, the Bureau is not proposing to requi re servicers to provide this level of detail in order to comply with proposed § 1024.39(b)(2)(i v). Each loss mitigation option may have its own specific documentation requirements and dead lines, and servicers may be unable to provide comprehensive application instruct ions generally applicable to a ll options. Additionally, because the Bureau is proposing that servicers only provi de examples of loss mitigation options in the written notice, detailed instruc tions for only the listed options may not be useful for all borrowers.
Foreclosure statement . Proposed § 1024.39(b)(2)(v) woul d require that the written notice include a statement explaining that forecl osure is a legal proce ss to end the borrower’s ownership of the property. Proposed § 1024.39(b)(2 )(v) would also requ ire that the notice include an estimate of how many days after a mi ssed 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 loa n, 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 ma y provide its estimate as a range of days. During the Small Business Review Panel proces s, some small servicer representatives explained that information about foreclosure is typically not provided un til 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 th e same time the borrower receives information about loss mitigation options. In order for borro wers to understand the ch oices 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 provi de detailed information about foreclosure because the Bureau recognizes that foreclosure processes are complex and vary by jurisdiction. The Bureau ques tions whether borrowers are lik ely to benefit from detailed information, particularly if they are experiencing financial distre ss. Nonetheless, the Bureau believes that borrowers should be informed about foreclosure to some degree. The Bureau invites comment on whether borrowers would be nefit from knowing when the servicer may begin the foreclosure process a nd whether servicers anticipate difficulty complying with this requirement. Contact information for hous ing counselors and State housin g finance authorities. Proposed § 1024.39(b)(vi) would requi re the written notice to incl ude 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 (H UD Approved Housing Counseling Agencies)

.219 counselors to provide delinquent borrowers with additional resources to understand their loss mitigation options. The Bureau is proposing to re quire similar information pertaining to housing counseling resources that would be required on the ARM interest rate adjustment notice and the periodic statement, as provide d 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 w illing to contact a housing counselor than their servicer to discuss their options. 160 In addition, a housing coun selor could also provide a borrower with additional information about loss m itigation 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 borro wers 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 propos ed 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 provi de a list of five homeowners hip 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 writte n notice for delinquent borrowe rs, however, the Bureau is not proposing to require that se rvicers 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 c ounseling 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—th e servicer, housing counselors, and the State housing finance authorit y. As previously noted, the Bureau believes that delinquent borrowers would benefit fr om 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 ther e is a benefit to providing distre ssed borrowers with a clear and concise notice. Providing contact informati on to access a list of c ounselors and counseling organizations would reduce the likelihood of information overload while still providing borrowers with access to assistance. In addition to information about accessing hous ing counselors, the Bureau is proposing to require that the proposed § 1024.39(b) written noti ce 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 app licant’s current address, or, if there ar e 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 lender s 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 borro wers 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 Bu reau is proposing that the § 1024.39(b) written notice include contact information for the State h ousing finance authority for the State in which the borrower’s property is located. The propos ed § 1024.39(b) written notice would be required for delinquent borrowers of fede rally 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 Stat e than the State in which the borrower resides. Accordingly, borrowers who are delinquent with re spect 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 in formation 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 cost s for servicers. The Bureau invites comment on how the Bureau can best mitigat e 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 soli cits comment on the costs and benefits of the provision of information about housing counselors and Stat e housing finance authorities to delinquent borrowers in the proposed noti ce 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 borro wer demand for counseling on existing counseling resources, including demand on State housing finan ce authorities. In particular, the Bureau solicits comment on whether the pr oposed notice at § 1024.39(b) s hould 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 inthe 2012 HOEPA Proposal. The Bureau also invites comment on whether incl uding 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 informa tion 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 counsel ors and State housing fi nance 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 info rmation about their options by setting forth the content requirements of the written notice ab out 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 au thority pursuant to section 6(j)(3) of RESPA to223 establish any requirements necessary to carry out section 6 of RESPA and has authority pursuant to section 19(a) of RESPA to prescribe such rule s and regulations, to make such interpretations, and to grant such reasonable exemptions for cl asses of transactions, as may be necessary to achieve the consumer prot ection 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 detail ed discussion of the proposed model clauses, see the section-by-section anal ysis of appendix MS below. Legal authority. As discussed above, the Bureau has authority to implement requirements for servicers to provide informa tion 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 counsel ors and State housing fi nance 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 clau ses that provide borrowers with information about their options as required under paragr aphs (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 furthe r has authority pursuant to section 6(j)(3) of RESPA to establish any requi rements 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 of224 transactions, as may be necessary to achiev e the consumer protection purposes of RESPA.
Small Servicers As discussed above, through outreach w ith servicers and servicing industry representatives, small servicers expressed concern that compliance with the information request provisions for oral information re quests would require small servic ers to invest in systems and processes at substantial costs. However, many sm all servicers generally e xplained that they did not expect the Bureau’s proposed early inte rvention requirements would impose significant burden because they were already providing ea rly intervention for delinquent borrowers. Accordingly, the Bureau is not proposing to prov ide small servicers with an exemption from the proposed notice requirements unde r proposed § 1024.39. However, in light of the feedback provided by small entity representatives during th e 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 c onsider alternative means of compliance with proposed § 1024.39 that would provide small servicers with addi tional 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 su bject to State and Fede ral 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 cl aim 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 Bur eau’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 onse t of the mortgage cr isis revealed that many servicers did not have the infrastructure ne eded to handle the high volumes of delinquent mortgages, loan modification requests, and fore closures they faced. Reports of servicers confusing delinquent borrowers with conflic ting or misleading information, losing or mishandling borrower-provided documents supporti ng loan modifications requests, failing to respond to borrowers’ inquiries about loss mitig ation 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 appropriate ly-trained staff to assist delinquent borrowers. 166 Regulators, both Federal and St ate, and the GSEs have res ponded 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 se rvicers participating in the Making Home Affordable Program to assi gn potentially eligible borrowers with a member of the servicer’s staff to assist such borrowe rs 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 Ca ldwell, Chief, Homeownershi p Preservation Office, U.S. Department of the Treasury), available at http://fin ancialservices.house.gov/media/pdf/021611caldwell.pdf; see also Maryland Foreclosure Task Force, Report, at 22 (January 11, 2012) (describ ing 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) (Mar yland Foreclosure Task Force Report), available at http://www.mdhousing.org/website/commTaskForce/doc uments/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 re submit loan modification appli cations because the servicer could not locate them in its system).226 coordinating the servicer’s acti ons to resolve the borrower’s de linquency or default and must perform certain functions with respect to the bor rower, 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 rega rding a borrower’s loan modification application. 167 The National Mortgage Settlement, discussed in part II.C, ab ove, establishes similar staffing requirements for servicers to follow 168 As part of the GSE Servicing Alignment Initiative, Fannie Mae and Freddie Mac also established guidelines for serv icer to follow when re sponding to delinquent borrowers to promote consistent borro wer communications throughout delinquency. 169 In July 2012, the State of California amended its laws to re quire 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 st andards discussed prev iously, however, there are currently no minimum uniform national standards that apply across the mortgage servicing industry. Proposed § 1024.40, discussed in detail below, would establ ish minimum staffing requirements that would apply to all mortgage servicers. The proposal is built around three obligations. First, servicers would be require d to assign personnel to delinquent borrowers. Second, the servicers would be re quired 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: Borrow er 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.leg info.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 m itigation options. Third, servicers must establish policie s and procedures reasonably desi gned to ensure that servicer personnel available to the borro wer 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 borro wer 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 en ded when servicing for the borrower’s mortgage loan has transferred to a transfer ee servicer, subject to § 1024.40(c)(1)-(4), the transferee servicer must assi gn personnel to respond to the borrower’s inquiries, and as applicable, assist the borrower with loss mitiga tion options, within reasonable time of the transfer of servicing for the borrower’s mortgage loan. Proposed comment 40(a)-1 explains that fo r 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 ha s 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 im plemented. 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 serv icers to assign personnel to borrowers whom servicers are re quired to notify pursuant to § 1024.39(a). If a borrower whom a servicer is not required to notif y pursuant to § 1024.39(a) contacts th e 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 co mment 40(a)-4 explains that § 1024.40(a)(1) does not permit or require a servicer to take any action incons istent with applicable bankruptcy law or a court order in a bankruptcy case. The Bureau intends § 1024.40 to work w ith 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 th at 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 fru strations of delinquent borrowe rs include having to deal with servicers who would transf er 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 pr eviously submitted. By requiring servicers to assign the responsibility to assi st delinquent borrowers to specific individuals, the Bureau believes that proposed § 1024.40(a)(1) would bri ng a more streamlined approach to how servicers communicate with delinquent borrowe rs. The streamlined approach would be229 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 ap propriate to provide a servicer with some time to make the pers onnel assignment. Additi onally, there could be situations where the servicer complies with the oral notification requireme nt with respect to a borrower, even though the servicer is not required to do so. Fo r example, a borrower could miss his or her payment due on February 1. On Fe bruary 29, the end of the month, payment has not been received. The servicer may choose to or ally 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 pursu ant to proposed § 1024.39(a). Hence the Bureau believes it is appropriate to provi de 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 th at a servicer’s obliga tion in proposed § 1024.40 extends to persons authorized to act on behalf of the borrower. Proposed comment 40(a)-2, discussed above, re flects the Bureau’s be lief that a transferee servicer may require some time after the transf er of servicing to identify delinquent borrowers who had personnel assigned to them by the transfer or servicer. The Bureau believes that 30 days is a reasonable amount of time fo r a transferee servicer to assign personnel to a borrower whose230 mortgage loan has been transferred to the serv icer through a servicing transfer. The Bureau invites comments on whether a long er time frame is appropriate. Proposed comment 40(a)-3.i. discussed above, is consistent with th e Bureau’s recognition that a one-size-fits-all approach to regulati ng the mortgage servicing industry may not be optimal, 171 and thus servicers should be given flex ibility 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 withrespect 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 expect s to be late in making a particul ar 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 co st 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 c ontacts the servicer about a possi ble 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 wi th the borrower. As discussed pr eviously, no later than five days after a servicer has notified or ma de a good faith effort to notify a borrower to the extent required by § 1024.39(a), the servicer must assign personne l 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 inc onsistent with applicab le bankruptcy law or a court order in a bankruptcy case. During outreach, the Bureau le arned 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 clarif ication should be provided with respect to the relationship between proposed § 1024.40 and bankr uptcy 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 se ction 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) woul d bring a more streamlin ed approach to how servicers communicate with delinquent borrowe rs. 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 prescrib e regulations that are appropriate to carry out the consumer protecti on purpose of RESPA. Accordingly, the Bureau proposes to exercise its authority under sec tion 6(k)(1)(E) of RESPA to add new § 1024.40(a)(1) to Regulation X. The Bureau further has authorit y under to section 6(j)(3) of RESPA to establish any requirements necessary to carry out section 6 of RESPA, and under se ction 19(a) of RESPA232 to prescribe such rules and regula tions, and to make such interpre tations as may be necessary to achieve the consumer prot ection purposes of RESPA. 40(a)(2) Access to As signed Personnel Proposed § 1024.40(a)(2) would require a serv icer to make access to the assigned personnel available via telephone. If a borrower contacts the servic er 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 impor tance of interactive conversations with delinquent borrowers in the di scussion of proposed § 1024.39(a). For similar reasons, the Bureau is requiring servicers to provide te lephone access where the bor rower can receive live responses. The Bureau understands that some serv icers 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. Accord ingly, 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 notalways reach a live person. Additionally, the Bureau does not believe it is necessary to requ ire servicers to make access to a live person available 24 hours a day, seven days a week. Accordingly, the Bu reau 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 comm ent 40(a)(2)-1 provides that for purposes of § 1024.40(a)(2), three days (excluding legal pub lic holidays, Saturdays, and Sundays) is a233 reasonable time to respond. The Bureau invite s 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 intera ctive conversations with delinque nt borrowers. At the same time, the Bureau recognizes that it is not always possible that when a bor rower 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 author ity 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 requi rements necessary to carry out section 6 of RESPA, and under section 19(a) of RESPA to prescr ibe such rules and regulations, and to make such interpretations as may be necessary to ach ieve the consumer protection purposes of RESPA. 40(b) Functions of Servicer Personnel 40(b)(1) In General Proposed § 1024.40(b)(1) would require servicer s to establish policies and procedures reasonably designed to ensure that the servi cer personnel it makes ava ilable to the borrower pursuant to § 1024.40(a) perform an enumerat ed 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 borro wer must take to appeal the se rvicer’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 establis hed by the servicer that the borrower must

meet. (ii) Access: (A) A complete record of the borrower’s pa yment history in the se rvicer’s possession; (B) All documents the borrower has submitted to the servicer in connection with the borrower’s application for a loss mitiga tion option offered by the servicer; and (C) If applicable, documents the borrower ha s 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 pers ons authorized to evaluate a borrower for loss mitigation options o ffered by the servicer if the servicer personnel assigned to the borrower is not authorized to ev aluate a borrower for loss mitigation options; and (iv) Within a reasonable time after a bo rrower request, as applicable, provide the information to the borrower or inform the bo rrower of the telephone nu mber and address the servicer has established for bo rrowers to assert an error pursuant to § 1024.35 or make an information request pursuant to § 1024.36. Propos ed comment 40(b)(1)(iv) clarifies that for purposes of § 1024.40(b)(1)(iv), three days (exc luding legal public holid ays, Saturdays, and Sundays) is a reasonable time to provide the information the bo rrower has requested or inform235 the borrower of the telephone num ber 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 sufficien t, 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 lo ss mitigation requests adequately. The Bureau believes proposed § 1024.40(b)(1) woul d require servicers to provide appropriately-trained staff to assist delinquent borrowers. Further, as di scussed 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. Secti on § 1024.40(b)(1) addresses this duty by requiring the personnel assigned to the borrower to info rm 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 bo rrower with accurate information about any loss mitigation deadlines established by the serv icer 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 requi re 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 provide236 servicers with discretion on how they assist deli nquent borrowers. The Bureau understands that for some servicers, especially servicers that have a small mortgage servicing portfolio of mortgage loans they originated, the personnel su ch servicers assign to work with delinquent borrowers typically have authority to evaluate borrowers’ loss mitigation applications. But other servicers, especially large serv icers or those whose servicing po rtfolios are made of loans owed by mortgage investors, the process of evaluati ng borrowers for loss mitigation involves multiple parties. For these servicers, the personnel they assign to a deli nquent borrower to provide live, telephonic responses to the borrower’s inquiries may not have the authority to evaluate the borrower’s loss mitigation application. Pursuantto 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 rec ognizes that mortgage investors and other regulators have responded with requiring servic ers to adopt staffing standards. The Bureau proposes the list of functions with an eye to harmonize th e various staffing standards that exist. The Bureau believes proposed § 1024.40(b)(1) w ould 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 sta ffing failures in mortgage servicing practices, borrowers may seek information that is temporarily unavailable to the serv icer. For example, a borrower’s most current payment information may not be immediately ava ilable because it takes time for the payment to post to the borrower’s ac count. Another example is that documents a borrower has submitted to the servicer in c onnection with the borro wer’s loss mitigation237 application may not be immediatel y 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 appropriate ly addressed through proposed §§ 1024.35 (Error Resolution Procedures) or 1024.36 (Requests for Information). The Bureau proposes to provide serv icers with the discretion to make that determination. But the Bureau notes that even when a borrower re quest is addressed through proposed §§ 1024.35 or 1024.36, the personnel the servicer assigned to th e 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 se ction (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 av ailable to help delinquent borrowers is necessary, but not suffi cient, to ensure that when a bo rrower at a high risk of default reaches out to a servicer for assistance, the bor rower is connected to personnel who can address the borrower’s inquiries or loss mitigation request s adequately. The Bureau believes proposed § 1024.40(b)(1) would require servicers to provide a ppropriately-trained sta ff 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 sectio n 19(a) of RESPA to prescribe such rules and regulati ons, and to make such interpretations as may be necessary to achieve the consumer prot ection purposes of RESPA. 40(b)(2) Safe Harbor Proposed § 1024.40(b)(2) provides that a servi cer’s policies and proc edures satisfy the requirements in §1024.40(b)(1) if servicer personne l do not engage in a pattern or practice of238 failing to perform the functions set forth in§ 1024.40(b)(1) where a pplicable. 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 perfor m 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 occas ions, such as, for example, repeatedly providing the borrower with inaccurate informa tion about the status of the loss mitigation application the borrower has submitted. Proposed co mment 40(b)(2)-1.ii. explains that a servicer exhibits a pattern or pr actice of failing to perform such func tions, with respect to a large number of borrowers, if servicer personne l assigned to the borrowers fail to perform any of the functions listed in § 1024.40(b)(1) where applicable in si milar 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 establis h policies and procedur es reasonably designed to ensure that the servicer personnel it makes available to a borrower pursu ant to § 1024.40(a) perform an enumerated list of functions wh ere applicable. The Bureau re cognizes that servicers, after complying with the servicer obligation ( i.e., established policies and procedures that are reasonably designed to ensure the personnel th ey make available bo rrowers 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 indicat ive of servicers not complying with the servicing oblig ation 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 ar e 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 design ed to ensure that the servicer personnel it makes available to borrowers perform the functions listed un der proposed § 1024.40(b)(1), such personnel may occasionally make a mistake. The Bu reau believes that an occasional mistake is not necessarily indicative of a servicer’s fail ure to comply with proposed § 1024.40(b)(1). The Bureau further has authority pursuant to secti on 6(j)(3) of RESPA to es tablish 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 interp retations 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 en sure 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) Th e 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 a ll amounts owed in arrears; or (ii) the borrower and the servicer have entered into a permanen t 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 ap plicable, a short sale, or a foreclosure sale; or (5) if240 applicable, a reasonable time has passed since se rvicing 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 accepta nce as an appropriate indicator of whether a previously-delinquent borrower could succeed in keep ing his or her mortgage loan current. For example, under Treasury’s HAMP program, a borro wer is put in a trial modification period lasting three months. The borrower must have ma de all trial period paym ents 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 § 1024.4 0(c)(5), a reasonable time has passed when servicing for the borrower’s mortgage loan was tr ansferred 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 tran sfer of servicing to identify borrowers who had personnel assigned to them by the transferor servicer. Accordingly, the Bureau believes that it is appropr iate to require the transferor se rvicer 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 Hand book, 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 serv icers 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 assistan ce 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) in dicates when assistance is no longer practicable. As discussed above, secti on 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe regulations that ar e 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 RE SPA 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 be yond 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, dela ys or failures caused by third parties, such as a borrower’s delay or failure to submit any requeste d information, disruptions in telephone service, computer system malfunctions, and labor disp utes, such as strikes. Proposed § 1024.40(d) reflects the Bureau’s belief th at even if servicers implemen t processes that would address staffing failures that had a si gnificant adverse impact on borrowers seeking alternatives to242 foreclosure, circumstances beyond a servicer’s control may occasionally occur that could adversely affect a servicer’s abil ity to provide adequate and appropr iate 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 a ppropriate to carry out the consumer protection purposes of RESPA. As discussed above, propose d § 1024.40(d) reflects the Bureau’s belief that even if servicers implement proc esses that would address staffing failures that had a significant adverse impact on borrowers s eeking alternatives to foreclosure, circumstances beyond a servicer’s control may occasionally occur that co uld adversely affect a servicer’s ability to provide adequate and appropriate staff to assist delinquent borrowers. The Bureau additionally relies on its authority under sec tion 6(j)(3) of RESPA to establis h any requirements necessary to carry out the purposes of REPSA, and under secti on 19(a) of RESPA to make such rules and regulations and to make such interpretations as may be necessary to ach ieve 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 poli cymakers regarding servicers’ performance of loss mitigation activity in connection with the mort gage market crisis. In response, servicers, investors, guarantors, and State a nd Federal regulators ha ve 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, which243 established guidelines for Federal government sponsored loss mitigation programs such as HAMP; 174

 The Federal Housing Finance Agency (F HFA) directed Fannie Mae and Freddie Mac to align their guidelines for servicing de linquent mortgages they own or guarantee to improve servicing practices; 175

 Prudential regulators, in cluding 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 servici ng 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 standard ization to significant portions of the market, none of them to date have set a consistent nationa l set of procedures and

174 www.makinghomeaffordable.gov. 175 Federal Housing Finance Agency, Press Release: Fannie Mae and Freddie Mac to Alig n Guidelines for Servicing Delinquent Mortgages (April 28, 2011), available at http://www.fhfa.gov/we bfiles/21190/SAI42811.pdf. 176 OCC Press Release, OCC Takes Enforcement Action Against Eight Servicers for Unsafe and Unsound Foreclosure Practices (April 13, 2011), available athttp://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 th at activity has such potentially significant impacts on both individual consumers and the he alth of the larger hous ing market and economy, consistent uniform minimum regul ations would be appropriate a nd useful to set borrower and servicer expectations and provide necessary consumer protections. The Bureau has considered a number of diffe rent options for addressing consumer harms relating to loss mitigation. In general, the Fede ral 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 viol ation of the mandated outc omes); 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 pr ovide consumer protec tions without mandating specific outcomes or whether to mandate spec ific outcomes by establis hing 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 modifi cation 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 Bur eau’s goal is not to ach ieve any particular target with respect to the number or speed of foreclosures. The Bu reau’s goal rather is to ensure that borrowers are protected from harm in conne ction 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 for eclosure. 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 re view 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 Bur eau has properly identified consumer harm, whether the proposed solutions will effectively ad dress the identified consum er harm, the risk of unintended market consequences and costs, and th e 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, a nd are protected from foreclosure until the process of evaluating the bo rrower’s complete loss mitigation application has ended. At the same time, the Bureau is concer ned that going beyond process rights to give borrowers the ability to f ile suit over the merits of indivi dual loss mitigation options could have negative effects on the availability and st ructure of loss mitigation programs and, indeed, of mortgage credit generally. The Bureau is concer ned that investors and gu arantors 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 the246 structure and administration of the programs. 181 Alternatively, the prospect of delays and litigation risk might causing certain investors and guarantors to signifi cantly reduce mortgage market activity, thus potentially curtailing gene ral access to credit. The Bureau acknowledges the deep frustration and desperate circumstances th at record numbers of borrowers face as they struggle to keep their loans current in this di fficult economy, and believes that a solution that eliminates or severely restricts the recent increase in loss mitiga tion 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 certa in duties in connection with the evaluation of borrower appl ications 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. Sec ond, 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.frba tlanta.org/filelegacydocs/wp0915.pdf. 182 Although efforts to gather reliable data about the prevalence of problems resultin g from proceeding with a foreclosure sale while loss mitigation discussion are ongo ing, 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, Work ing 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 at247 Third, proposed § 1024.41 sets timelines that are designed to be comple ted without requiring a suspension of the foreclosure sale date to avoi d strategic use of thes e procedures to extend foreclosure timelines and delay invest or recover through foreclosure. Although the proposed rule would prohibit a se rvicer 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 ba lanced approach that considers the needs of consumers, servicers, and mortgage loan invest ors. This balance cons iders the interest of consumers in having servicers provide good fa ith evaluations and implementation of loss mitigation options as well as the interests of inve stors 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 i nvest 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 a nd non-judicial foreclosure. Some steps may be internal to an individual serv icer, such as referring a case to a foreclosure department. The timing for other steps may be cont rolled by State law or c ourt 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/201206 19-real-estate-homeowner-pr otests-dual-tracking.ece

. The NCLC conducted a survey of consum er attorneys to identify instances of foreclosure sales occurring while loss mitigation discussions were on-going. Per that survey, 80 % of surveyed consumer atto rneys 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/foreclos ure_mortgage/mortgage_servicing/wron gful-foreclosure-s urvey-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 for eclosure sale while a complete and timely loss mitigation application is pending – the proposed ru le 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 Bu reau proposes to implement obligations on servicers to contact borrowers early in the delin quency 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 cont act personnel to assist the borrower with the process of applying for a loss m itigation 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 servicer s 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 a ssert an error as a result of a servicer’s failure to postpone a scheduled foreclosure sale when a servicer ha s 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 impl emented 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 in stances, each of these other sources of servicing requirements may be more restrictive or pr escriptive than proposed § 1024.41. That is intentional. Proposed § 1024.41 es tablishes a floor of minimu m consumer protections and provides flexibility for Federal regulatory agen cy 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 w ould 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 im prove loss mitigation outcomes for all parties. The Bureau seeks comment on whether the proposed requirements strike th e appropriate balance between ensuring that consumers' timely and co mplete applications receive fair and full consideration and ensuring predicta bility of outcomes for investor s 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 M ac, or Ginnie Mae requirements, or requ irements 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 requir ements in proposed § 1024.41 apply to any servicer that offers loss mitigation options in th e 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 cour se of business of evaluating loss mitigation options for their own portfolios or pursu ant to duties owed to investors or guarantors of mortgage loans. These incl ude 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, priv ate investors, orgovernment 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 mitiga tion 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 guarantor s 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 borrowe r for a loss mitigation option and that the rules should not be construed to impose liability on a se rvicer, or any other party, for any failure to offer a loss mitigation option, so long as the serv icer 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 s ubject to proposed § 1024.41. In proposed comment251 41(a)-2, the Bureau sets forth examples of pr actices 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 advers e 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 th at 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 Mitigati on Application. Proposed § 1024.41(b)(1) provides that a comple te loss mitigation application includes all the information the servicer regularly obta ins and considers in evaluating loss mitigation applications. This provision provides each servic er with flexibility to establish requirements regarding the type of information that the se rvicer deems necessary to determine whether a borrower is eligible for a loss mitigation op tion based on differing investor or guarantor guidelines. Upon receipt of an incomplete loss m itigation application, proposed § 1024.41(b)(2) requires servicers to exercise reasonable dilig ence 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 (excluding252 legal public holidays, Saturdays, or Sundays) pr ovide a notice to a borrower. The notice must state that the application is incomplete, iden tify the additional information or documents necessary to make the application complete, a nd provide a deadline by wh ich the borrower must submit the additional information or documents. The Bureau believes it is appr opriate to require that servic ers 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 incomp lete application. Fannie Mae a nd Freddie Mac guidelines, as well as the national mortgage settlement, require servicers to provide a su bstantially similar but, in some cases more prescriptive, notice within 5 business days of receipt of an incomplete application. 184 When a servicer receives an applicati on 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 applic ation, determine the information or documents that have not been provided and provide that info rmation to the borrower. Further, even when a loss mitigation application is submitted less th an 5 days (excluding legal public holidays, Saturdays, or Sundays) before the applicable deadline, a servicer mu st 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 app lication. Further, unless an incomplete loss mitigation application is made complete by the d eadline 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 obligat ions in connection with an incomplete or substantially complete loss mitigat ion application and what any further obligations should be. 41(c) Review of Loss Mitigation Applications Proposed § 1024.41(c) states that, within 30 da ys of receiving a complete loss mitigation application, a servicer must evaluate the borrowe r 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 sta ndard, 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 borrowe r to determine the loss mitigation programs for which a borrower may qualify. Currently, many i nvestors and guarantors have established set priority orders for evaluating and offering loss mitigation options rather than requiring borrowers to select loss mitigation program s. 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 borrowe r that may qualify for a program farther down on the priority list may believe th at 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 timelin es 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 bo rrower 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, se rvicers will not be required to evaluate borrowers for any programs for which a borrower does not qua lify based on eligibilit y 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 re quirement 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 mitiga tion options. The Bureau agrees that the proposed rules would impact the ability to mana ge programs through the use of a loss mitigation option priority order, as a serv icer 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 thro ugh 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 co mplete loan modification applic ation, 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 elimin ates the need for borrowers to submit multiple applications for different loss mitigation opti ons and, thus, provides for more efficient compliance by servicers with the requirements of the rules. Proposed comment 41(c)(1)-1 clarifies that th e servicer’s evaluation of a borrower for a loss mitigation option is subject to the eligibilit y criteria for each loss mitigation option. For example, if a loss mitigation option is only availa ble for military servicemembers, a servicer has conducted a proper evaluation if it determines that the borrowe r 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 fr om eligibility, a servicer is not obligated to evaluate the borrower for any such loss mitigation op tion 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 fr om 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 lo ss 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, app eal, the servicer’s determination. The Bureau requests comment regarding whethe r 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 servi cer’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 loss256 mitigation options for which the borrower may be eligible. 41(d) Denial of loan modification options Proposed § 1024.41(d) imposes additional oblig ations on servicers that deny borrower loss mitigation applications with respect to tr ial or permanent loan modifications. When a servicer determines that a borrower is not elig ible for a loan modification as a loss mitigation option, the written notice provided by the servicer to the borrower mu st state the specific reasons for the determination and inform the borrower of th e right to appeal the se rvicer’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 be lieves 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 ap propriate and relevant information to servicers in connection with the a ppeal process. Further, these requirements are consistent with the national mortgage settlement. 186 The Bureau requests comment regarding whet her servicers should pr ovide the basis for the servicer’s determination that a borrower does not qualify for each loan modification program. The Bureau further requests comment on whethe r servicers should be re quired 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.257 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 require d to provide the basis for the se rvicer’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 mitigati on option, subject to standards for acceptance and rejection set forth in the rule. The proposed rule provides th at 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 sta ndard would set forth a presumpti on 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 presum ption 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 mitigati on option is consistent with GSE requirements,258 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 m itigation 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 forecl osure 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 a nd a servicer is not required to consider any further appeals after the initial appe al. 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 da ys before foreclosure sa le, the process can be completed without rescheduli ng 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 mitigati on option must not exceed 30 days and th at 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 w ithin 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 forecl osure sale has not been scheduled, or where a foreclosure sale may occur less than 90 days afte r the sale is scheduled pursuant to State law, a servicer should establish a deadline that is no ear lier than 90 days before the day that a servicer reasonably anticipates that a forecl osure sale will be scheduled. 41(g) Prohibition on Foreclosure Sale Proposed § 1024.41(g) provides that if a servic er receives a complete loss mitigation application by the deadline es tablished pursuant to proposed § 1024.41(f), the servicer may not proceed to foreclosure sale unless: (1) the serv icer denies the borrower’ s application for a loss mitigation option and the appeal process is in 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; (3) the borrower rejects a servicer’s offer of a loss mitig ation option; or (4) a borrower fails to perform pursuant to the terms of a loss mitigation option. The Bureau believes it is appropriate to requ ire 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 d eadline established by the servicer, a servicer should not proceed with a scheduled foreclosur e sale until the servicer and borrower have terminated discussions regarding the loss mitig ation 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 appropria te to suspend a scheduled foreclosure sale when a borrower is performing under an agreemen t on a loss mitigation option. A servicer’s basis for servicing a mortgage loan, and undertak ing actions to collect on an unpaid obligation, emanates from the contractual relationship between the owner or assignee of the mortgage loan260 and the borrower. A servicer’s determination to hold a scheduled foreclosure sale when a borrower is performing under an ag reement that forestalls forecl osure violates the agreement entered into with the borrower . Additionally, it is already standard industr y practice for a servicer to suspend a scheduled foreclosure sa le during any period wher e 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 op tion or deny the borrower’s request for a loss mitigation option. If the borrower’s request is de nied, the borrower may file an appeal if the denial concerns a trial or permanent loan modi fication. 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 of fered, 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 mitig ation option, the servicer may proceed to a foreclosure sale. If the borro wer accepts the loss mitigation option, the borrower will either perform or fail to perform pursu ant to the terms of the agreem ent 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 cl arify the application of the borrower performance definitions with respect to short sale s. 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 s hort sale transaction. The proposed comments clarify that a borrower is performing under the term s of a short sale agreement or other similar261 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 proo f of funds or financing. Further, a servicer’s failure to suspend a sc heduled foreclosure sale when a servicer has failed to comply with the requirements of propos ed § 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 resolu tion 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 e rror 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 require d to comply with the full erro r resolution procedures and may, alternatively, respond to the borro wer orally or in writing in res ponse 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 asserti ons of error on a very expedited basis by confirming that the appr opriate procedure was followed. By prohibiting a servicer from proceeding with a scheduled foreclosure sale until termination of loss mitigation discussion, the Bur eau proposes to eliminat e 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 modificati ons reduces burdens on servicers and maintains262 consistency with existing appeals and escalation processes establis hed 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 ar e some of the most complex loss mitigation programs with respect to the evaluati on of borrowers, and the Bureau believes that loan modification provides an appropri ate scope for an appeal process. Pursuant to proposed § 1024.41(h), if a servi cer reviews an appeal and determines to offer a loss mitigation option, the servicer sha ll not foreclose on a borrower unless the borrower rejects the offer of the loss mitigation option or fa ils to comply with terms of the loss mitigation option. If a servicer denies a borrower’s app eal of a loss mitigation option, the servicer may proceed with a foreclosure sale. Proposed § 1024.41(h) would provi de that an appeal must be reviewed by servicer personnel that were not di rectly involved in the initial evalua tion. The Bureau believes that this basic safeguard would help to reduce the risk of bias in the appeals proc ess, since the person who made the initial decision may have a particularly strong interest in upho lding that decision. Proposed comment 41(h)(3)-1 clarifies that superv isory personnel that supervised the personnel that conducted the initial evalua tion may conduct the appeal evaluati on if they were not directly involved in the initial evaluati on. Proposed § 1024.41(h)(4) provides for the servicer to provide a written notice to the borrower stat ing the servicer’s determination. The Bureau requests comment on whether to re quire 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 sim ilar loss mitigation options. Further, the Bureau requests comment regarding the impact on small se rvicers (as that term is defined in the 2012 TILA Servicing Proposal) of the requirement that the appeal mu st be evaluated by servicer personnel that were not directly involved in th e initial loss mitigation ap plication 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 requir ed to comply with the requirements of proposed § 1024.41 if a borrower ha s 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 requi rements of § 1024.41 to a subsequent complete application for a loss mitigation option. In situations where servic ing has transferred after the borrower received an evaluation on a complete loss mitigation appl ication from the transferor servicer, the transferee servicer may be requi red to comply with the requirements of proposed § 1024.41. The Bureau believes that when an investor is tr ansferring servicing to a new servicer, which may have been driven by owner or assignee’s determin ation that the new serv icer can better achieve loss mitigation options with borrowers, borrowers should be able to renew an application for a loss mitigation option with the transferee servi cer, 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 cha nge 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 servi ce mortgage loans that have senior or subordi nate liens encumbering the property that is the subjection of the loss mitigation application, and (2) provide the lo ss mitigation applicati on received from the borrower to the other servicer. Loss mitigation applications for properties en cumbered 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 servic ers the obligation (1) to identif y other servicers that may be impacted by loss mitigation evaluation for a pr operty 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 mitig ation options to borrowers in the ordinary course as required by proposed § 1024.41(a). Furt her, the servicer th at receives the loss mitigation application from another servicer shall be required to comply as if the servicer received the application from the borrower. Fo r 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 pur suant 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-B liley Act as implemented by Regulation P does not require provision of aninitial notice and opt-out in connection with providing the loss mitigation application submitted by a borrow to anot her servicer under the exception set forth in 12 CFR 1016.15(a)(7).265 Small servicers. The Bureau is conscious of the poten tial 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 Pa nel and conducted outreach with small entity representatives. At the time the panel proces s was conducted, the Bureau had not decided to include a separate provision concerning loss mitiga tion 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 servici ng 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 partic ular, the Bureau requested feedback from small servicers on the following: (1) a duty to susp end a foreclosure sale while a borrower is performing as agreed under a loss mitigation opti on or other alternative to foreclosure; (2) the ability to adopt policies and procedures to fac ilitate review of borrowers for loss mitigation options; (3) the ability to provide information re garding 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 w ith 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 signi ficant foreclosure related information, and generally worked closely with foreclosure couns el such that foreclos ure processes and loss mitigation could be easily conducted simultaneous ly 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 represen tatives explained that they were willing to communicate with borrowers about loss mitigati on contemporaneously with the foreclosure process, and one small entity representative in dicated that it would be willing to bring a mortgage file back to the servicer for consid eration of a modi fication and halt the foreclosure process, if appropriate. 191 Based in part on the outreach with the sm all entity representativ es on April 24, 2012, as well as other feedback obtained by the Bureau afte r that outreach meeting, the Bureau considered proposing clearer and more deta iled 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 w ithin the provisions relating to error resolution, reasonable information manageme nt policies and procedur es, 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 fo rth in the Small Business Review Panel Report, although that report and the outreach meeting wi th small entity representatives were not structured around the discussion of regulations relating to loss mitigation obligations as a separate section and did not focu s in significant detail on some of the specific measures proposed here such as, for example, appeals of loss mitig ation determinations. The Bureau also believes that adding a separate section to address loss mitigation provides greate r regulatory clarity to servicers, including small servicer s. 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 require ments in proposed § 1024.41 on small servicers.

191 See Small Business Review Panel Report at 26.267 Specifically, as set forth above, the Bureau request s comment of the requirement that an appeal must be evaluated by servicer personnel that were not directly invol ved in the initial loss mitigation application evaluation. Legal authority. In proposing § 1024.41, the Bureau reli es on its authority in section 6(k)(1)(E) of RESPA to set forth obligations appropriate to ca rry 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, propos ed § 1024.41 implements, in part, a servicer’s obligation to take timely action to correct erro rs relating to avoiding foreclosure in section 6(k)(1)(C) of RESPA by establishing servicer duties to avoid for eclosure that are the subject of the error resolution provis ions 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 fo rms, model clauses that servicers may use to comply with the mortgage servicing requireme nts of Regulation X. As discussed in detail below, the Bureau proposes to modify the model fo rm applicable to servicing transfer disclosure requirements, to add a new model for force-placed insurance disclo sure requirements, and to add new model clauses for early intervention notice re quirements. 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 interventi on written notice. The Bureau is proposing these comments to provide guidance that would be generally applicable for the mortgage268 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 append ix 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 regulatio n must be set forth in the disclosures. Proposed comment MS-2 explains that servicer s may make certain changes to the format or content of the forms and clau ses and may delete any disclosures that are inapplicable without losing the protection from liability so long as th ose 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. Excep t as otherwise specific ally required, acceptable changes include, for example: (1) use of “bo rrower” 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 fo rmat for the servicing transfer disclosure required pursuant to section 6(a)(3) of RE SPA 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 connec tion with mortgage se rvicing transfers. As a preliminary matter, the Bureau observ es that unless a transferor and transferee servicer coordinate to provide a consolidated disclosure, a borrower will receive substantially269 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 leng thy and unnecessary disclosures. The Bureau proposes to streamline the langua ge of the model form to focus on only the elements of information that a borrower needs in connection with a mortga ge 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 im pact of the transfer on any insurance products and (6) a statement that the transfer does not otherwise affect the term s or conditions of the mortgage loan. The Bureau proposes to remove significant discussion in the mode l form regarding the availability of the qualified wri tten request process and the borro wer’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 re quirements set forth in th is 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 a nd inquiries they rece ive as a result of having provided the appropriate contact informa tion 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 a dded discussion of the qua lified written request process and RESPA provided additional practica l 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 set270 forth requirements on servicers with respect to pr oviding the mortgage serv icing 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 mode l forms that mortgage servicers may use to comply with the Bureau’s force-placed insura nce disclosure requireme nts. As discussed previously in the Bureau’s discussion of proposed appendix MS, servicers ar e not required to use model forms to comply with the mortgage servic ing 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 regulati on with regard to those disclosures. Proposed comment MS-3-1 provides that th e model form MS-3(A) illustrates how a servicer may comply with § 1024.37(c)(2). Prop osed comment MS-3-2 provides that the model form MS-3(B) illustrates how a servicer ma y 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 in surance” to describe for ce-placed insurance. As discussed previously, the Bureau believes th at 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 th e new Dodd Frank Act requirement s about advance notification before servicers charge borrowers for force-pl aced insurance. The Bureau’s proposed force-271 placed insurance notice requirements are set fort h 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 discu ssed 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 Wr itten Early Intervention Notice Model clauses in proposed appendix MS-4 il lustrate the disclosu res that would be required under proposed § 1024.39(b)(1). They enc ourage the borrower to contact the servicer and provide information about loss mitigation op tions, 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 cont act the servicer, as w ould be required under proposed § 1024.39(b)(2)(i) and (ii). Clauses in Model MS-4(B) illu strate 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 cont ain sample clauses for all loss mitigation options that may be available; they illustra te only four commonly offered examples: (1) forbearance, (2) mortgage modification, (3) short-sa le, and (4) deed-in-lieu of foreclosure. These examples of loss mitigation options may not nece ssarily 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 s ubstitute 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 info rmation about loss mitigation options, as would272 be required under proposed § 1024.39(b)(2)(iv). If th e servicer offers no loss mitigation options, a servicer may not include Models MS-4(B) an d MS-4(C) because including those statements would be misleading. The Bureau solicits comme nt on the examples of loss mitigation options and the descriptions of those examples in Mode l MS-4(B). The Bureau also solicits comment on whether alternate or additional model clauses wo uld be helpful to borrowers and servicers. Clauses in Model MS-4(D) illu strate how a servicer may explain foreclosure and provide the estimated number of days in which the servic er 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 finan ce authority and housing counselors, as would be require d 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 th e 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 substitu ting 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 propos ed 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 te sted 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 consum er testing of these clauses is necessary and whether the Bureau should consider modify ing, deleting, or adding any proposedclauses 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 th ese 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 a dd new appendix MS-4 to Regulation X. VII. Section 1022(b)(2) Analysis In developing the proposed rule, the Bureau ha s considered potential benefits, costs, and impacts, and has consulted or offered to consul t with the prudential regulators, HUD, the Federal Emergency Management Agency, FHFA, and th e 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 fr om the United States Department of Agriculture Rural Housing Servic e, the Farm Credit Administration, the Federal Housing Administration, Ginnie Mae, and the De partment of Veterans Affairs regarding the potential impacts of the proposed rule on those entities’ loan or securitization programs. As discussed in greater deta il elsewhere throughout this SUPPLEMENTARY
INFORMATION , in this rulemaking, the Bureau proposes to amend Regulation X, which implements RESPA, as part of the Bureau’s im plementation of the Dodd-Frank Act amendments to RESPA regarding mortgage loan servici ng. The proposed amendments to Regulation X implement section 1463 of the Dodd-Frank Act, which imposes obligatio ns on servicers with respect to resolving errors a nd 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 pe rsons, including the potential reduction of access by consumers to consumer financial products or services; th e impact on depository institutions and credit unions with $10 billion or less in total assets as described in sectio n 1026 of the Dodd-Frank Act; and the impact on consumers in rural areas.274 borrowers, and to ensure that a reasonable ba sis exists to obtain fo rce-placed insurance. In addition, the proposal includes additiona l amendments to Regulation X to impose servicer obligations the Bur eau has found, pursuant to author ity under RESPA section 6, as amended by the Dodd-Frank Act, to be appropr iate 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: establ ish reasonable information management policies and procedures; undertake early intervention wi th delinquent borrowers; provide delinquent borrowers with continuity of contact with st aff 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 CF R 1024.21. Such amendments relate to, for example, disclosures of mortgage servicing transf ers 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 Bu reau 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 mortga ges (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 paym ent changes to ARMs in current § 1026.20(c).275 As discussed in greater de tail elsewhere in this SUPPLEMENTARY INFORMATION , the recent financial crisis e xposed pervasive consumer pr otection problems across major segments of the mortgage servicing industry. As a result of these pr oblems, Congress included in the Dodd-Frank Act the provisi ons 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, provi de substantive protections to consumers, enhance the ability of co nsumers to obtain information from a nd dispute errors with servicers, and provide consumers, particul arly delinquent consumers, with better customer service when dealing with servicers. A. Provisions to be Analyzed The analysis below considers the potential be nefits, 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 resoluti on and requests for information.
3. Requirements to establish reasonable inform ation management policies and procedures.
4. Procedures for early intervention with delinquent borrowers.
5. Procedures for continuity of cont act with delinquent borrowers.
6. Requirements regarding loss mitigation procedures. With respect to each major proposed provisi on, 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 ar e issued on or before that date. However, no additional obligations are imposed under sec tion 6(k)(1)(E) of RESPA, as amended by the Dodd-Frank Act, unless the Bureau adopts im plementing regulations . Specifically, the provisions of the proposed rule th at impose obligations on servicers to correct erro rs asserted by mortgage loan borrowers, to provide information re quested 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, ma ny costs and benefits of the provisions of the proposed rule with respect to th ese self-executing provisions would arise largely or entirely from the statute, and not from the Bureau’s proposed provisions. Th ese provisions of the proposed rule would provide substantial benefits compar ed to allowing the RESPA amendments to take effect automatically by clarifying parts of the statute that are am biguous. 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 th e 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 stat ute, however, the Bureau has c hosen 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-statutor y baseline.277 As discussed above, the Dodd-Frank Act also gi ves the Bureau discretionary authority to develop additional mortgage servicing rules in Re gulation X, which the Bureau is relying on to propose to require servicers to : establish reasonable inform ation management policies and procedures; undertake early intervention with delinquent bor rowers; provide delinquent borrowers with continuity of contact with st aff equipped to assist them; and follow certain procedures when evaluating loss mitigation app lications. Since section 1463 of the Dodd-Frank Act does not specifically impose these obligations on servicers, the pre-st atute and post-statute baseline are the same. The Bureau has discreti on in future rulemakings to choose the most appropriate baseline for th at 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 Quantificati on of Benefits, Costs and Impacts The analysis relies on data that the Bureau has obtained from industry, other regulatory agencies, and publicly available sources. Howeve r, as discussed further below, the data are generally limited with which to quantify the po tential costs, benefits , and impacts of the proposed rule. Regarding the costs to covered persons, the pr oposed 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 litt le 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 exte nt to which servicer278 operations currently do not comply with the proposed rule. Furthermore, even with this data, the Bureau would need information on the cost of ch anging 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 in formation about the cost of improving servicer operations, and the discussion below uses this information to quantify certain costs of the proposed rule, but these calculati ons do not fully quantify the cost s to covered persons of the proposed rule. The Bureau continues to seek data from available sources regarding the costs of improving servicer operations, as sp ecified 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 serv icer operations currently do not comply with the proposed rule also makes it difficult to qua ntify the benefits of the proposed rule to consumers. However, quantifying benefits presen ts additional challenges. As discussed further below, certain proposed provision s 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 mone tizing 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 bene fits to consumers of the proposed rule. Similar issues to those just described arise in quantifying the benef its 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 diffi cult to quantify the be nefit servicers receive from reduced interest expenses when they advance their own funds to pay for force-placed279 insurance. Certain costs to cons umers are difficult to quantify, suchas the extent to which costs imposed on servicers may be pa ssed through to consumers. In light of these data limitations, the anal ysis 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 th ese 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 Cost s 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-pl aced insurance unless there is a reasonable basis to believe the borrower has failed to comply with the loan co ntract’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 for ce-placed insurance. The statute also provides process requirements for terminating force- placed insurance and refunding force-placed insurance premium charges and related fees pa id 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 fo rce-placed insurance notices to be sent to borrowers. The Bureau is also proposing requir ements concerning: charges related to forceplaced insurance, payment of the borrower’s haza rd insurance premiums from escrow, and notice requirements when servicers renew exis ting force-placed insurance policies. Benefits and costs to consumers

. Borrowers pay for force-placed insurance but do not280 select the insurance provider. Thus, the market for force-placed insurance may not fully reflect the interests of borrowers in minimizing for ce-placement and the amount of time force-placed insurance is in effect. In particular, the proposed force-placed in surance disclosures and procedures may reduce borrowers paying for unnecessa ry 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 placeme nt or the duration of force placement; however, as discussed in greater detail below, th e Bureau understands that many servicers already comply with th e proposed procedures with resp ect to sending bo rrowers notices before charging borrowers for force-placed insura nce and canceling force- placed insurance after verifying that borrower has obtained hazard in surance coverage. Moreover, even a small reduction in force placement may provide consum ers 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 th e proposed rule reduced forceplacement by just 10%, approximately 171,000 home owners 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/homeo wners-and-renters-insurance.html. Fo r information on the cost of forceplaced insurance, see http://newsroom.assurant.com/releasedetail.cfm?Releas eID=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 for ce-placement each year and there are approximately 52 million first liens, so about 1.04 million homeowners in cur 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 insuranc e 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 fo r a borrower in the specif ied situation and with a servicer that does not comply with some of the proposed pr ocedures, 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 servi cer 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 addi tional groups: those with hazard insurance that is not about to lapse; those with hazard insura nce that is about to lapse a nd 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 th e 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 w ould likely benefit from the proposed requirements regarding renewal of force-placed insurance, evidence of hazard insurance, cancellation of force-placed in surance, and limitations on char ges related to force-placed insurance. The proposed rule would require se rvicers to send a rene wal 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 th e situation described and with a servicer that does not currently comply with some of the proposed procedures, full compliance may reduce282 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 insuran ce information. By possibly prompting the borrower to communicate with the se rvicer 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 w ould pay for force-placed insurance. Consider next a borrower who ha s 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. Th e 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 befo re 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-pl aced insurance notices like the ones the Bureau is proposing, they would immediately contact their insurance provide r to find out whether or not their hazard insurance wa s 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 fo r unnecessary force-placed insurance. If the283 borrower’s insurance does lapse, full complian ce 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 th e borrower has force-placed insurance and the cost to the borrower of paying for force-placed insurance. Finally, consider a borrower who has hazard insu rance 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 premiu m 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 over due. For a borrower in the situation described and with a servicer that is not complying w ith 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 woul d pay for force-placed insurance. If the borrower does not have an escrow account and the servicer obtain s force-placed insurance, but the borrower later acquires the funds to obtai n hazard insurance, fu ll compliance with the proposed requirement to cancel force-placed insu rance 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 consum ers. Specifically, a servicer may not charge a borrower for renewing or replacing pre-existing fo rce-placed insurance unless: (1) The servicer delivers or places in the mail a written notice to th e borrower with specified disclosures at least 45 days before the premium charge or any f ee is assessed; and (2) during the 45-day notice period, the servicer has not received evidence th at 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 ha s previously obtained the insurance, charged the borrower for the insurance, and ha s the right to maintain the insurance. The proposed rule also provides certain formatting re quirements on the disclosure. The Bureau’s proposal may help borrowers avoi d 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 prope rly providing the specifie d disclosures. The disclosures may benefit certain borrowers by provi ding them with the information they need to purchase hazard insurance before being charge d for renewal or replacement of force-placed insurance. Conditioning the ability of servicer s 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 replaci ng pre-existing force-placed insurance coverage over providing borrowers with an oppor tunity to obtain hazard insurance. The Bureau does not believe that the require ments with respect to force-placed insurance will impose any significant costs to borrowers fo r the following reasons: (1) as discussed above, the Bureau understands that only approximately two percent of mortgage s incur force-placed insurance annually; and (2) as discussed belo w, many servicers already comply with the proposed disclosures with respect to sending bo rrowers notices before charging borrowers for force-placed insurance and the proposed requirement that the th ey 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 providi ng servicers may reduce servicers’ compliance cost. Servicers may also benefit from any reducti on in the need to obtain force-placed insurance. Servicers advance their own funds to pay for fo rce-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 ow ners 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 mo re 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 re duces the frequency and duration of lapses in hazard insurance obtained by the borrower, owners or assignees of mortga ge loans benefit along with borrowers. Based on discussions with industry, the Bur eau 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 co stly 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 insu rance disclosure would require minimal customization to each loan, but there may be some additional cost asso ciated 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 co st of complying with th e proposed force-placed insurance disclosure requirement. The Bureau understands that many servicers ge nerally 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—includi ng the provision of the force-placed insurance renewal notice—would impose substantial incrementa l costs on servicers. However, the Bureau continues to examine this issue and to co llect data and other relevant information. 199 Finally, the Bureau recognizes that the proposed force-pla ced 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 as sociated with providing force-placed insurance notices, tracking borro wer coverage, and placing and terminating the insurance. For other servicers, the Bureau unde rstands that the force-pl aced insurance provider handles these activities a nd absorbs the costs or passes them on to the borrower. The proposed force-placed insurance provision s may reduce the frequency with which servicers obtain forceplaced insurance. This would most likely reduc e total payments by borrowers to servicers and

199 Furthermore, as discussed in greater detail in part VI, above, servicers already are subj ect to a disclosure regime with some similar characteristics wh en obtaining force-placed flood insurance as required by the FDPA. The presence of these systems may make it less costly for servi cers to comply with the Bureau’s proposed procedures for force-placed insurance, since systems are in place that could be adap ted 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 th e 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 serv icers or their insurance affiliates , and a reduction in payments to force-placed insurance providers may reduce prov iders’ willingness to perform the tracking and other activities stated above as part of the serv ice. 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 result s that are relevant to this issue. 2. Procedures Regarding Error Reso lution and Requests for Information Section 1463 of the Dodd-Frank Act amends section 6 of RESPA by adopting a number of servicer prohibitions with resp ect to handling asserted errors a nd 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 associat ed penalties for failure to comply, and (3) a prohibition on servicers charging fees in conne ction with valid qualified written requests. The Bureau is using its authority in RESPA to propose a comprehensive set of requirements for investigating a nd 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 se rvicing through Qualifie d Written Requests, , servicers would be required to correct errors relating to, among other things, allocating payments, providing an accurate payoff balance, fa ilure 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 loan288 account, whether or not a borrower has complie d with the requirements for submitting a Qualified Written Request. Servicers would have to provide borrowers with a written acknowle dgement 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 correct ion in writing. Servicers woul d have to correct the error and notify the borrower of such co rrection, or conduct a reasonable investigation and provide the borrower with written notificati on 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 wi thin 30 days (excluding legal public holidays, Saturdays and Sundays) after recei pt of the notice of error. The Bureau is proposing substantially similar requirements to apply to inquiries. For example, servicers would have to provide borrowe rs with written acknowledgement of receiving an information request, unless the servicer provides the borrower with the information requested and with contact information for further assistan ce within five days (excluding legal public holidays, Saturdays and Sundays). Servicers would have to provide the borrower with the requested information or conduc t a reasonable search for the information and provide the borrower with a written notifica tion regarding the search. Ge nerally, with the exception of certain types of information requests, the informa tion or a notification sta ting that the servicer has determined the requested info rmation is not available to th e servicer would have to be provided within 30 days after recei pt of the information request. Benefits and costs to cons umers – error resolution. As explained in part VI, above, each of the nine proposed enumerated errors would resu lts from a failure by the servicer to perform a289 typical servicer duty. The proposed error resolution proce dures would require that servicers, in a timely manner, correct these errors or investig ate and explain to the borrower why no error has occurred. The Bureau has conducted outreach with servicer s 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 numb er 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 propo sed error resolution proc edures, 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 re solution procedures. 200 Although the Bureau does not have the data necessary to quantify the benefits to borrowers of the proposed error re solution procedures, the Bureau believes that the benefits may be substantial. Some of the enumerated erro rs 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 se rvicers currently perform them . Other enumerated errors, however, concern duties re garding delinquent borrowers and th e 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 informati on to a borrower with respect to loss mitigation options and foreclosure or to fail to suspend a sc heduled foreclosure sale when, for example, the borrower is performing under a loss mitigation agr eement. It also would be an error for a servicer to fail to transfer information to a tr ansferee 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 fi nancial and other costs on consumers. Thus, the proposed requirements to investigate allegations th at servicers have committed these errors and to correct these errors (when found) may provide substantial be nefits to certain consumers. More generally, the Bureau not es that borrowers do not choose their servicer, except indirectly by choosing th eir lender. Even if borrowers c hoose their servicer at origination, perhaps by seeking a lender that services the loans it originates , the borrower cannot subsequently choose a different se rvicer if the quality of servic ing is unsatisfactory. Thus, the market for servicing may not fully reflect the interests of borrowers in having robust error resolution procedures. While certa in servicers may nonetheless reli ably perform their duties, the recent financial crisis suggests that for so me, the incentives to do so were lacking. Benefits and costs to consume rs – 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 portfo lio of 300,000 loans; another estimates 160,000 phone calls per month on a portfolio of about 1 milli on loans. The vast majority of these calls are inquiries and the most common inquiry is whet her the servicer has re ceived the borrower’s payment. The Bureau currently does not have data on the nature of the ot her inquiries, the extent to which servicers already comply with the pr oposed procedures regard ing 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 th e proposed procedures regarding inquiries. 201 The Bureau requests interested parties to pr ovide data, research, and other in formation 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 th e servicer is a convenient source of certain information ( e.g., details about the terms of th e 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 fr om escrow was made, the new payment on an adjustable rate mortgage). This information provides many benef its 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 receivedor 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 Bur eau notes that borrowers do not choose their servicer, except indirectly, by c hoosing their lender. Even if bo rrowers choose their servicer at origination, perhaps by seeking a le nder that services the loans it originates, the borrower cannot subsequently choose a different se rvicer if the quality of servic ing is unsatisfactory. Thus, the market for servicing may not fully reflect the in terests of borrowers in having robust procedures for responding to inquiries. While certain serv icers may nonetheless reliably perform their duties, the recent crisis sugge sts that for some, the incentives to do so were lacking. Benefits and costs to covered persons. T he Bureau understands that certain servicers may already comply with many of the proposed proce dures 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 agen cy are already required to handle dis putes about this information under the Fair Credit Reporting Act. These pree xisting obligations under the Fair Credit Reporting Act will make it less costly292 with the proposed procedures. Th e Bureau proposes that errors and information requests that are resolved within five days do not require writte n 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 rega rding servicer duties. Clarity mitigates one-time compliance costs for servicers that would otherwise pay for additional legal advice regarding compliance with the rule or woul d perform activities that were not in fact required by the rule. As discussed in part VI, above, the Bureauconsidered the impact of the proposed error resolution requirements if the t ypes 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 requ iring servicers to res pond to potentially any a ssertion of an error could, as a practical matter, lead to servicers us ing disproportionate resour ces 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 defi ne 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 attemp t to correct the failure, such as by sending the disclosure after the dead line, 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 servic ers without offering concomitant benefit for
for servicers to implement the changes in this rule sinc e 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 complywith 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 partie s to provide specific information about the proposed requirements for error resolution and requests for information with which servicers are not already in complia nce and the costs of coming into compliance. 3. Reasonable Information Manageme nt Policies and Procedures The Bureau is using its authority in RE SPA to propose requirements on the information management practices of servicers. The proposed rule specifies that a servicer’s information management practices need to address objec tives 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 th e 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 whos e 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 requir es 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 am ount due and change the cr editing 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 s hows that in each of the five294 quarters ending with the last qu arter of 2011, between 10% and 15% of mortgages failed to be current and performing. 203 This represents betwee n 3.1 million and 4.7 million loans. 204 The borrowers with these mortgages likely face di fficult 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 curre ntly complies with the proposed reasonable information management procedures, the extent to which additional compliance would provide additional benefits to consumers, or the mone tary 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 resoluti on and requests for information, reasonable information management, early interv ention, and continuity of contact. These benefits are discussed as part of reasonable information management for two reasons. First, the proposed provisions on r easonable information management include a requirement that a borrower must be able to r eceive an accurate and timely evaluation for a loss mitigation option. Thus, reasonable information management may reduce avoidable or unnecessary foreclosures. Second, reasonable in formation management facilitates compliance with the other proposed provision s listed above, all of which coul d help delinquent borrowers. A servicer that could not access accurate and timely informati on 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 pr oposed provisions on error resolution), notifying a borrower that he or she is late with a paymen t (as would be required by the proposed provisions on early intervention), and accessing a complete r ecord 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 performa nce 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 experien ce a 30-day delinquency, th e authors use regression analysis to isolate the impact each servicer has on the probab ility 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 lo an defaults, even after controlling for borrower credit score and income, certain char acteristics of the prope rty, and other factors. 206 The best servicing (servicing perf ormed by servicers with the highest cure rates with respect to loans that have become 30 days delinquent) achi eves approximately a 41 pe rcent reduction in the probability that a loan that becomes 30 days deli nquent will eventually default, relative to the worst servicing (servicing performed by servicers w ith 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 lo an cures increases from .815 with th e worst performing servicer (Servicer #2) to .8902 with a high-performing reference group of se rvicers. 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 wo rst servicing and about 20% default, then a switch to the best servicing woul d reduce the default rate to about 12% (a reduction of 41%). 208 Thus, 80,000 mortgages would no longe r default if they had the best servicing. If 30% default, then about 120,000 w ould no longer default if they had the best servicing. These defaults are avoidable with bett er servicing. Furthermore, a substantial number of these defaults will ultimately go to foreclosure, perhaps 70 percent. 209 The Bureau does not currently ha ve data that would allow it to further monetize the cost of default and foreclosure on borrowers or other c onsumers. 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 nega tive 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 ma y affect default and foreclosure and the costs of these outcomes on bo rrowers and other consumers. The Bureau asks interested parties to provide general informati on, data, and research resu lts that address these issues. More generally, as noted above , servicers may not have suffi cient 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.federalrese rve.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/ar ticles.php?doi=10.12 57/aer.101.5.2108.297 discussed in the Background secti on, mortgage servicing is to a la rge extent a high-volume, lowmargin business that encourages servicers to provide minimal leve ls of service to borrowers. While certain servicers may nonetheless have re asonable 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 serv icers subject to regulat ory consent orders or the national mortgage settlement, must already comply with policies regarding evaluation for a loss mitigation option. Further, the Bureau is pr oposing to mitigate the cost of the proposed procedures by providing that the reasonableness of a se rvicer’s policies and procedures would be determined in part by the nature and scope of th e servicer’s operations, characteristics of the servicing portfolio, and the servi cer’s history of consumer compla ints. The Bureau believes that the performance-based approach of the proposedinformation 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 Interven tion 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 co nsumer 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 ca n be adapted to the new requirements.298 RESPA. The Bureau is using th is authority to propose early in tervention provisions regarding delinquent borrowers. The Bureau proposes to requi re 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 bo rrowers 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 th e total number of loans that went into foreclosure, the borrowe r never responded to the servicer. 213 Of course, this means that 47% of borrowers did respond to the se rvicer. 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 qui ckly. In one study using data from 2000 through 2006, the redefault rate was about 27 per cent (15 percentage poi nts) 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 imp act on borrowers’ credit reports, and facilitating househol d 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 be nefit 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 re payment plans, loan modifications and other alternatives to default or foreclosure that se rvicers 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 th at provide principal reduction for HAMP-eligible borrowers with high loan-to-value ratios, provide te mporary 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 delin quent 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 provision s 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 alre ady 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 mortga ge investors, the GSEs, Ginnie Mae, or government agencies offering guarantees or insuran ce for mortgage loans, such as FHA, the VA, or Rural Housing Servicer. Servicers of FHA a nd 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 impl ementation of the new “HAMP Tier 2” alternative, see Making Home Affordable Suppl emental Directive 12-02, Ma rch 9, 2012, available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1202.pdf300 to contact borrowers within several days of a delinquency. Freddie Mac recommends that servicers begin initial call campaigns on th e third day of delin quency, and Fannie Mae recommends that servicers take similar actions wi th respect to borrowers having a high risk of default. The Bureau understands, however, th at some GSE servicers may not provide written notifications to certain lower-ri sk delinquent borrowers until th e 65th day of delinquency. In addition, Federal agencies and the GSEs have established requirements and recommended practices with respect to written notifications that are simila r to the Bureau’s proposal under proposed § 1024.39(b). Furthermore, the Bureau is proposing to mitig ate 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 clause s provide servicers wi th examples of language explaining the foreclosure process and encouraging the borrower to contact the servicer. The Bureau intends for the model clauses to provide se rvicers with examples of the le vel of detail that the Bureau expects servicers to provid e in their written notice. 5. Procedures for Continuity of Contact with Delinquent Borrowers Dodd-Frank Act section 1463 requires servicer s to comply with any obligation the Bureau finds appropriate to carry out the cons umer 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 no tification requirement under its early intervention proposal, discussed above. Additionally, the servicers would be required to provide such borrowers with live, te lephonic response to inquir ies 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 acti ons the borrower must take to be evaluated for such options. Benefits and costs to consumers. As discussed above in greate r 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 need ed to handle the high volumes of delinquent mortgages, loan modification reque sts, and foreclosures they were required to process. One study of complaints to the HOPE Hotline reported th at over half were from borrowers who could not reach their servicers and obtai n information about the status of their applications for HAMP modification. 217 Other complaints concerned lost docu mentation and that the borrower was not able to speak with a representa tive who was knowledgeable about the status of their application. While certain servicers may nonetheless have pr ovided delinquent borrowers with the services described in the proposed continuity of cont act provisions, such as, for example, access to personnel who could provide the borrower with a ccurate information about the status of a loss mitigation application, the mortgage crisis demonstr ated 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 borrowe rs seeking alternatives to fo reclosure. While the Bureau does not have the data with which to quantify th e 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 probl ems 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 inab ility of borrowers to obtain a co mplete 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. Conve rsely, the ability of bo rrowers to speak with personnel knowledgeable about loss mitigation opti ons available to the borrower and the actions the borrower must take to be evaluated for su ch options make it easier for borrowers to effectively pursue these options. These provision s therefore increase th e 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 pr oposed requirements. As disc ussed 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 es tablishing staffing sta ndards 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 servi cers to comply with any obligation the Bureau finds appropriate to carry out the cons umer protection purposes of RESPA. The Bureau is using this authority to propose pr ovisions 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 borro wer 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 bor rowers that apply for loss mitigation within specific timeframes and to inform borrowers ab out the status of their application and the servicer’s decision. These servi cers 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-maki ng around loss mitigation. Borrowers who submit complete applications may benefit from the prop osed 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 time line may have unintended consequences for borrowers in certain circumstances. For exampl e, 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 so me 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 provisi ons would have been binding on a large

219 Specifically, as specified in propose d § 1024.41(g), if a servicer received a timely and complete loss mitigation application, a servicer could not pro ceed to foreclosure sale unless: (1 ) the servicer denied the borrower’s application for a loss mitigation option and the appeal proc ess is inapplicable, the borrower has not requested an appeal, or the time for requesting an appeal has expired; (2) the servicer denied th e 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 peri od, and it is difficult to predic t 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 d ecision 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 provi de 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 th e possibility of a different deci sion 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 und erstanding of what to expect and what is expected of them. Federal rules on loss mitigat ion 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 al so 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 substant ial anecdotal evidence that borrowers have been305 foreclosed upon despite working in good faith for a loss mitigation option. The proposed restrictions would not prevent fo reclosures 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 defi ne 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 evaluati on when large numbers of borrowers submit applications. Servicers would also need to a llow 90 days between the time a borrower submits a complete loss mitigation application and the servi cer conducts a foreclosure sale. This builds in time for consideration of the application and an appeal, but it also may de lay foreclosures that servicers, based on their experience, recognize as inevitable. Any lengthening of time until foreclosure sale will also increase the time dur ing 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 th e 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 propos ed loss mitigation provisions depend on the extent to which servicers alre ady comply with the proposed pr ovisions and, for those not in compliance, the cost of making necessary changes. The Bureau asks interested parties to provide306 data and other information about current compliance with the proposed provisions, the challenges of coming into compliance, and the be nefits 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 Le ss 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 Ac t, 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. Th us, the Bureau believes there would be little impact of the proposed provisions on these institu tions. But for smaller depository institutions or credit unions, the Bureau understands that pr oviders 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 entityrepresentatives in th e SBREFA process, is discussed in further detail in the Regulatory Flex ibility Analysis in part VIII below. Based on feedback received from the SERs, The Bureau un derstands that small mortgage servicers engage in relatively little force-placemen t. 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-pla ced insurance on depository in stitutions 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 accu rate analysis of the impacts of the proposed rule on depository inst itutions and credit unions with $10 billion or less307 in total assets. About 90% of a ll servicers are deposito ry institutions and the vast majority of these institutions adhere to th e servicing guideline s established by the GSEs. There is a substantial overlap between these guidelines and provisions of th e proposed rule, especially in regards to early intervention w ith 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 th is 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 be nefits 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 mo rtgages 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 bene fits 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 applica tion for loss mitigation options. On the other hand, it is also possible that a lack of alternatives in some rural ar eas among lenders who also service may make it possible for the proposed rule to pr ovide 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 part ies to provide data, rese arch results and other factual information on the impact of the proposed rule on consumers in rural areas.308 F. Additional Analysis Being Cons idered and Request for Information The Bureau will further consider the bene fits, costs, and impacts of the proposed provisions before finalizing the pr oposal. At various points in the analysis above, the Bureau asks interested parties to provide data, rese arch results and other information relating to particular issues. The Bureau is generally inte rested in the impact of the proposed provisions on consumers, covered persons and markets in order to further understand an d quantify the benefits and costs to consumers and covere d persons. The Bureau generally requests interested parties to provide data, research, and other information th at 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 mortga ge related rulemakings. These data may include additional data from the National Mortgage Li cense System (NMLS) and the NMLS Mortgage Call Report, loan file extracts from various le nders, and data from the pilot phases of the National Mortgage Database. The Bureau expe cts 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 a nd mortgage loan originat ors under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), NMLS contains basic identifying information for non-depository mortgage loan orig ination companies. Firms that hold a State license or State registration th rough NMLS are required to comp lete 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 lo ans, individual mortgage loan309 originator (MLO) activity, line of cr edit, and other data repurchase information by State. It also includes financial information at the company leve l. 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 da ta were used, along with HMDA data, to help estimate the number and characteristics of non-depos itory 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-depositorylenders engaging in various mortgage origination and servici ng 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 info rmation about the number and size of closed-end first and second loans originated, fees earned fr om origination activity, levels of servicing, revenue estimates for each firm, and other inform ation. The Bureau may compile some simple counts and tabulations and conduct so me 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 ma ke 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 comp ensation 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 inte nds to request loan file data fr om lenders of various sizes and geographic locations to construct a representative dataset. In part icular, the Bureau will request a random sample of RESPA GFE and RESPA settleme nt statement forms from loan files for closed-end loans. These forms include data on some or all loan ch aracteristics including settlement charges, origination charges, apprai sal fees, flood certifications, mortgage insurance premiums, homeowner’s insurance, title charge s, balloon payments, prepayment penalties, origination charges, and credit charges or points. Through c onversations 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 Bu reau 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 calcula te the various impacts of proposed changes in other proposals to the definition of finance ch arge, including proposed changes in the number and characteristics of loans that exceed the HOE PA 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 abil ity-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 reporting311 agency data and other administrative sources along with data from surveys of mortgage borrowers. The first two pilot phases, conducte d 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 co nducted 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 hi gher 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 a ttempts will be made to impute missing values. The data from the third pilot will not be made pub lic. However, to the extent possible, the data may be analyzed to assist the Bureau in its regu latory 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 inst ance, the Bureau may calculate the number of consumers who use brokers, the number of lende rs 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 te rms and the various charges involved with origination. Tabulations of th e 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 disc ussed above and other pot ential benefits, costs, and impacts of the proposed rule. The Bureau also requests co mment 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 regulati ons 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 agen cy 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, unle ss 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 procedur es under the RFA involving the convening of a panel to consult with small busine ss 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 Sma ll 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 ame nded by SBREFA and the Dodd-Frank Act, the Bureau seeks, prior to conducti ng the IRFA, information from re presentatives of small entities that may potentially be affected by its proposed rule s to assess the potential impacts of that rule313 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. Th e Bureau first notifies the Chief Counsel for Advocacy (Chief Counsel) of the SBA and provide s the Chief Counsel with information on the potential impacts of the proposed rule on small entities and the type s of small entities that might be affected. 5 U.S.C. 609(b)(1). Not later than15 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 representati ve of affected small entities fo r 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 Fede ral employees of the office within the Bureau responsible for carrying out the proposed rule, the Office of In formation and Regulatory Affairs (OIRA) within OMB, and the Chief Counsel, wh ich constitutes the Small Business Review Panel. 5 U.S.C. 609(b)(3). The Panel review s any material the Bureau has prepared in connection with the SBREFA process and coll ects 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) a nd 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 SE Rs 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 descrip tion 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 prepara tion of the report or reco rd; an identification, to the extent practicable, of all relevant Federal rules which ma y duplicate, overlap, or conf lict with the proposed rule; and a description of any significant alternatives to th e proposed rule which accomplis h the stated objectives of applicable statutes and which minimize any significant ec onomic 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 a ppropriate, the Bureau modi fies 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 Chie f Counsel with the formal notification and other information required under se ction 609(b)(1) of the RFA. To obtain feedback from small entity representatives to inform the Panel pur suant to sections 609(b )(2) and 609(b )(4) of the RFA, the Bureau, in consultati on 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 collater al (included in NAICS 522292), non-de positories 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 gr eater detail the Bureau’s analysis of the number and types of entities that may be affected by th e proposed rule. Having identified the categories of small entities that may be subj ect to the proposed rule for purposes of an IRFA, the Bureau, in consultation with the Chief Counsel, selected 16 sm all 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 Bu reau in consultation w ith the Chief Counsel included representatives from each of the cate gories identified by the Bureau and comprised a diverse group of individuals with rega rd 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 th e advice and recommendations of the SERs under section 609(b)(4) of the RFA, th e Panel held an outreach meetin g/teleconference with the small entity representatives on April 24, 2012 (the “Pan el Outreach Meeting”). To help the small315 entity representatives prepare for the Panel Outreach Meeting, the Panel circulated briefing materials prepared in connection with secti on 609(b)(4) of the RFA that summarized the proposals under consideration at that time, pos ed 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 fee dback 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 Repor t, 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 Pane l; a summary of the Panel’s ou treach to obtain the advice and recommendations of those small entity repres entatives; 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 ru le and the IRFA, the Bureau has carefully considered the feedback from the small entity representative s participating in the SBREFA process and the findings and recommendations in the Small Bu siness Review Panel Report. The section-bysection analysis of the proposed rule in Part VI , above, and the IRFA discuss this feedback and

224 The Bureau posted these materials on its website and invited the public to email remarks on the materials. See http://www.consumerfinance.gov/pressreleases/consumer-fin ancial-protection-bureau-outlines-borrower-friendlyapproach-to-mortgage-servicing/ (the materials are accessible via th e 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 Busine ss Review Panel and the Bureau with an opportunity to identify and expl ore opportunities to mitigate th e 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 Busine ss Review Panel Report at a preliminary stage of the proposal’s development and that th e report—in particular, the findings and recommendations—should be considered in that li ght. 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 cons ideration, analysis, and data collection by the Bureau to ensure that the options identified we re practicable, enforceable , and consistent with RESPA, TILA, the Dodd-Frank Act, and their statutory purposes. The proposed rule and the IRFA reflect further consid eration, analysis, and datacollection by the Bureau. B. Initial Regulatory Fl exibility Analysis Under section 603(a) of the RF A, an IRFA “shall describe the impact of the proposed rule on small entities.” 5 U.S.C. 603(a). Sect ion 603(b) of the RFA se ts 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 statemen t of the objectives of, and the legal basis for, the proposed rule; (3) a descrip tion 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 ot her 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 th e preparation of the report or r ecord; and (5) id entification, to the extent practicable, of all relevant Federal ru les which may duplicate, overlap, or conflict with317 the proposed rule. The Bureau, further, must describe any significant alternatives to the proposed rule which accomplish th e stated objectives of applicab le 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 re quires that the IRFA in clude a description of any projected increase in the cost of credit fo r small entities, a descri ption 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 cred it for small entities (if such an increase in the cost of credit is projected), and a descri ption of the advice an d recommendations of representatives of small entities relating to the co st 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 se rvicing 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 addre ss mortgage servicing. One of these provisions is se ction 1463 of the Dodd-Frank Act, wh ich amends RESPA. This provision puts new disclosure requirements and limitations on servicers obtaining force-placed insurance, and it establishes obligations for servicers to resp ond to requests from borrower to correct errors or provide certain information. Section 1463 of the Dodd-Frank Ac t also authorizes the Bureau, by regulation, to impose other oblig ations on servicers that it finds appropriate to carry out the purposes of the statute. These new statutory requirements take e ffect automatically on January 21, 2013, as written in the statute, unless final rules are issu ed prior to that date. If the Bureau adopts implementing regulations no later than January 21, 2013, the Bureau may es tablish an effective318 date for the rules. The statutory requirements implemented by the rules then take effect on the same date. The Bureau intends to exercise it s 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, includ ing the obligations of small servicers, in certain circumstances to ea se burden without sacrific ing adequate protection of consumers. The Bureau is proposing additional standa rds to improve the way servicers treat borrowers, particularly delinquent borrowers. So me servicers have made it very difficult for delinquent borrowers to understand, a nd take advantage of, potential alternatives to foreclosure. For example, servicers have frequently neglecte d to reach out or respond to such borrowers to discuss alternatives to foreclos ure, lost or misplaced the documents of borrowers who have sought loan modifications or othe r options offered by servicers, and forced borrowers who have invested substantial time communica ting with an employee of the se rvicer to repeat the process with different employees that lack informati on about the substance of prior communications. The Bureau is proposing new servicing re gulations to address these concerns. When finalized, the Bureau’s rules will cons titute the first truly national mortgage servicing standards. Other federal regulator y agencies have issued guidance on mortgage servicing and loan modifications and taken enforc ement actions against mortgage servicers. The State attorneys general, joined by numerous Federal agencies incl uding the Bureau, entered into the National Mortgage Settlement with the nation’ s five largest servicers in February 2012. The National Mortgage Settlement app lies to portfolio loans serviced by the five largest servicers. Borrowers of mortgage loans owned by GSEs or private investors may not necessarily gain the319 benefit of the protections set forth in that settlement. These varied regulatory respons es are understandable when vi ewed as a response to an unprecedented mortgage crisis and significant probl ems 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 Bu reau adopts exemptions for smaller servicers. 2. Succinct Statement of the Objectives of, and Legal Basi s for, the Proposed Rule This rulemaking has multiple objectives. The proposed provisions on force-placed insurance should reduce the likeli hood that servicers purchase fo rce placed insurance without a reasonable basis. This will reduce instances of servicers charging borrowers for force-placed insurance they do not need or ch arge more than is bona fide and reasonable. The proposed provisions on error resolution a nd 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 reas onable information management policies and procedures address wide-spr ead problems reported across th e mortgage servicing industry with regard to management of borrower documen ts and information. Co mpliance with the rule will require providing accurate information to bo rrowers, correcting errors where they occur, evaluating borrowers for loss mitigation options , facilitating oversight of, and compliance by, service providers, and facil itating servicing transfers. The proposed provisions on early intervention with delinquent borrowers are intended to320 spur the engagement between servicers and borrowers that is necessary for avoiding foreclosure. Early intervention may also generally benefit bor rowers by reducing avoidable interest costs, limiting the impact on borrowe rs’ credit reports, and facilitating household budgeting and planning. The proposed provisions on continuity of cont act ensure that serv icer personnel have access to information about delinquent borrowers so that the servicer can a ppropriately assist the borrower in exploring loss mitigation options. Finally, the proposed provisions on loss mitigati on 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 borro wer applications for loss mitigation options. These servicers would have a duty to evaluate bor rowers that apply for loss mitigation within specific timeframes and to inform borrowers ab out the status of their application and the servicer’s decision. These servi cers 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 th e borrower’s appeal; (3) the bo rrower 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 st andards, banks and other deposit ory 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 institutions 230 (NAICS 522110 and 522120), credit unions (NAICS 522130), firms providing real estate credit (NAI CS 522292), firms engaged in othe r 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 fi rms engaged in other activ ities related to credit intermediation are small businesses if aver age annual receipts do not exceed $7 million. A small non-profit organization is any not-for-p rofit enterprise which is independently owned and operated and is not dominant in its fi eld. 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 inco me individuals while others purchase loans or the servicing rights on loans or iginated by local community de velopment lenders. Servicing income is a substantial source of revenue for so me 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 we bsite 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 these322 The following table provides the Bureau’s esti mate of the number and types of entities that may be affected by the proposals under consideration:
Estimated number of affected entities and sma ll 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 1,388 800 Other activities related to

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 enga ging in mortgage loan servicing if they hold closed-end loans secured by 1-to-4 family reside ntial property or they are servicing mortgage loans for others. Credit unions are counted as en gaging in mortgage loan servicing if they have closed-end 1-to-4 family mortgages on portfolio, or hold real estate loans th at have been sold but remain serviced by the institution. For firms providing real estate credit and fi rms engaged in other activities related to credit intermediation, the total number of en tities and small entities comes from the 2007 Economic Census. The total number of these enti ties engaged in mortgage loan servicing is based on a special analysis of data from th e 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 e ngaged in mortgage loan servicing would be included under real estate credit if their primary activity is origin ating loans and under other activities related to credit intermediation if their primary activity is servicing.323 mortgage loan servicing, includ ing tax exempt entities, except fo r 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 entitie s engaged in mortgage loan serv icing 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 impos e new reporting requirements. The possible recordkeeping and compliance costs for small entities from each major component of the proposed rule are presented belo w. The Bureau presents these costs against a pre-statute baseline. This base line includes the costs of complying with the Federal rules that overlap with the proposed rule, as described in Section 5 below. The Bu reau 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 redu ce the cost of compliance with the proposed rule. Benefits to consumers from the proposed ru le are discussed in th e 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 nu mber 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 th e loan contract’s requirements to maintain property insurance. The statut e sets forth a mandatory proces s 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 provi des process requirements about terminating forceplaced insurance and refunding force-placed insu rance premiums paid during any period during which the borrower’s insurance coverage and the fo rce-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 requir ements concerning: charges related to forceplaced insurance, payment of insurance from es crow, and notice requirements when servicers renew existing insurance policies. Based on discussions with industry and th e 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 asso ciated with providing notices, tracking borrower coverage, and placing and terminatin g the insurance. For other small servicers, the force-placed insurance provider handles thes e activities and absorbs the co sts or passes them on to the consumer indirectly thro ugh the insurance premium. Based on discussions with the SERs, the Bu reau currently understands that many small servicers already comply with most of the fo rce-placed insurance provisions of the proposed rule. Two SERs stated that th ey already provide two or more notices of pending force placed insurance and others stated that they already refund premiums b ack to borrowers for periods of overlapping coverage. Other SERs noted that they already provide refunds for overlapping325 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 disclo sure 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 de velop written procedures to ensure they comply with the proposed rule. The Bureau believes th e one-time cost of develo ping these policies will be minimal. When the Bureau convened its SBREFA pane l on mortgage servicing, the Bureau learned that several of the small servic ers that participated on the pane l obtained force-placed insurance policies that must be renewed monthly. The Bu reau proposes to mitigate the cost of these disclosures by providing that a servicer is not required to se nd more than one renewal notice during any 12-month period. One SER raised a different concern regardi ng 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 Bur eau believes that most small servicers already incur most of these costs. However, the Bur eau is interested in data and other factual information about the likely compliance costs as sociated with borrowers who have chronic lapses in hazard insurance coverage and requests comment on this issue.326 Finally, most SERs did not raise specific c oncerns with the propos al to expand existing requirements, in regards to disbursements from a borrower’s escrow account to pay the borrower’s hazard insurance premium, to borrowe r’s whose mortgage payments are more than 30 days past due. Two SERs that expresse d concern about advancing funds to renew a borrower’s hazard insurance because the borrowe r 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 re flects 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 secti on 6 of RESPA by adopting a number of servicer prohibitions with respect to handling al leged errors and inquiries , including revising the timeframe to respond to qualified written request s, 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 allo cation of payments, provision of final balances for purposes of paying off the loan, avoiding foreclosures, or othe r standard servicer duties. Servicers also would be required to respond to i nquiries about certain topics. Servicers would have to provide borrowers with a written acknow ledgement of receiving a notice of error, unless the serv icer resolves the error within five days and the borrower is notified of the resolution in writing. Servicers would have to correct th e error and provide the

233 Small Business Review Panel Report, at 22.327 borrower with written notificati on of the correction or conduct a reasonable investigation and provide the borrower with writte n notification regarding the i nvestigation and the documents relied upon by the servicer. Gene rally, the investigat ion would have to be completed and a response provided within 30 days afte r receipt of the notice of error. Substantially similar requirements apply to inquiries. Servicers w ould have to provide borrowers with written acknowledgement of receivi ng an information request, unless the servicer provides the borrower with the information request ed 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 informa tion, either orally or in writing, or conduct a reasonable search for the information and provi de the borrower with a written notification regarding the search. Generally, with the exception of requests fo r 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 pr ovisions would need to develop compliance procedures and train staff and may need new or upda ted software and hardware in order to access the information required to address notices of error and inquiries. However, the Bureau understands that most small servi cers 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 res ponse 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 im mediately, and orally. The Bu reau notes that the proposed provision regarding inquiries does not require a written response if the servicer provides the information requested to the borrower within fi ve days. Nevertheless, the Bureau understands that small servicers, as defined above, have an incentive to provide protec tions to consumers that may not exist for other servicers. (c) Reasonable Information Manage ment Policies and Procedures Section 1463 of the Dodd-Frank Act requires se rvicers to comply w ith any obligation the Bureau finds appropriate to carry out the cons umer protection purposes of RESPA. The Bureau is using this authority to propose a requirement that servicers establis h 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 shoul d facilitate: accessing and providing accurate information; investigating and co rrecting errors and providing re quested information; evaluating loss mitigation options; oversight of, and complian ce by, service providers; facilitating servicing transfers; and providing access to informa tion about actions taken by the servicer. Servicers that maintain reasonable informa tion management policies and procedures may incur a cost to review and docum ent their policies and procedures, obtain legal advice, train their staff to follow the policies and procedures, a nd monitor staff adheren ce to the policies and procedures. The proposal mitigates all of thes e costs for small servicers through the provision that the “reasonableness” of a servicer’s policies and procedur es would depend upon the size of the servicer and the nature and scope of its activities. Further, depository institutions already are329 subject to interagency guidelines relating to safeguarding the institut ion’s safety and soundness that facilitate reasonable information mana gement 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 sc ope 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 st ructuring 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 se rvicers to comply w ith any obligation the Bureau finds appropriate to carry out the cons umer protection purposes of RESPA. The Bureau is using this authority, among others, to propose early intervention and co ntinuity of contact provisions regarding delinquent borrowers. The Bureau is generally proposing to requi re servicers to make two contacts with delinquent borrowers. The Bureau proposes to re quire servicers to make a good faith effort to contact delinquent borrowers orally no later th an 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 a nd foreclosure. This second contact must be provided no later than 40 da ys 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 borr ower to contact the servicer. The Bureau intends for the model clauses to provide servicers with examples of the level of detail that the330 Bureau expects servicers to pr ovide 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 me ntioned that the GSEs require contact with delinquent borrowers at day 16. The SERs stat ed that they had relatively low numbers of delinquent borrowers; however, one SER expr essed 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 writt en notice requirement. The SERs generally stated that they tailor the information they prov ide to the specific situation of the borrower. One SER objected to a process that the SER rega rded as unnecessary and which would require sending yet another noti ce to the borrower. (e) Continuity of Contact Section 1463 of the Dodd-Frank Act requires se rvicers to comply w ith any obligation the Bureau finds appropriate to carry out the cons umer protection purposes of RESPA. The Bureau is using this authority, among others, to propos e requiring servicers to assign personnel to respond to inquiries of certain de linquent borrowers and, as app licable, 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 pr oposed early invention provisi on must be provided with live phone access to the assigned personnel. The pro posal would require that servicers maintain reasonable policies and procedures designed to ensure that the assigne d personnel perform an enumerated list of functions, such as having ac cess to certain information about the borrowers331 ( e.g. , a complete record of the bo rrower’s payment history in the servicer’s possession). The proposal provides conditions that define the dura tion of continuity of contact, and the proposal provides that certain delays and failures that disr upt 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 th at 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 th ey originated. This SE R noted that borrowers have ready access to the originat or and the originator has full access to all loan documents and payment history. (f) Loss Mitigation Section 1463 of the Dodd-Frank Act requires se rvicers to comply w ith any obligation the Bureau finds appropriate to carry out the cons umer protection purposes of RESPA. The Bureau is using this authority, among others, to pr opose 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 discu ssed above for proposed § 1024.41, while the Small Business Review Panel Report and the outreach m eeting 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 serv icers 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) th e ability to adopt policies and pro cedures to facilitate review of borrowers for loss mitigation options; (3) the ab ility to provide information regarding loss332 mitigation early in the foreclosure process to bor rowers; and (4) the abilit y 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 contac t 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 c ounsel so that foreclos ure processes and loss mitigation could be easily conducted simultaneous ly without prejudice to the loss mitigation process. Further, the SERs e xplained that they were willin g to communicate with borrowers about loss mitigation contemporaneously with th e foreclosure process, and one small entity representative indicated that it w ould be willing to bring a mortgage file back to the servicer for consideration of a modificat ion and halt the foreclosure process, if appropriate. 235 Based in part on the outreach with the sm all entity representativ es on April 24, 2012, as well as other feedback obtained by the Bureau afte r that outreach meeting, the Bureau considered proposing clearer and more deta iled 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 w ithin the provisions relating to error resolution, reasonable information manageme nt policies and procedur es, early intervention for delinquent borrowers, and c ontinuity of contact. (g) Estimate of the Classes of Small Entities Wh ich 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 re quires 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 requiremen ts of the proposed rule are the same classes of small entities that are identi fied 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 busin ess of the small entities affected by the proposed rule. Compliance by the small en tities that will be affected by the proposed rule will require continued performance of the basic functions th at they perform today: generating disclosure forms, addressing errors and providing inform ation to borrowers, managing information about borrowers, contacting delinquent borrowers, provid ing continuity of contact for delinquent borrowers, and (as applicable) reviewing appl ications by borrowers for loss mitigation. 5. Identification, to the Extent Practicable, Al l Relevant Federal Rules which May Duplicate, Overlap, or Conflict with the Proposed Rule. The Dodd-Frank Act codified certain require ments contained in existing regulations and in some cases imposed new requirements that expa nd 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 consume r-friendly error resolution and information request procedures that cover wider t opics than the current qualified written request334 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 wr itten request or not, will benefit both borrowers and servicers. Further, as noted in the pr eamble, depending on the circumstances, the error resolution procedures in this rule may overlap with the direct disput e procedures under FCRA where the dispute involves erroneously furnishi ng 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 interven tion and loss mitigation procedures in this rule may overlap with existing Federal law codi fying requirements of FHA, VA, and the Rural Housing Service with respect to mortgages in sured 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 da ys 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, th e written notice in proposed § 1024.39(b)(2)(vi) would include contact information for housi ng counselors and the borrower’s State housing finance authority, although servic ers 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 co mply with all requirements. Apart from this overlap, the Bureau is not aware of any other Federal regulations that335 currently duplicate, overlap, or conflict with the proposals under consideration. 236 The Bureau requests comment to identify any additional su ch Federal rules that impose duplicative, overlapping, or conflicting require ments on servicers and potential changes to the proposed rules in light of duplicative, overlapp ing, or conflictin g requirements. 6. Description of Any Significant Alternatives to the Proposed Rule which Accomplish the Stated Objectives of Applicable St atutes and Minimize Any Signi ficant Economic Impact of the Proposed Rule on Small Entities The SERs expressed general concern about th e costs to small entit ies 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 cost s of complying with a proposed provision, the Bureau considered al ternatives 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 for ce-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 serv icers 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 stat utory regime intended to reduce or prevent unnecessary force-placement of haza rd insurance. The Bureau doe s not believe that less costly alternatives to the proposed rule for small se rvicers would accomplish this objective. The

236 The RFA requires identification of d uplicative, overlapping, or conflicting Federal regulation. Consent orders, settlement agreements with Federal agencies, and invest or 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 con cerns with the proposal. The Bureau proposes to mitigate the cost of the disclosures to all servicer s by providing that a serv icer is not required to send more than one renewal notice during any 12-month period. Regarding the proposed provisions for reason able 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 servic ing businesses in light of the size, nature, and scope of the servicer’s operations, including, for example, the volume and aggregate unpaid principal balan ce 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 flexib ility 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 th e error resolution proce dures. In particular, several SERs stated that having to respond in writing to every notice of error would be burdensome. The Bureau notes that the propos al includes a provision that minimize the burden on servicers from the error reso lution requirements if a notice of error is overbroad or unduly burdensome. The Bureau considered providing small se rvicers 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 pr oposed response to notice of error requirement if (a) the small servicer provide d notification of the co rrection 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 substant ial consumer protection in the acknowledgement of receipt and response to notice of error require ments 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 c onsider alternative means of compliance with the proposed error resolutions procedures. Small servicers generally expl ained 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 exempti on from the proposed notification requirements under proposed § 1024.39(a) and (b). However, the Bureau solicits comment on whether the Bureau should consider altern ative means of compliance with proposed § 1024.39(a) and (b), such as by permitting small servicers to deve lop 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 co st 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 concerni ng any projected impact of the proposed rule on the cost of credit for small entities as well as a ny significant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and which minimize any increase in338 the cost of credit for small entities. 237 The Bureau sought to collect the advice and recommendations of the SERs during the Sm all Business Review Panel outreach meeting regarding these issues because, as small financial service prov iders, 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 meeti ng, it had no evidence that the proposals under consideration would result in an increase in the co st 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 bus iness 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 th eir customers closed-end mortgage loans to be used primarily for personal, family, or househol d purposes but that are used secondarily to finance a small business, and whether the proposals then under c onsideration 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-secure d 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 c onsideration would increase the SERs’ cost of credit.

237 See 5 U.S.C. 603(d)(2). The Bureau provided this notific ation 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 regu lations would increase their costs, they said these regulations would have litt le to no impact on the cost of business credit. When asked, one SER mentioned that at times people may use a hom e-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 interest ed in the use of pers onal credit to finance a business and invites interested parties to provide data and ot her 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 th at the proposed rule will result in an increase in the cost of credit for small business entities. To further ev aluate this question, the Bureau solicits comment on whether the proposed rule w ill 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, an d a person is not requir ed to respond to, an information collection unless the information coll ection 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 colle ction 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 Serv icing. The frequency of response is on-occasion. These information collection requirements would be re quired 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 (s uch as commercial banks, savings banks, and credit unions) and non-depository institutions (such as mortgage brokers, re al 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 bur den 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 expect s that the amount of time requi red 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 Bur eau estimates that there are 11,425 depository institutions and credit unions subject to the proposed ru le, 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 “credito rs” or “lenders” shall be deem ed 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” sh all 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 resp ondents) use third-party soft ware and information technology vendors. Under existing contract s, vendors would absorb the one-t ime 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 th e 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 mortga ge servicing transfer notice but would expand coverage from closed-e nd first-lien mortgages to closed-end subordinate-lien mortgages as well.
2. Provisions regarding the placement and termin ation of force-placed insurance, including three notices: The Bureau’s proposal for fo rce-placed insurance would require servicers to provide two notices to a borrower at le ast 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 reso lution 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 writt en response acknowledging receipt of an information request. Servicers would also be required to provide the borrower with the342 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 deli nquent borrowers: The Bureau’s proposals would require servicers to provide oral a nd written notices upon a borrower’s reaching certain stages of delinquency.
5. Requirements regarding loss mitigation: Unde r the Bureau’s proposals, servicers that offer loss mitigation options in the ordinarycourse 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 modificati on requests, a more detailed notice of the specific reason for denial and appeal right s), (2) providing a notice of the appeal determination, and (3) providing servicers of senior or subor dinate liens encumbering the property that is the subject of the loss mitigat ion application copies of the loss mitigation application. B. Analysis of Proposed Info rmation Collection Requirements 243 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 cl osed-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 St atement is available at www.reginfo.gov.343 transferor servicer is required to provide wr itten notice to the borrowe r notifying them of the transfer, while the transferee serv icer is required to provide no tification to the borrower that it will servicer the borrower’s mo rtgage. The Bureau’s proposedprovision would substantially reduce the length and complexity of the existing mortgage servic ing transfer disclosure. The Bureau is expanding coverage from closed-end fi rst-lien mortgages to also include closed-end second lien mortgages. All respondents would have a one-time burde n under this requirement associated with reviewing the regulation. Ce rtain respondents would have one -time burden in hours or vendor costs from creating software and informa tion 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 co sts 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 insura nce would require serv icers to provide two notices to a borrower at least 45 days and 15 da ys before charging the borrow for force-placed insurance. In addition to the two notices, the Bu reau is proposing to require servicers to provide borrowers a written notice before charging a bo rrower 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 re flect common practices. All respondents would have a one-time burde n under this requirement associated with reviewing the regulation. Ce rtain 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 c onsiders 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 ex isting 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 burde n to be 45 minutes and $90, on average, for each respondent. 245 Certain respondents would have ongoing burden in hours or ve ndor costs associated with the information technology used in producing th e disclosure. All respondents would have ongoing vendor costs associat ed 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 correct ion of error, and oral or written pr ovision of the info rmation requested by the borrower or a written notification that the information requested is not available to the servicer, and an internal reco rd of engagement with the borrower, which are forms of information collection. The Bureau estimates that one-time hourly burde n to provide training fo r relevant staff to comply with the proposed disclosure requirement s to be 43 hours, on av erage, per respondent. Respondents would have ongoing burden in hours a nd/or vendor costs a ssociated 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 disclosu re. 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 borro wer’s reaching certain st ages of delinquency. Most respondents currently provide some form of delinquency notice, an d thus the expenses associated with this information collection ar e 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 de linquent borrowers; the Bureau estimates that 80 percent of outstan ding mortgages are guaranteed by one of these institutions. The Bureau estimates that 75 per cent of loans that are not guaranteed by one of these institutions are serviced by a servicer that is currently providing delinquency notices that346 would comply with the proposal. The Bureau es timates the one-time burden to be 0.4 hours, on average, for each institution. The Bureau es timates 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 fo llow 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 deni al and appeal rights), (2 ) providing a notice of the appeal determination, and (3) providing servi cers of senior or subordinate liens encumbering the property that is subject of the loss mitigat ion application copies of the loss mitigation application. The loss mitigation provision would crea te an information collection by requiring servicers to notify borrowers who submit loss mitiga tion applications and any servicers of senior or second liens encumbering the pr operty that is the subject of the loss mitigation application where a applications have been submitted. Serv icers 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 incomp lete and explain the step s needed to complete. For complete applications, the se rvicer 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 mitigati on application. For incomplete applications that resubmit, and possess second-lien loan on thei r property, the provision would require three notices.347 All respondents would have a one-time burde n under this requirement associated with reviewing the regulation. Ce rtain respondents would have one -time burden in hours or vendor costs from creating software and information te chnology 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 1,670,0 00 $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 re quested concerning: (1) whethe r the proposed collections of information are necessary for the proper perfor mance of the functions of the Bureau, including whether the information will have practical uti lity; (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 t echnology. All comments will become a matter of public record. Comments on the collection of information require ments should be sent to the348 Office of Management and Budget (OMB), Attenti on: 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, w ith 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 highli ght 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 te xt, 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, H ousing, Insurance, Mortgage servicing, Mortgagees, Mortgages, Reporting and recordkeeping requirements. Authority and Issuance For the reasons set forth above, the Bureau pr oposes 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 “Gen eral” 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 fi nancing, 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 residentia l 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 oc cupancy 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 agen cy 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 Mortgage350 Corporation (or its successors), or a financial in stitution 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 “cre ditor”, as defined in section 103(g) of the Consumer Credit Protection Act ( 15 U.S.C. 1602(g)), that makes orinvests 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 resi dential real property, incl uding single-family and multifamily residential property; (E) Is originated either by a dealer or, if th e 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 lo ans specified in paragraphs (1)(ii) (A) through (D) of this definition. (2) Any installment sales cont ract, land contract, or cont ract for deed on otherwise qualifying residential propert y is a federally related mortgage lo an 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) thr ough (D) of this definition. (3) If the residential real prope rty securing a mortgage loan is not located in a State, the loan is not a federally related mortgage loan. b. Revise the definition of “Mortgag e 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 inte rmediary between a borrower and a lender in a351 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 Federa l Housing Administration programs is a mortgage broker for purposes of this part. ] c. Revise the definition of “Origi nation service” to read as follows: Origination service means any service involve d 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 Guid ance 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 Associ ate Director, Research, Markets, and Regulations, Bureau of Consum er Financial Protecti on, 1700 G Street, NW, Washington, DC 20552. ◄ e. Revise the definition of “S ervicer” to read as follows:
Servicer means the person responsible for the serv icing 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 Corporat ion (FDIC), in connection with assets acquired, assigned, sold, or transferred pursuant to section 13(c) of the Fe deral Deposit Insurance Act or as receiver or conservator of an insured depository institution; [ and ]352 ► (2) The National Credit Union Administrati on (NCUA), in connection with assets acquired, assigned, sold, or transferred pursuant to section 208 of the Fe deral Credit Union Act or as conservator or liquidating ag ent of an insured credit union; and ◄ ( [ 2 ] ► 3 ◄ ) The Federal National Mortgage Corp oration (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 th e 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 pr oceedings for bankruptcy of the servicer, [ or] commencement of proceedings by the FDIC for conservatorship or receivership of the servicer (or an entity by which th e servicer is owned or controlled) ► , or commencement of proceedings by the NCUA for appointment of a cons ervator or liquidating agent of the servicer (or an entity by which the serv icer 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 ma king the payments to the owner of the loan or other third parties of princi pal and interest and such other payments with respect to the amounts received from the borrower as may be re quired pursuant to the terms of the mortgage servicing loan documents or se rvicing contract. In the case of a home equity conversion mortgage or reverse mortgage as referenced in this section, servicing includes making payments353 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 Financ ial Protection, 1700 G Street, NW, Washington, DC 20006. Legal questions concerni ng the interpretation of this pa rt 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 Si gnatures 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 fo llowing 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 “i nterpretation,” “interpretive rule,” “co mmentary,” 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 am ended by a subsequent document published in354 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 redesi gnate 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 covere d 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 broke r transactions that are tablefunded are not secondary market tr ansactions. Neither the creation of a dealer loan or dealer consumer credit contract, nor the first assignment of such loan or contr act to a lender, is a secondary market tran saction (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 reque sts changes to the ► federally related ◄ mortgage loan identified in the GFE that ch ange the settlement ch arges or the terms of355 the loan, the loan originator may provide a revise d GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so w ithin 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 th e 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 determ ine 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 sect ion controls the applic able limits. Where [ the mortgage loan ] ► such ◄ documents do not specifically establish an escr ow account, whether a servicer may establish an escrow account for the loan is a matter for dete rmination 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 applic able 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 or356 State law sets a lesser amount. b. Revise paragraph (f)(2)(i i) to read as follows: § 1024.17 Escrow accounts. * * * * * (f) * * * (2) * * * (ii) These provisions regarding surpluses apply if the borrowe r is current at the time of the escrow account analysis. A borrower is cu rrent if the servicer receives the borrower’s payments within 30 days of the payment due date. If the servicer does no t receive the borrower’s payment within 30 days of the payment due date, th en 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 ap ply if the borrower is current at the time of the escrow account analysis. A borrower is cu rrent if the servicer receives the borrower’s payments within 30 days of the payment due date. If the servicer does no t 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 acc ount analysis the borrower is more than 30 days overdue, then the servicer is exempt from the requirements of submitting an annual es crow account statement to the borrower under § 1024.17(i). Th is exemption also applies in situations wher e the servicer has brought an action for for eclosure under the underlying ► federally related ◄ mortgage loan, or where the borrower is in bankruptcy proceedin gs. If the servicer does not issue an annual statement pursuant to this exemption and the lo an subsequently is reinstated or otherwise becomes current, the servicer shall provide a hi story 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)(i ii) 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 co mputation year, the servicer shall submit a short year statement to the borrower within 60 days after receiv ing 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 th e premium charge on a borrower’s hazard insurance, as defined in § 102 4.31, unless the servicer has a reasonable basis to believe that the borrower’s hazard insuranc e has been canceled or not renewed for reasons other than nonpayment of premiu m 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 redesignat e paragraph (m) as paragraph (l). 9. Add subpart B to part 1024, titled “Mortgag e 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 “Mortg age 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 lo an, 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 publ ic holidays, Saturdays, and Sundays are expressly excluded. Hazard insurance means insurance on the property secu ring a mortgage loan that protects the property against loss caused by fire, wind, fl ood, 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 define d 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 perf orm 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 co rrespondence from the borrower to the360 servicer that enables the servic er 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 servic er regarding information relating to the servicing of the mortgage loan sought by the borrower. Reverse mortgage transaction has the meaning set fo rth 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 fo r which a borrower may incur a fee. Subservicer means a servicer who does not own th e 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 agreem ent or understanding w ith 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 tr ansfer the right to perform servicing pursuant to an agreement or understanding with the ow ner 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 abbrev iations in complying with the disclosure361 requirements of this subpart. (2) Foreign language disclosures. Disclosures required under th is 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; disclosu res 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 Savi ngs Act (12 U.S.C. 4301 et seq. )) or the terms of an agreement with a federal or state regulatory agen cy with the disclosures required by this subpart, unless such prohibition is expressly set forth in this subpart, appli cable 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 fo r a reverse mortgage transaction, the lender, table funding mortgage broker, or dealer in a first lien dealer lo an shall provide to the person a servicing disclosure statement that states wh ether the servicing of the reverse mortgage transaction may be assigned, sold, or transferred to any other pe rson at any time. Appendix MS1 of this part contains a model form for the di sclosures required under this paragraph. If an application is denied credit w ithin the 3-day period, a servici ng 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 transf eree servicer of any mortgage loan shall provide362 to the borrower a notice of transfer for any assign ment, sale, or transfer of the servicing of the mortgage loan. The notice must contain the info rmation described in para graph (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 serv icing for purposes of this section if there is no change in the payee, address to which paymen t must be delivered, account number, or amount payment due: (A) A transfer between affiliates; (B) A transfer that results from mergers or acquisitions of servicer s or subservicers; or (C) A transfer that occurs between master servicers without cha nging the subservicer. (ii) The Federal Housing Admini stration (FHA) is not required to provide to the borrower a notice of transfer where a mortgage insured un der the National Housing Act is assigned to the
FHA. (3) Time of notice. (i) In general. Except as provided in paragr aph (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 th e 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 a nd 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 transfer ee servicer not more than 30 days after the effective date of the363 transfer of the servicing of the mortgage loan in any case in whic h 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 ow ns or controls the servicer; or (D) Commencement of proceedings by the NCUAfor appointment of a conservator or liquidating agent of the servic er 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 th e transfer of servicing; (ii) The name, address, and a toll-free tele phone 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 tele phone number for an employee or department of the transferor servicer that can be contacted by the borrowe r to obtain answers to servicing transfer inquiries; (iv) The date on which the transferor servic er will cease to accept payments relating to the loan and the date on which the transferee serv icer 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 servici ng does not affect any term or condition of the364 mortgage loan other than terms directlyrelated 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 effectiv e date of transfer of the servicing of any mortgage loan, if the transferor servicer (rather than the transf eree 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 in struments), a payment may not be treated as late for any purpose, except with respect to cal culating the period of de linquency 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 tran sferee servicer for application to a borrower’s mortgage loan account, or (ii) re turn 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 provision s of any State law or regulation requiring notice to a borrower at the time of appli cation for a loan or transfer of servicing of a loan if the lender or servicer complies with the requirements of th is 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 mort gage loan require the365 borrower to make payments to th e servicer of the mortgage lo an 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 gove rned 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 provid ed to the borrower by a lender that: (i) Was also the lender to whom the pr ior 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 lo an 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 asse rts 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 ha s occurred. A notice on a payment coupon or other payment form supplied by the servicer need not be treated by the se rvicer as a notice of error. A qualified written request that asserts a covered error re lating to the servicing of the mortgage loan is considered a notice of error and must comply with all requirements applicable366 to a notice of error. (b) Scope of error resolution. For purposes of this secti on, 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 pr incipal, 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 char ge to the consumer or the furnishing of negative information to a consumer reporting agency; (4) Failure to pay taxes, insurance premiums, or other charges, incl uding charges that the borrower and servicer have voluntarily agreed th at the servicer should collect and pay, in a timely manner as required by § 1024.34(a), or to re fund an escrow account balanced as required by § 1024.34(b); (5) Imposition of a fee or charge that the se rvicer lacks a reasonable basis to impose upon the borrower; (6) Failure to provide an accurate payo ff 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 sche duled foreclosure sale in the circumstances described in367 § 1024.41(g). (c) Contact information for borrowers to assert errors. A servicer may, by notice provided to a borrower, establis h 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 serv icer shall designat e the same telephone number and address for receiving information reque sts 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 acknow ledging receipt of the bor rower’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 th e borrower and providing the borrower with notification of the corr ection, the date of the correction, and contact information for further assistance; or (B) Conducting a reasonable in vestigation and providing the borrower with a notification that includes a statement that th e servicer has determined that no error occurred, a statement of the reason or reasons for this determination, a statement of the borrowe r’s right to request documents relied upon by the servicer in reachin g its determination, information regarding how368 the borrower can request such documents, and co ntact information for further assistance. (ii) Different or additional error. If during a reasonable inves tigation 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 a nd provide the borrower with a notification that describes the error the servicer identified, the acti on taken to correct the error, the applicable date for the correction, and contact info rmation 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 info rmation as a condition of investigating the alleged error; or (ii) Determine that no error occurred b ecause the borrower failed to provide any requested information without c onducting a reasonable investig ation 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 le gal public holidays, Sa turdays, and Sundays) after the servicer receives the as serted error, if a notice of erro r identifies an error in paragraph (b)(6) of this section; (B) Prior to the date of a scheduled foreclos ure sale or within 30 days (excluding legal public holidays, Saturdays, and Sundays) after the servicer receives the asse rted 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 (excl uding legal public holidays, Saturdays, and Sundays) after the serv icer 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 e rror by an additional 15 days (e xcluding 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 borro wer of the extension and the reasons for the extension. A servicer may not ex tend 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 ma king its determination within 15 days (excluding legal public holiday s, 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 no tified of that correct ion 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 sec tion if the servicer recei ves 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 foreclos ure sale, the servicer responds to the borrower, orally or in writing, and corrects the error or st ates the reason the servicer ha s 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 th e servicer has previously complied with its obligation to respond pursuant to paragraph (e)(1) of this sec tion, unless the borrower provides new and material information to support the asserted error. Ne w and material information means information that was not reviewed by the servicer in connection with investigati ng a prior notice of error and is reasonably likely to change a se rvicer’s prior determin ation 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 overbro ad if a servicer canno t reasonably determine from the notice of error the specific covered e rror that a borrower asse rts 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 exce eding the maximum timeframe permitted by paragraph (e)(3)(ii) of this sect ion or incurring costs (or dedica ting 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 ove rbroad 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 erro r 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 receivi ng 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 borro wer of its determination that the servicer is not required to comply with the requi rements of paragraphs (d) and (e) of this section371 in writing not later than five days (excluding legal public holiday s, 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 se ction upon which the servicer ha s made such determination. (h) Payment requirements prohibited. A servicer shall not ch arge a fee, or require a borrower to make any payment that may be ow ed on a borrower’s account, as a condition of investigating and respondi ng 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 th is section, nothing in this secti on shall limit or restrict a lender or servicer from pursuing any remedy it has under applicable law, includi ng initiating foreclosure or proceeding with a sc heduled foreclosure sale. 1024.36 Requests for information. (a) Information request. A servicer shall comply with th e requirements of this section for any oral or written request for information (inc luding 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 enable s the servicer to identify the borrower’s mortgage loan account, and states the information the borrower is reque sting with respect to the borrower’s mortgage loan. A request on a payment coupon or other pa yment form supplied by th e servicer need not be treated by the servicer as a request for info rmation. A qualified writ ten request that requests information relating to the servicing of the mortga ge loan is considered a request for information and must comply with all requirements applicable to a requ est for information.372 (b) Contact information for borrowe rs to request information. A servicer may, by notice provided to a borrower, establis h a telephone number and address that a borrower must use to request information in accordance with the procedur es in this section. Th e notice shall include a statement that a borrower should request inform ation 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 informa tion 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 be fore any change in the telephone number or address used for r eceiving an information request. (c) Acknowledgment of receipt. Within five days (excluding legal public holidays, Saturdays, and Sundays) of a servicer receivi ng an information request from a borrower, the servicer shall provide to th e borrower a response acknowledgi ng receipt of the information request. (d) Response to inform ation request. (1) Investigation and response requirements. A servicer must respond to an in formation 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 th e requested information and providing the borrower with a notification that states that th e servicer has determined that the requested information is not available to the servicer, prov ides the basis for the servicer’s determination, and provides contact informati on 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 lega l public holidays, Satu rdays, 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 (e xcluding 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 se rvicer may extend the time period for completing its search for information by an additional 15 days (excluding le gal public holidays, Saturdays, and Sundays) if, before the end of the 30 day pe riod, the servicer notifie s the borrower of the extension and the reason s 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 in formation requested and contact information for further assistance within five days (e xcluding legal public holidays, Saturdays, and Sundays) of receiving an info rmation 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 paragr aphs (c) and (d) of this sec tion 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 doc uments 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 secti on or incurring costs (or dedicating re sources) that would be unreasonable in light of the circumstances. To the extent a se rvicer can identify a vali d information request in a submission that is otherwise overbroad or undul y burdensome, the servicer shall comply with the requirements of paragraphs (c) and (d) of this section wi th respect to that requested information. (v) Untimely information request. An information request is de livered 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 reques t 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 borro wer of its determination that the servicer is not required to comply with the requi rements of paragraphs (c) and (d) of this section in writing not later than five days (excluding legal public holiday s, Saturdays, and Sundays) after making its determination. The notice to the borrower shall set forth the basis that is permitted375 under paragraph (f)(1) upon which the serv icer 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 pr ohibit a servicer from charging a fee for providing a payoff statement or a beneficiary notice under applic able State law, if such fees are not otherwise prohibi ted by applicable law. (h) Servicer remedies. Nothing in this section shall pr ohibit a servicer from furnishing adverse information to any consumer reporting agen cy or pursuing any of its remedies, including initiating foreclosure or proceed ing with a scheduled foreclosure sale, allowed by the underlying mortgage loan instruments, during the time period that response to an in formation 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 lo an 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 servi cer as required by the Flood Disaster Protection Act of 1973. (ii) Hazard insurance obtained by a borrower but renewed by the borro wer’s servicer as required by § 1024.17(k)(1), (k)(2), or (k)(5).376 (iii) Hazard insurance obta ined by the borrower but rene wed 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 basi s to believe that the borrower has failed to comply with the mortgage loan contract’s re quirement to maintain hazard insurance. (c) Requirements for charging borrowe r 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 pl aces in the mail a written notice with the disclosures set forth in paragraph (c)(2) of th is 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 servic er has not received verification that the borrower has hazard insurance inplace 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 identifi es the property by its address; (v) A statement that the borrower’s hazard insu rance 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 iden tify 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, maili ng 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 in formation requested pursuant to paragraph (c)(2)(vii) of this section. A serv icer that will only accept th e requested information in writing must disclose th at fact in the notice; (ix) The cost of the force-plac ed insurance, stated as an a nnual 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 hazar d insurance obtained by the borrower; and378 (xi) The servicer’s telephone number for borrower questions. (3) Format. The disclosures set forth in paragraph (c)(2) of this sect ion 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 bo rrower’s property may be in regular text. (d) Reminder notice. (1) In general. One written notice in add ition 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 chargi ng a borrower for force-placed insurance. The servicer may not deliver to the borrower or pl ace 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 bo rrower or placing in th e mail the written notice set forth in paragraph (c)(1)(i) of this section must provide the di sclosures set forth in paragraph (d)(2)(i) of this section. A serv icer that receives in surance information af ter delivering to the borrower or placing in the mail the written notice set forth in paragr aph (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 para graph (c)(1)(i) of this section must provide a written notice that shal l 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 an d 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 receiv ed 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 char ged for insurance the servicer obtains for the period of time where the servicer is unable to verify hazard insura nce 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 sec tion must be in a format substantially similar to form MS-3(B), an d 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 Appendi x MS-3 of this part. Disclo sures required by paragraphs (d)(2)(i)(B), (d)(2)(ii)(B ), and (d)(2)(ii)(F) of this s ection 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 wi thin a reasonable time prior to the servicer delivering the notice to the borrower or placi ng 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 replaci ng existing force-placed insurance unless: (i) The servicer delivers or pl aces in the mail a written not ice to the borrower with the disclosures set forth in paragraph (e)(2) of th is section at least 45 days before the premium charge or any fee is assessed; and (ii) During the 45-day notice period, the serv icer 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 servicerthat 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 th at hazard insurance obtained by the borrower did not provide the borrower with insurance coverage for any period of time following the expiration of the exis ting force-placed insurance. (2) Content of renewal notice. A servicer must provide th e 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 in surance information for the borrower’s property and identifies th e borrower’s property by its address; (v) A statement that the servicer previ ously 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 pr operty, the servicer has the right to maintain insurance on the property by rene wing or replacing the in surance it previously obtained; (vii) The cost of the force-placed insurance, st ated 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 th at 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 obtai ns hazard insurance, the borrower should promptly provide the servicer with the insura nce 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 sec tion. A servicer that will only accept the requested information in writing must disclose that fact in the notice; and382 (xi) The servicer’s telephone number for borrower questions. (3) Format. The disclosures set forth in paragraph (e)(2) of this sect ion 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 sectio n must be in bold text, except that the physical address of th e 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 sh all 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 char ging 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 re quired pursuant to paragraphs (c)(1)(i), (d)(1) and (e)(1) of this section, as applicable, the se rvicer 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 insuranc e in place, a servicer must: (1) Cancel force-placed insurance obta ined 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 peri od that the servicer has a ssessed 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 authori zed by the Flood383 Disaster Protection Act of 1973, a ll charges related to force-pl aced insurance assessed to a borrower by or through the servicer mu st 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 Disa ster Protection Act of 1973. If permitted by regulation under section 102(e) of the Flood Disaster Protec tion Act of 1973, a serv icer subject to the requirements of this section may deliver to th e 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 manageme nt policies and procedures. (a) In general. (1) Reasonable policies and procedures . A servicer shall establish reasonable policies and procedures for mainta ining 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 reasonabl y 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 practi ce of failing to comply w ith 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, a nd, as appropriate, correct erro rs 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 tim ely information and documents in response to borrower requests made in accordance w ith 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 wh ich 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 servi cer 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 an y appeals, pursuant to the requirements in385 § 1024.41. (3) Facilitating oversight of, and compliance by, service providers. (i) Provide appropriate servicer personnel w ith access to accurate and curre nt documents and information reflecting actions performe d by service providers; (ii) Facilitate periodic revi ews of service providers, incl uding by providing appropriate servicer personnel with documents and informa tion necessary to audi t compliance by service providers with the servicer’s contractua l obligations and app licable 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 personne l assigned to a borrower pursuant to § 1024.40 and service providers responsible fo r 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 tran sferred and that enable s a transferee servicer to comply with the requirements of this subpa rt 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 reflecti ng the current status of discussions with a borrower regarding loss mitigation options, any ag reements 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 resp ect to a borrower’s mortgage loan account until one year after the date a mortgage loan is di scharged or servicing of a mortgage loan is386 transferred by the servicer to a transferee servicer. (2) Servicing file. A servicer shall provide a borrow er 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 co mmunications 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 dial ed telephonic communications; and (vi) Copies of any information or documen ts provided by a borrower to a servicer in accordance with the procedures set forth in §§ 1024.35 or 1024.41. 1024.39 Early intervention require ments for certain borrowers. (a) Oral notice . If a borrower is late in making a pa yment sufficient to cover principal, interest, and, if applicable, es crow 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 optio ns, if applicable, may be available. If the servicer attempts to notify the borrower by te lephone, good faith efforts require calling the borrower on at least three separate days in order to reach the borrowe r. A servicer is not required to notify or make good faith efforts to notify th e borrower under this pa ragraph 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 comp lies 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 wr itten notice. The notice required by paragr aph (b)(1) of this section shall include: (i) A statement encouraging the bo rrower 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, expre ssed 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 appli cable, and telephone number to access: (A) Any State housing finance authority (as defined in section 1301 of the Financial Institutions Reform, Recovery, and Enforcem ent Act of 1989) for the State in which the borrower’s property is located; and (B) Either the Bureau list of homeownershi p counselors or counse ling organizations or the HUD list of homeownership counse lors 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 co mply 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 personne l to respond to the borrower’s inquiries, and as applicable, assist the borrower with loss mitigation options. If a borrower has beenassigned personnel as required by this paragraph and the assignment has not ended when servicing for borrower’s mortgage loan has transferred to a transferee servi cer, subject to paragraphs (c)(1)-(c)(4) of this section, the transferee servicer mu st assign personnel to respond to the borrower’s inquiries, and as applicable, assist the borrower with loss m itigation 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 bo rrower within a reasonable time. (b) Functions of servicer personnel. (1) Reasonable policies and procedures . A servicer shall establish policies and proce dures reasonably designed to en sure the servic er personnel it makes available to the borrower pursuant to para graph (a) of this sect ion 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 borro wer must take to appeal the serv icer’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 establishe d by the servicer that the borrower must

meet. (ii) Access: (A) A complete record of the borrower’s paym ent history in the se rvicer’s possession; (B) All documents the borrower has submitted to the servicer in connection with the borrower’s application for a loss mitiga tion option offered by the servicer; and (C) If applicable, documents the borrower ha s 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; and390 (iv) Within a reasonable time after a bo rrower request, as applicable, provide the information to the borrower or inform the bo rrower of the telephone nu mber and address the servicer has established for bo rrowers 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 proced ures satisfy the requirements in paragraph (b)(1) of this section if servicer personnel do not enga ge in a pattern or practice of failing to perform the functions set forth in paragr aph (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 th is 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 pr operty securing the mortgage loan; or (4) Title to the borrower’s property has b een 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 ha s 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 viol ated this section if the servicer’s failure to comply with this section is caused by conditi ons beyond a servicer’s control.391 1024.41 Loss mitigation procedures. (a) Scope. This section applies to any servic er that makes loss mitigation options available to borrowers in the or dinary course of business with respect to the procedures for reviewing and responding to a loss mitigation application. Nothi ng in this section shall be construed to impose an obligati on on an owner, assignee, guarant or, 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 mitigat ion applications by the deadline established by the servicer pursuant to para graph (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 lo ss mitigation application earlier than 5 days (excluding legal public holidays, Saturdays, or Sundays) before the dead line 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 and392 information. (c) Review of loss mitigation applications. Within 30 days of receiving a borrower’s complete loss mitigation application that is subm itted prior to the deadline established pursuant to paragraph (f) of this section, a serv icer 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 th e borrower pursuant to paragraph (c)(2) of this section: (1) The specific reasons for the servicer’s dete rmination for each such trial or permanent loan modification program; and (2) The fact that the borrower may appeal th e 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 communica tes 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 fi rst payment that would be owed pursuant to any such loss mitigation option within the deadli ne 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 serv icer 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 anappeal 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 mitigati on application, which shal l 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 estab lished 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 bo rrower has not requested an appeal, or the time for requesting an appeal has expired; (2) The servicer denies the borro wer’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 mitigati on application for any trial or permanent loan modification program offered by the servicer shal l permit a borrower to appeal the servicer’s394 determination. (2) Deadlines. A servicer shall permit a borrower to make an appeal within at least 14 days after providing the notice requi red 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 borro wer stating the servicer’s determ ination 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 servic e mortgage loans that have senior or subordinate liens encumbering the prop erty that is the subject of the loss mitigation application; and (ii) Provide any other servicer s identified pursuant to paragr aph (j)(1)(i) with a copy of the loss mitigation application. (2) Receipt of loss mitig ation application. A servicer that offers loss mitigation options in the ordinary course of busine ss 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 if395 such loss mitigation application was provided by a borrower. ◄396 14. Revise Appendix MS-2 to Pa rt 1024 to read as follows: ► APPENDIX MS-2 to PART 1024
NOTICE OF SERVICING TRANSFER The servicing of your mortgage loan is bei ng transferred, effective [Date]. This means that after this date, a new servicer will be co llecting 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 recei ved from you after [Date]. [Name of new servicer] will collect your pa yments going forward. Your new servicer will start accepting payments re ceived 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 se rvicer, [Name of present servicer], about your mortgage loan or this transfer, please c ontact [Individual or Depa rtment] at [Telephone Number]. You may also write to your present servicer at the following address: [Address]. If you have any questions for your new serv icer, [Name of new servicer], about your mortgage loan or this transfer , please contact [Individual or Depa rtment] at [Telephone Number]. You may also write to your new servicerat the following address: [Address]. [Use this paragraph if appr opriate; otherwise omit.] Importa nt note about insurance: If you have mortgage life or disabi lity insurance or any other ty pe of optional insurance, the transfer of servicing rights may aff ect 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 Insura nce Notice Required Pursuant to § 1024.37(c)(2) MS-3(B) – Model Form for Force-Placed Insu rance Notice Pursuant to § 1024.37(d)(2)(i) MS-3(C) – Model Form for Force-Placed Insu rance Notice Pursuant to § 1024.37(d)(2)(ii) MS-3(D) – Model Form for Renewal or Replacem ent 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 ha ve 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 compa ny 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 co ntact us at [tel ephone number].399 MS-3(B) – Model Form for Force-Placed In surance 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] [expire d], and we do not have eviden ce that you have obtained new coverage. Because [hazard] [Insurance Type] insu rance is required on your property, [we bought insurance for your property] [we pl an to buy insurance for your property]. You must pay us for any period during which the insu rance 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 compa ny 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 co ntact us at [tel ephone number].400 MS-3(C) – Model Form for Force-Placed Insu rance 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 ve rify coverage from [Date Range]. Please provide us with insurance information for [Date Range] immediately

. We will charge you for insurance we [bought] [p lan to buy] for [Date Range] unless we can verify that you have insurance coverage for [Date Range]. If you have any questions, please co ntact us at [tel ephone number].401 MS-3(D) – Model Form for Renewal or Repl acement 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 ha d [hazard] [Insurance Type] insurance on the property listed above, we bought insurance on your property and added the co st 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 pr ovide 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 mu st be provided in writing.] If you have any questions, please co ntact us at [telephone number]. ◄402 16. Add Appendix MS-4 to part 1024 to read as follows: ► MS-4—Model Clauses for the Written Earl y 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 Mitigati on 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 j ob, 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 pr incipal 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 foreclos ure, 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 receiv e 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 sa le, you might also be eligible to receive m oney to help you move.]
MS-4(C)—Additional Information About Lo ss Mitigation Options (§ 1024.39(b)(2)(iv)) [Call us today to learn more about your opti ons 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 paymen ts. 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 la ws of the state where your home is located, the terms of your loan, whether you are covered by th e Servicemembers Civil Relief Act, and other factors. MS-4(E)—State Housing Finance Authoritie s and Housing Counsel ors (§ 1024.39(b)(2)(vi)) For help exploring your options, Federal governm ent agencies provide contact information for housing counselors, which you can access by cont acting [the Consumer Financial Protection Bureau at [Bureau Housing Counselor List Te lephone Number] or [Bur eau Housing Counselor List Web Site]] [the Depart ment 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 Numb er] 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 i ssues official interpretations of Regulation X. Good faith compliance with this commentary affords protec tion 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 Asso ciate Director, Research, Market s, and Regulations, Bureau of Consumer Financial Protection, 1700 G Street, NW, Washington, DC 20552. The requests shall contain a complete statement of all relevant f acts 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 appl y to forms or statements whose use is required or sanctioned by a government agency.
3. Unofficial oral interpretations. Unofficial oral interpretati ons 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 interpre tations provide no protection under section 19(b) of RESPA. Ordina rily, staff will not issue unofficial oral interpretations on matters adequately covered by this part or th e 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 th e insurance premium is due provides a servicer with a reasonable basis to believe that the bo rrower’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 be fore 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 de cides to stop writing insurance for all properties in the community where the borro wer’s property is located. iii. The insurance company cancels or chooses not to renew the borrower’s hazard insurance based on its underwriting criteria, whic h may include, for example, borrower’s claim history, or a change in the occ upancy status of the property ( e.g. , changing from occupied to nonoccupied), or a change in the probability of the property bein g 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 m onth-to-month basis, if permitted by State or other applicable law and accepted by th e borrower’s hazard insurance company. Section 1024.31—Definitions406 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 su bmitted 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 borro wer 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 allo w borrowers to remain in or leav e their homes, such as, without limitation, refinancing, trial or permanent modifi cation, repayment of the amount owed over an extended period of time, forbearance of future paym ents, 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 not ice 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 qualif ied written request is not requi red to include both types of requests. For example, a qualified written re quest may request inform ation 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 represen t a servicer or an owner or407 assignee of a mortgage loan in a foreclosure pr oceeding, 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 servici ng 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 lang uage of the servicing disclosure statement in Appendix MS-1 is not required to be used. The model format may be supplemented with additional information th at 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 f unding 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 a nd does not intend to sell, transfer, or assign the servicing of the loan.
2. Lender not servicing. If the lender, table funding mortga ge 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 transf er servicing of such mortgage loan before the first payment is due.
3. Other circumstances. In all other instances , a disclosure that stat es that the servicing408 of the loan may be assigned, sold, or transfe rred 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, wh ether 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 no tified the servicer of a new address pursuant to the servicer’s require ments for receiving a no tice 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 th e primary borrower where one is readily apparent. Section 1024.34—Timely Payments by Servicer 34(b)(2) Servicer may credit f unds 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 circumstan ces, 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 su bmitted by an agent of the borrower. Servicers may undertake reasonable procedures to determine if a person th at 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 re ly on the borrower’s description of a request to determine whether the notice constitute s a notice of error, an information request or both. For example, a borrower may submit a letter th at claims to be a “Notice of Error” that indicates that the borrower wants to receive th e information set forth in an annual escrow account statement and asserts an error for the servic er’s failure to provide the borrower an annual escrow statement. Although the servicer’s failu re to provide the borrower an annual escrow statement is not defined as an error pursuantto § 1024.35(b), such a le tter 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 characteriza tion of the letter as a “Notice of Error,” but should evalua te 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 co mply with sections 1024.35(d) and (e) with respect to a borrower’s asser tion of an error that is not defined as a co vered error in section 1024.35(b). For example, the follo wing are not covered errors: i. An error relating to the origination of a mortgage loan; ii. An error relating to the unde rwriting of a mortgage loan; iii. An error relating to a subsequent sale or securitization of a mortgage loan; iv. An error relating to a dete rmination 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. If410 a servicer does not designate a specific telephone number and address th at a borrower must use to assert an error, a servicer must respond to a notice of erro r 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 tr ansfer, periodic statemen t, 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 a ddress that a borrower must use to assert an error, a servicer should provide that telephone number and addres s 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 requi red to comply with th e requirements of § 1024.35 with respect to a notice of e rror 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 loca ted in California asserts an error through the phone number or address used by the servicer for bo rrowers located in Texas, a servicer is still considered to have received a notice of erro r 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 e rror 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 th e servicer for receiving errors through an online intake method shall be consid ered 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 excl usive process for receiving such errors.
5. Automated systems. Servicers may use toll-free te lephone numbers that connect borrowers to automated systems, such as an interactive voice respons e system, through which consumers may assert errors by inputting inform ation 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 a nd 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 addr ess 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 § 1024.3 5(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 foreclosur e sale or 30 days, a servicer may cancel or postpone a scheduled foreclosure sale, in whic h case, the servicer meets the time limits in § 1024.35(i)(B) by complying with th e requirements of § 1024.35(e) be fore 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 e rrors; 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 info rmation entered in a servicer’s collection system. For example, in response to an assert ed error regarding paymen t allocation, a servicer may provide a printed screen captu re showing amounts credited to pr incipal, interest, escrow, or other charges in the servi cer’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 a413 servicer properly determined that information re viewed 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 rega rding substantially all aspects of a mortgage loan, including errors relating to all aspects of mortgage origination, mortgage serv icing, and foreclosure, as well as errors relating to the cred iting of substantially every borrower payment and escrow account transaction; ii. Assertions of errors in th e form of a judicial action co mplaint, 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 fo r 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) prohi bits 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 obligati ons 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 alte r a borrower’s obligation to make a monthly payment that the borrower owes for March. A servicer, however, may not require that a414 borrower make the March payment as a conditio n 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 fr om 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 servic er responds to the borrower’s info rmation request with the name, address, and appropriate contact information for the servicer or the affiliate, as applicable. ii. A servicer services a mortgage loan thathas been securitized. In general, in a securitization transaction, a special purpose vehicle, such as a tr ust, is the owner or assignee of a mortgage loan. If a securitizati on transaction is structured such that a trust is the owner or assignee of a mortgage loan and the trust is ad ministered 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 Co mpany is the trustee. The servicer responds by identifying the owner as Mortgage Loan Tr ust, Series ABC-1, and providing the name, address, and appropriate cont act information for XYZ Trust Company as the trustee.415 Although investors or guarantors, including, among others, Federal National Mortgage Association, the Federal Home Loan Mortga ge Corporation, or the Government National Mortgage Association, may be exposed to risks re lated to the mortgage loans held by the trust either in connection with an investment in secu rities issued by the trust or the issuance of a guaranty agreement to the trust, entities that act as investors or gua rantors 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 tran saction. 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 Associa tion is the trustee of the trust that owns the mortgage loan, a servicer responds to a borrowe r’s request for information regarding the owner or assignee of the mortgage loan by providing the name of the trus t, and the name, address, and appropriate contact information for Federal Na tional Mortgage Association as the trustee. 36(b) Contact inform ation 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 addr ess 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 serv icer 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 notic e 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 a nd address that a borrower must use to request information, a servicer should provide that telephone num ber 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 capab le 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. Howeve r, 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 specif ic address or phone number was provided to a specific borrower that is request ing 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 requ ests through email, website form, or other online method. Any such process shall be in ad dition to, and not in lieu of, any process for receiving information requests by phone or mail. The process establishe d by the servicer for receiving information requests thro ugh an online intake method sha ll be considered the exclusive online intake process for receiving information reque sts. A servicer is not required to provide a417 separate notice to a borrower to es tablish a specific online intake process as an exclusive process for receiving information requests.
5. Automated systems. Servicers may use toll-free te lephone numbers that connect borrowers to automated systems, such as an interactive voice respons e system, through which consumers may request information by using a touc h-tone telephone or sim ilar 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 info rmation request notice. 36(d)(1) Investigation a nd response requirements. Paragraph 36(d)(1)(ii).
1. Information not available. Information is not available if: i. The information is not in the se rvicer’s control or possession, or ii. The information cannot be retrieved inthe 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 bus iness to audio recording files with organized recordings or transcripts of borrower telephone calls and can identify the communication referred to by the borrower throu gh 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 av ailable to that servicer’s personnel in the ordinary course of business wit hout undertaking extraordinary effo rts to identify and restore the418 information from the electronic back-up medi a. 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 docume nt storage facility and servicer personnel can access those documents through reasona ble efforts in the ordinary course of business. The information requested by the borro wer should be considered readily accessible. 36(e) Alternative compliance. 1. A servicer may provide the information reque sted either orally or in writing. If a servicer provides the information requested or ally, a servicer may demonstrate that it has complied with its requirements by, among others, setting forth a notat ion in a servicer file that information requested by a borrower was provi ded, 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 informa tion that can change over time should not be considered as substantially the same as a prev ious 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, proprietar y or general corporate informa tion includes information requests419 relating to, for example: i. Information regarding management or profita bility of a servicer, including information provided to investors of the servicer. ii. Information that relates to the servici ng of mortgage loans other than a borrower’s mortgage loan, including information reported to the owner of a mortgage loan regarding individual or aggregate co llections 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 th e 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 cl aim, or a claim relating to mortgage loan’s compliance with a seller’s representations and warranties; vii. The servicer’s se rvicing program guide; viii. Investor instructions or requirements fo r 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 exte rnal investigations. Paragraph 36(f)(1)(iv).
1. Indicia of overbroad or unduly burde nsome requests for information. The following are indicia of requests for information th at are overbroad or unduly burdensome:420 i. Requests for information that seek documen ts relating to substant ially all aspects of mortgage origination, mortgage servicing, mortga ge sale or securitization, and foreclosure, including, for example, requests for all mortga ge loan file documents, recorded mortgage instruments, servicing informa tion and documents, and sale or securitization information and documents; ii. Requests for information that substitute fo r discovery in a judicial action, such as information requests in the form of a discovery re quest that purports to require a servicer to respond to each numbered paragraph; iii. Requests for information that are not reas onably understandable or are included with voluminous tangential discussion or assertions of errors; iv. Requests for information that purport to require servicers to pr ovide information in specific formats, such as in a transcript, letter form in a columnar format, or spreadsheet, when such information is not ordinar ily stored in such format; or v. Requests for information that are not reas onably likely to assi st 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 paymen t 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 establishe d for hazard insurance has faile d to maintain hazard insurance if, for example, by a reasonable time prior to the expiration date of the borrower’s hazard421 insurance ( e.g., 30 days before the expiration date), the se rvicer has not receive d 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 reason able 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 hazar d insurance has failed to maintain hazard insurance if, for example, a se rvicer receives a notice of cance llation or non-renewal from the borrower’s insurance company. 37(c) Requirements for charging borro wer for force-placed insurance. 37(c)(1) In general. 1. The notice period begins on the day that the se rvicer delivers or mails the notice to the borrower and expires 45 days la ter. The servicer may charge a borrower for force-placed insurance beginning on the 46th day if the servicer has fulfille d the requirements of § 1024.37(c) and (d). If not prohibited by Stat e or other applicable law, the servicer may retroactively charge a borrower for force-placed insurance obt ained during the 45-d ay 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 in surance in place continuously. When there is a grace period, § 1024.37(c)(1)(iii) requires the servi cer to take the grace period into account when determining whether the borrower has hazard insu rance in place continuously. For example, a borrower’s prior hazard insurance might have an expiration date of June 1, but a grace period422 extends the effectiveness of th e 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 pu rchased a homeowner’s insurance policy and a separate hazard insurance policy to in sure loss against hazards not covered under his or her homeowne r’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 c overage to comply w ith § 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 servi cer may obtain should be consistent with the best information reasonably available to the servi cer at the time the disclosure is provided. Differences between the amount of the estima ted cost disclosed under § 1024.37(c)(2)(ix) and the actual cost later assessed to the borrower do no t 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 ex ample, a mortgage investor’s requirements may provide that the amount of c overage for force-placed insu rance depends the borrower’s delinquency status (the number of days the borrower’s mort gage payment is past due). The amount of coverage affects the cost of force-pl aced 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 co mplies 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 pl ace in the mail the written notice pursuant to § 1024.37(d)(1), the content of th e reminder notice will be differe nt 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 noti ce 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 writte n notice, with the content set forth in § 1024.37(d)(2)(i), 15 days before the servicer char ges Borrower A for force-placed insurance. Take the example above, except that Borrowe r 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 covera ge between June 10 and June 15) . The servicer must either deliver to Borrower A or place in the mail one reminder notice, with th e 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 th e written notice required pursuant to § 1024.37(d)(1) in advance of delivering or plac ing the notice in the ma il. 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 borrowe r’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 veri fication that the borro wer obtained hazard insurance effective January 31. The servicer may charge the bo rrower 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 sa me 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 re fund 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 ha d 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 pa id by the borrower for th e period between March 15 and April 30; and (3) remove from the borrower’s account any force-placed insurance425 premium charges and related fees for the period after March 15 that the servicer has assessed to the borrower but the borrowe r has not yet paid. Section 1024.38—Reasonable Information Ma nagement 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 obj ectives 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 e rrors as defined in § 1024.35(b) are documented with respect to the same or similar types of proce sses 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 (such426 as information about credited payments, current balances, and reasons for fees) when responding to borrower inquiries, and thus provide borro wers 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 st andard requirements in § 1024.38(c) is based on whether the servicer’s policie s and procedures were reasonably designed to achieve the objectives in § 1024.38(b) and to ensure comp liance 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 contac t, 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 sp ecific 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 believ es would be helpful.
2. Good faith efforts to notify—telephone calls . In order to make a good faith effort by427 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 servi cer should make the first call not later than the 28th day after the payment due date in order to make a good fait h 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 th e payment during that time.
See comment 39(a)-4. For purposes of § 1024.39, a pa yment is considered late the day after the payment due date, even if the bo rrower 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 serv icer is required to not ify 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 notif y or make good faith efforts to no tify 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 th e 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 pa rticular payment, the servicer may satisfy the notification requirement in § 1024.39(a) by informing the borrower orally at that time that loss428 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 make s the required payment on February 8 and the servicer did not notify or make good faith effort s 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 e xplain that he expects to become or acknowledges that he is late on that payment. The borrower remains late on th at payment during the 30 days after March 1. Not later than 30 days after March 1, the servicer is re quired to notify or make good faith efforts to notify the borrower orally that he has misse d 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 bo rrower current on a previ ously missed payment. 39(b) Written notice. Paragraph 39(b)(1) In general.
1 . Relationship to § 1024.39(a) . The written notice requi red 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 the429 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 Janua ry 1, the servicer is required to provide the written notice not later than40 days after January 1— i.e ., by February 10.
3. Borrower satisfies the payment . A servicer is not be requ ired to provide the written notice unless the borrower has not made the pa yment during the 40 days after the payment due date. For example, a servicer contacts a borro wer on January 20 to notify him that he has missed a January 1 payment and that loss mitigation opti ons may be available. The borrower explains that he forgot to send payment and will send the pa yment 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 January1 payment within the 40-day time period, the servicer is not required to provide the writ ten notice by February 10.
4. Frequency of the written notice . A servicer is not requir ed to provide the written notice more than once during a 180-day period be ginning 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 la te on that payment during the 40 days after March 1 and the servicer provides the wr itten 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 serv icer 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-da y 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 w ould be helpful.
2. Format. Any color, number of pages, size and quali ty 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 borro wer to contact the servicer . The servicer is not required to specifically request the borrower to contact the servicer a bout any particular loss mitigation option. Paragraph 39(b)(2)(ii).
1. Servicer’s mailing add ress and telephone number . If applicable, th e 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 servi cer 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 w ithout providing detailed descri ptions 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 obtai n more information about loss mitigation options . A servicer may comply with this require ment 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 th e borrower’s timely application for any loss mitigation options, servicers may provide more detailed instructions, such as by listing representative documents the borro wer 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. 501 et seq. ), and the requirements of the ow ner or assignee of the borrower’s loan.432 2. Estimated foreclosure timelines. The servicer may qualif y its estimate with a statement that different timelines may vary depe nding 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 inqui ries and assisting th e borrower with loss mitigation options as required pursuant to § 1024.40, the term “borrower” includes a person the borrower has authorized to acton behalf of the borrower (aborrower’s agent), which may include, for example, a housing counselor or attorney. Servicers may undertake reasonable procedures to determine if such person has au thority from the borrower to act on the borrower’s behalf. 2. For purposes of § 1024.40(a)(1), a reasonable ti me for a transferee se rvicer 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 con tinuity of contact. i. A servicer has discretion to determine the manner by whic h continuity of contact is implemented. For purposes of § 1024.40(a)(1), a se rvicer may assign a singl e 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 bo rrower whom a servicer is not required to notify pursuant to § 1024.39(a) contacts th e servicer to explain that he or she expects to make be late in making a particular payment, the servicer, at its el ection, 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 la w 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 polic ies and procedures. Paragraph 40(b)(1)(iv). 1. For purposes of § 1024.40(b)(1 )(iv), three days (excludi ng legal public holidays, Saturdays, and Sundays) is a reasonable time to provide the information the borrower has requested or inform the borrower of the te lephone number and address the servicer has established for borrowers to assert an error purs uant 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 pe rform any of the functions li sted in § 1024.40(b)(1) where applicable on multiple occasions, such as, for ex ample, repeatedly providing the borrower with inaccurate information about the status of th e loss mitigation application the borrower has submitted. ii. With respect to a larg e number of borrowers, if serv icer personnel assigned to the borrowers pursuant to § 1024.40(a) fail to perfor m any of the functions listed in § 1024.40(b)(1) where applicable in similar ways, such as, for example, providing a larg e number of borrowers434 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 reasonabl e 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 transferre d to a transferee borrower 30 days ago. 40(d) Conditions beyond a servicer’s control. 1. The term “conditions beyond a servicer’s contro l” 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 th e 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 in surer of a mortgage loan, incl uding any agreement with respect to the evaluation for, or provi sion of, any loss mitigation option.
2. Ordinary course of business. A servicer that does not e ngage in a practice of offering loss mitigation to borrowers in the ordinary cour se of business is not covered by this section435 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 mort gage 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 lo ss 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 se rvices offers loss mitigation in the ordinary course of business even though th e servicer’s loss mitigation progr ams 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 complia nce may include informing the borrower that the borrower is not eligible for loss mitigation options, including loan modifications, as a result of inve stor requirements, as set forth in sections 1024.41(c) and (d). 41(b) Loss mitigati on 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 diligen ce to obtain information to constitute a complete loss mitigation application by the earlie r of (i) the deadline established by the servicer pursuant to section 1024.41(f) or (ii) the earlie st time any documents or information submitted by the borrower will no longer be considered curren t 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 informa tion that constitutes a complete loss mitigation application earlier than the date when the inco me information would be considered stale where such deadline is earlier than the deadline es tablished 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 m itigation options offered. A servicer should evaluate a borrower for all loss mitigation options for wh ich a borrower may qualif y based upon eligibility criteria applicable to each lo ss 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 nu mber of participants. 41(d) Denial of loan modification options. Paragraph 41(d)(1).437 1. Investor requirements. If a trial or permanent loan modi fication is denied because of a requirement of an owner or a ssignee of a mortgage loan, the specific reasons in the notice provided to the borrower should identify the owne r 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 pendi ng 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 afte r 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 lo an is transferred, the transferee servicer is subject to the requirements of section 1024.41 unle ss 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 market ing 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 sim ilar 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 transact ion has been approved by all relevant parties, including the servicer, other affected lienholders, or insurers, if applicab le, 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 eval uation, as long as the supervisory personnel were not directly involved in the in itial 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 en cumbered by liens as a result of other senior or subordinate mortgage loans serviced by other se rvicers. Servicers may obtain this information by, among other things, requesting that the borrower provide info rmation in a loss mitigation application regarding any other mortgage loan s with liens encumberi ng the property, conducting a search of the land records, reviewing a consumer report from a consumer reporting agency, or439 consulting a database designed to matc h senior and subordi nate 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, servicer s using them appropriately will be deemed to be in compliance with disclosure requirements of the regulati on. To use the forms appropriately, information required by regulation must be se t forth in the disclosures.
2. Permissible changes . Servicers may make certain cha nges to the format or content of the forms and clauses and may de lete any disclosures that are inapplicable without losing the protection from liability so long as those cha nges do not affect the s ubstance, clarity, or meaningful sequence of the forms and clauses. Serv icers 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 “s ervicer” instead of pronouns. ii. Substitution of the word s “lender” and “servicer.” iii. Addition of graphics or icons, su ch 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) illustrate s how a servicer may comply with440 § 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 substi tute “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) a nd (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 samp le clauses for all loss mitigation options that may be available. The language in the model cl auses contained in square brackets is optional; a servicer may comply with the disclosure requ irements of § 1024.39(b)(2 )(iii) by using language substantially similar to the langua ge 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 informati on 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 required441 by § 1024.39(b)(2)(v). To use the model clauses, th e 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 howa servicer may provide contact information for housing counselors and State housing finance author ities, as required by § 1024.39(b)(2)(vi). A servicer may, at its option, provide the website an d telephone number for either the Bureau’s or the Department of H ousing and Urban Development’s housing counselors list, as provided by paragraphs (b)(2)(vi)(A) a nd (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.