### June 11, 2012

Richard Cordray

Director

Consumer Financial Protection Bureau
1700 G Street, NW Washington, DC 20552

Dear Director Cordray:

Enclosed for your consideration is the Report of the Small Business Review Panel (“Panel”) that was convened on April 10, 2012, fo r the rulemaking by the Consumer Financial Protection Bureau (“Bureau”) on Mortgage Loan Servicing under the Dodd-Frank Wall Street

Reform and Consumer Protection Act.

Pursuant to section 609(b) of the Regulatory Flexibility Act (5 U.S.C. 609(b)), the Panel was convened by Dan Sokolov, the Bureau’s Panel Chair and Deputy Associ ate Director for the Bureau’s Division of Research, Markets, and Regul ations. In addition to its Chair, the Panel consists of Dr. Winslow Sargeant, Chief Counsel for Advocacy of the Small Business Administration; Cass Sunstein, Administrator of the Office of Information and Regulatory Affairs in the Office of Management and Budge t; and David Stein, Ma naging Counsel in the Bureau’s Office of Regulations.

The Panel met with representatives of small en tities that would be subject to the rule on April 24, 2012, to obtain their feedback on proposals that the Bureau is co nsidering for Mortgage Loan Servicing. Before the meeting, the Bur eau provided the represen tatives of the small entities with materials outlining the proposals unde r consideration and alternatives considered. In addition to meeting with the Panel, many of the representatives subsequently provided the

Panel with written comments.

The Panel is appreciative of the thoughtful contributions made by the representatives of small entities who particip ated in this Panel process. The Pa nel recognizes that the time required for the participants to review materials, prepar e for and participate in the meeting, and provide additional written comments was significant. While this participation at an early stage of the rulemaking is important, public participation and input during subsequent stages of the rulemaking will also assist in the development of a final rule. Therefore, the Panel hopes the participants will continue to be engaged in th is rulemaking through the public comment process following publication of the proposed rule.

The Panel’s findings and recommendations are based on the information available at the time the final Panel Report was prepared. The Bureau is continuing to conduct analyses and gather information as part of the rule developmen t process. Any options identified by the Panel for reducing the rule’s economic impact on sma ll entities may require further consideration, analysis, and data collec tion by the Bureau to ensure that the options are practicable, enforceable, and consistent with TILA, RESPA, the D odd-Frank Act, and their statutory purposes.

### 2 The complete Panel Report is attache d, including background information on the proposals and significant a lternatives under consideration by th e Bureau that were reviewed by the Panel; a description of the t ypes, and an estimate of the numb er, of small entities that would be subject to those proposals; a summary of the comments and recommendations of the small entity participants; the Panel’s findings and recommendations; and attachments including certain materials presented to the small entity representativ es. In this report, th e Panel recommends that the Bureau seek additional information on potential impacts and consider certain alternatives that

would reduce the burden on small entities.

[signatures to follow]

### 1 FINAL REPORT

of the

Small Business Review Panel on CFPB’s Proposals Under Consideration for Mortgage Servicing Rulemaking

June 11 , 2012

### 2 Table of Contents

1. Introduction 2. Background 2.1 Market Background

2.2 The Dodd Frank Act

2.3 Additional Proposals

2.4 Related Federal Rules 3. Overview of Proposals and Alternatives Under Consideration

3. 1 Periodic Statements

3. 2 ARM Notice

– 6 Months Prior to Initial Interest Rate Reset

3. 3 Force

- Placed Insurance Notice

3. 4 Prompt Creditin g and Request for Payoff Amounts

3. 5 Error Resolution and Response to Inquiries

3. 6 Reasonable Information Management Policies and Procedures

3. 7 Early Intervention for Troubled or Delinquent Borrowers

3. 8 Continuity of Contact 4. Applicable Small Enti ty Definitions 5. Small Entities That May Be Subject to the Proposals Under Consideration

6. Summary of Small Entity Outreach 6.1 Summary of Panel’s Outreach Meeting with Small Entity Representatives 6.2 Other Outreach Efforts, Including to Small Entitie s 7. List of Small Entity Representatives 8. Summary of Small Entity Representative Comments 8.1 Periodic Statement and Coupon Book Exemption

8.2 ARM Disclosures

8.3 Force

- Placed Insurance 8.4 Error Resolution and Responses to Inquiries

8.5 Reasonable Information Management Policies 8.6 Early Intervention and Continuity of Contact 8.6.1 Early Intervention 8.6.2 Continuity of Contact 8.7 Prompt Crediting and Payoff Amounts 8.7.1 Prompt Crediting 8.7.2 Payoff Amount 8.8 Impact on the Cost of Business Credit 9. Panel Findings and Recommendations

Appendix A: Written Comments Submitted by SERs Appendix B: List of Materials Shared with SERs Appendix C: Outline of Proposals Under Consideration and Alternatives Considered Appendix D: Panel Outr each Meeting PowerPoint Slides

### 3 1. Introduction

Under the Regulatory Flexibility Act (“RFA”), 1 

### the Consumer Financial Protection Bureau (“CFPB” or the “Bureau” ) must convene and chair a Small Business Review Panel (“Panel”) to consider the impact of considered rules and obtain feedback from representatives of the small entities that would be subject to the rule unless the CFPB plans to certify that the proposals under consideration will not have a significant economic impact on a substantial

number of small entities. 2 

### The Panel consists of representatives from the CFPB, the Chief Counsel for Advocacy of the Small Business Administration (“SBA”), and the Administrator of the Office of Information and Regulatory Affairs within the Office of Management a nd Budge t (“OMB”).

This Panel Report addresses the CFPB’s upcoming proposal concerning the mortgage servicing rulemaking

. The Dodd

- Frank Wall Street Reform and Consumer Protection Act (Pub.

L. 111

- 203, approved July 21, 2010) (“Dodd

- Frank Act,” “DFA,” or the “Act”) 3 

### imposes certain requirements concerning mortgage servicing that become self

- executing and enforceable on January 21, 2013, unless final rules are issued on or before that date. The CFPB is also considering whether to propose additional standards to improve servicer information management and communications with troubled or delinquent borrowers.

This report includes the following:

• Background information on the proposals that are being considered by the CFPB and

that were reviewed by the Panel;

• Information on the types of small entities that would be subject to those proposals and on the small entity representatives (“SERs”) who wer e selected to advise the Panel;

• A summary of the Panel’s outreach to obtain the advice and recommendations of those SERs;

• A discussion of the comments and recommendations of the SERs; and

• A discussion of the Panel findings and reco m mendations , focusing on the following statutory elements: 4

1 RFA (Pub. L. 96

- 354, approved September 19, 1980; 94 Stat. 1164) is codified at 5 U.S.C. 601

- 612 ( http://143.231.180.80/view.xhtml?path=/title5/part1/chapter6 ).

2 Under section 609(b) of the RFA, as amended by the Small Business Regulatory Enforcement Fai rness Act of 1996 (“SBREFA”) and the Dodd

- Frank Wall Street Reform and Consumer Protection Act, a Panel is required to be convened prior to the publication of the initial regulatory flexibility analysis (“IRFA”) that the CFPB may be required to prepare und er the RFA.

3 Dodd

- Frank Act, secs. 1418, 1420, 1463(a), and 1464(a) ( http://www.gpo.gov/fdsys/pkg/PLAW

111publ203/pdf/PLAW

- 111publ203.pdf ).

4 See RFA section 603 (5 U.S.C. 603); RFA section 609(b)(5) (5 U.S.C. 609(b)(5)).

### 4 o A description of and, where feasible, an estimate of the number of small entities

to whic h the proposals under consideration will apply;

o A description of projected reporting, recordkeeping, and other compliance requirements of the proposals under consideration , including an estimate of the

classes of smal l entities which will be subject to the rule’s requirements and the type of professional skills necessary for prepa ration of the report or record;

o An identification, to the extent practicable, of all relevant Federal rules which may duplicate, overlap, or conflict with the proposals under consideration ; and

o A description of any significant alternatives to the proposals under consideration which accomplish the stated objectives of applicable statutes and which minimize any significant economic impact of the proposals under consideration on small

entities.

This Panel Report will be included in the public rulemaking record. The CFPB will consider the Panel’s findings when preparing the proposed rule and IRFA.

It is important to note that the Panel makes its r eport at a preliminary stage of rule development and this report should be considered in that light. The Panel’s findings and discussion are based on the information available at the time the final Panel Report was prepared. Additional analyses may be co nducted and additional information may be obtained by the CFPB during the remainder of the rule development process. At the same time, the Panel Report provides the Panel and the CFPB with an opportunity to identify and explore potential ways of shaping t he proposals under consideration to minimize the burden of the rule on small entities while achieving the rule’s purposes.

Any options identified by the Panel for reducing the rule’s regulatory impact on small entities may require further consideration, an alysis, and data collection by the CFPB to ensure that the options are practicable, enforceable, and consistent with the Truth in Lending Act (“TILA”)

, the Real Estate Settlement Procedures Act of 1974 ( “RESPA”), the Dodd

- Frank Act, and their statutory purposes.

2

. Background

2.1

. Market Background

Congress enacted the Dodd

- Frank Act in the wake of the greatest financial crisis since the Great Depression. At the epicenter of this crisis was the mortgage meltdown. The serious and widespread deficiencies in the mortgage market damaged American homeowners, financial institutions, and the wider economy.

P ervasive and profou nd consumer protection problems have been reported across major segments of the mortgage servicing industry, particularly among large an d specialty servicers. 5

5 See e.g., Testimony of John Walsh, Acting Comptroller of the Currency, before the U.S. Senate Committee on Banking, Housing and Urban Affairs at p. 16 (February 17, 2011); Testi mony of Mike Calhoun, President, Center

### 5 In a report on examinations of fourteen major servicers, the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Office of Thrift Supervision

concluded that those servicers were “emphasiz[ing] speed and cost efficiency over quality and accuracy” in their foreclosure processes. 6 

### This report did not include information on

examinations of any small servicers.

2.2

. The Dodd Frank Act

The Dodd

- Frank Act mandates several protections for homeowners i n the servicing of their loans, including:

(1) new disclosures (periodic statements, notice prior to reset of adjustable rate mortgages (“ARMs”), and force

- placed insurance notices) 7 

### that will help provide consumers with comprehensive and comprehensible inform ation, when they need it, in a form they can use, so they can better manage their obligations and avoid unnecessary problems;

(2) new requirements for servicers to respond in a timely way to borrowers who complain to their servicer about a potential mistake ; 8



### (3) prompt crediting of payments, so consumers are not wrongly penalized with late fees or other fees because a servicer did not credit their payments quickly; 9 

### and

(4) timely response to requests for payoff information, so consumers can get their balance

info rmation when they need it. 10



### These new statutory requirements will take effect automatically in January 2013, as written in the statute, unless final rules are issued on or before that date . The statute authorizes the CFPB to adopt implementing regulations and, by doing so, extend the effective date for up to

one year . The Bureau intends to use these authorities to adopt regulations that provide servicers with clarity about their statutory obligations and provide servicers with sufficient time to come

into compliance. The Bureau will also consider adjusting servicers’ statutory obligations to ease burden where consistent with adequate protection of homeowners , and appropriate under the

Bureau’s limited exemption authority.

2.3

. Additional Proposals

for Responsible Lending, before the House Financial House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit and Subcommittee on Oversight and Investigations on Mor tgage
Servici ng (July 7, 2011); United States of America et al. v. Bank of America Corporation et al ., Compl. ¶¶ 47

- 101 (D.C. Cir.), available at: www.nationalmortgagesettlement.com

. 6 Federal Reserve System, Of fice of the Comptroller of the Currency, and Office of Thrift Supervision, “Interagency Review of Foreclosure Policies and Practices,” p. 5, (April 2011), http://www.o cc.gov/news

- issuances/news

releases/2011/nr

- occ

- 2011

- 47a.pdf

. 7 Periodic statements are addressed in DFA 1420. The notice prior to reset of adjustable rate mortgages is addressed

in DFA 1418. The force

- placed insurance notices are addressed in DFA 1463.

8 Error resolution is addressed in DFA 1463.

9 Prompt Crediting is addressed in DFA 1464(a).

10 Payoff information is addressed in DFA 1464(b).

### 6 The CFP B is also considering whether to propose additional standards to improve servicer information management and communications with troubled or delinquent borrowers.

Some servicers can make it very difficult for troubled or delinquent borrowers to explore and take advantage of potential ways to avoid a foreclosure. For example, some s ervicers have frequently neglected to reach out or resp ond to distressed borrower s sufficiently early to allow the parties to find an alternative to foreclosure , lost documents of borrowers who have sought

modifications or other relief , failed to track communications with borrowers , and forced

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

to “start over” with a different emp loyee. 11



### To address these concerns, the CFPB is considering proposing new servicing operations

standards in three areas:

(1) servicers would have to maintain reasonable information management policies and procedures ;

(2) servicers would have to intervene early with troubled and delinquent borrowers ; and

(3) servicers would have to assure that staff who deal with borrowers have access to records

about that borrower , including records of the borrower’s previous communications with

the servicer.

2.4

. Related Federal Rules

The Dodd

- Frank Act codified certain requirements contained in existing regulations and in some cases imposed new requirements that expand or vary the scope of existing regulations. The CFPB is working to eliminate conflicts and to harmonize the earlier r ules with the new statutory requirements. A detailed description of these rules can be found in Appendix C . In general, the existing and expanded regulations cover the following topics:

• New Regulation Z ARM disclosures , as required by DFA 1 418, will be p rovided six to seven months prior to the initial reset of interest rates. These disclosures will provide similar information to existing Regulation Z 1026.20(c) notice s , however there are timing differences, and the new notice is only required for the fir st rate reset . The DFA 1418 notice is intended to be sent early enough for the borrower to take action (i.e. refinance or apply for a loan modification) before the monthly payment increases.

• Regulation Z 1026.36(c)(1)(i) contains a prompt crediting provision that is generally codified by the prompt crediting provision in DFA 1464(a)

.

• Regulation Z 1026.36(c) addresses the application of payments

. The Bureau is considering

11 See e.g. Larry Cordell, Karen Dynan, Andreas Lehnert, Nellie Liang and Eileen Mauskopf, “The Incentives of Mortgage Servicers: Myths and Realities,” Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, Working Paper 2008

- 46, at p. 9 (2008); Testimony of Diane Thompson, National Consumer Law Center, before the United States Senate Subcommittee on Housing, Transportation and Community Development of the United States Senate Committee on Banking, Housing & Urban Affairs, at 52, (May 12, 2011).

### 7 modifying this rule to mandate the application of funds if a full contractual payment has accrued in any suspense or unapplied funds account

.

• Regulation Z 1026.36(c)(1)( iii) contains a provision regarding payoff amount requests that is generally codifie d by the Dodd Frank Act

.

• RESPA 6(e) contains procedures for qualified written requests overlap with the DFA 1463 RESPA amendment providing additional procedures for resolving errors and responding to inquiries. The CFPB is considering proposing broader, more consumer

- friendly procedures

that cover wider topics than the current qualified written request procedures , which it

believes will have substantial benefit to borrowers.

The CFPB is currently developing other proposed or final rules under Title XIV of the

Dodd

- Frank Act, including rules address ing ability

- to

- pay standards for qualified mortgages, 12


### mortgage loan originator compensation, 13 

### mortgage loans subject to the Homeownership and Equity Protection Act (HOEPA), 14 

### consolidation of the disclosures consumers receive under

TILA and RESPA 15 

### and, joi ntly with other agencies, appraisal practices. 16



### The Panel is not aware of any other Federal regulations that currently duplicate, overlap, or conflict with the proposals under consideration.

3. Overview of Proposals and Alternatives Under Consideration

In addition to other requirements, t he Dodd

- Frank Act requires several new disclosures: a periodic statement, notices prior to charging for any force

- placed insurance, and a notice prior to the first reset of hybrid adjustable rate mortgages.

The new discl osure requirements will take effect with or without a Bureau regulation. The Bureau believes a regulation will aid consumers and servicers by clarifying legal rights and obligations and specifying disclosure requirements and formatting based on empirical testing.

The CFPB is considering proposing model form s for the periodic statement, ARM reset notices,

and force

- placed insurance notices. Generally, model forms benefit servicers by providing them with safe harbors for complying with disclosure obligatio ns, while preserving flexibility for servicers to vary from the model so long as they adhere to the regulation. With regard to the periodic statement and the ARM notices, the CFPB is considering a proposal that would require

the notices to contain certain items and to group some of those items together for clarity and emphasis, but would permit servicers and creditors to customize the form s in other respects.

A more detailed description of the proposals under consideration can be found in Appendix C.

12 DFA 1411

13 DFA 1403

14 DFA Subtitle C

15 DFA 1032

16 DFA Subtitle F

### 8 T he C FPB has conducted extensive outreach efforts to consumers, industry members, and

repres entative groups

- including small entities and representative organizations

- regarding the development of proposals and for ms . The CFPB began meeting with industry sta keholders regarding the proposed servicing regulations in December 201 1 and has conducted additional meetings and industry roundtables throughout 2012 . Through these efforts, the CFPB has

obtained information regarding the potential impacts of the proposed regulations from consumers and industry members, including small entities. The CFPB will continue to collect information from stakeholders, including small entities, as the rule is developed.

In addition, t h e CFPB has conducted three rounds of consumer testing in three different parts of the country. 17 

### T he CFPB is testing the optimal amount, content, and presentation of

information to include in each of the disclosure s t hrough one

- on

- one interviews with con sumers

. B etween February 13

- 23, 2012, the CFPB posted a draft model periodic statement on its website for general comment. A fourth round of testing may take place after the proposal is

issued . The selection of testing locations took into account geog raphic, economic, and size diversity as well as diversity of consumer demographic s, such as age, race, and mortgage experience. T he CFPB will publish a report summarizing the results of the cognitive interviews, along with publication of its proposed mort gage servicing rules.

3.1. Periodic Statements

DFA Section 1420 amends TILA by adding a new requirement that a creditor, assignee, or servicer of any residential mortgage loan

– a closed

- end credit transaction secured by a dwelling

– provide a periodic sta tement to the borrower for each billing cycle. As discussed above, this new requirement will take effect with or without a Bureau regulation; the Bureau

believe s a regulation will provide clarity a i ding both consumers and servicers. The Bureau is

conside ring proposing a rule which would require certain items to be on the form, and for these items to be grouped together for clarity and emphasis, but would allow servicers and creditors to customize the form in other respects.

The proposals under consideration would require both the content listed in the statute, and additional billing information, as well as general loan information. The statement would also include information that may be helpful to troubled or delinquent borrowers. In accordan ce with the statute, the proposals under consideration would have a coupon book exemption for

fixed rate loans when the borrower is given a coupon book with substantially the same information as required by the periodic statement

.

3.2 ARM

– Notice 6 Mont hs Prior to Initial Interest Rate Reset

DFA Section 1418 amends TILA by adding a new requirement that a creditor or servicer provide a notice regarding the initial interest rate reset or adjustment of a hybrid adjustable rate mortgage at the end of the int roductory period either (a) between 6 and 7 months prior to such reset, or (b) at consummation of the mortgage if the first reset occurs during the first 6 months

after consummation. As discussed above, this new requirement will take effect with or withou t a

17 The first round of testing took place in Towson, Maryland on February 1

- 2, 2012. The second round took place in Memphis, Tennessee on February 29 and March 1, 2012. The third round took place in the Los Angeles, California area on April 3

- 4, 2012.

### 9 Bureau regulation; the Bureau believe s a regulation will provide clarity aiding both consumers

and servicers.

The proposed form would require the content listed in the statute; additionally the CFPB is considering requiring information including detail s about the loan, key terms of the ARM, and information about the upcoming payment. Much of this additional content was proposed by the

Federal Reserve Board in its 2009 propos ed rule to amend Regulation Z’s ARM reset notice.

The statute defines a “hybrid adjustable rate mortgage” as a consumer credit transaction secured by the consumer’s principal residence with a fixed interest rate for an introductory period that adjusts or resets to a variable interest rate after such period. The CFPB understands

the term hybrid ARM too generally encompass any ARM product with an introductory period of longer duration than its ensuing periods of adjustment

. 18 

### The CFPB is considering proposing to use its discretionary authority to require this notice for ARMS that are n ot hybrid (1/1, 3/3, 5/5, etc.). 19 

### It is considering soliciting comments on whether this disclosure would be helpful to

borrowers with these ARMs.

The CFPB is considering proposing changes to existing Regulation Z § 1026.20(c)

, which requires creditors to send disclosures for all ARMs prior to each interest rate adjustment that effects a change in payment . Proposed changes the CFPB is considering include changes to the timeframe and content of the current disclosures, the logistics of sending the notice, and eliminating the requirement when borrowers will receive the earlier Section 1418 notice for a

rate reset.

The CFPB has also considered proposing limiting the initial reset notice to hybrid ARMs

-- and not requiring it for all ARMs. However, the Bureau opted for its currently considered proposal because all ARMs, not just hybrid ARMs, are subject to the same “payment shock” after the introductory period expires, and because Congress expressly authorized the CFPB to

extend the Sectio n 1418 (or other) notice to ARMs that are not hybrid.

3.3 Force

- Placed Insurance

DFA Section 1463 amends RESPA to prohibit a servicer of a federally related mortgage from obtaining force

- placed hazard insurance unless there is a reasonable basis to believ e the borrower has failed to comply with the loan contract’s requirements to maintain property

insurance. Additionally, the statute requires certain notices be sent to the borrower, and process requirements about charging for, and terminating

, force

- place d insurance. As discussed above, this new requirement will take effect with or without a Bureau regulation; the Bureau believe s a regulation will provide clarity a i ding both consumers and servicers.

The CFPB is considering proposing forms for the notices to be sent to borrowers; additionally, the CFPB is considering proposing requirements concerning : charges related to

force

- placed insurance, payment of insurance from escrow, amount of coverage and a

18 A 3/1 hybrid ARM, for example, maintains a fixed rate of interest for the three

- year introductory period and then converts to an adjustable rate for successive one

- year periods. Hybrid ARM includes the once

- popular 2/28 and

3/27 mort gages, whi ch often adjusts every six months after the introductory period.

19 ARMs, unlike hybrid ARMs , start with an adjustable rate and that rate readjusts at even intervals.

### 10 clarification that the requirements do not apply where servicers renew consumers’ existing insurance policies.

3. 4 Prompt Crediting and Request for Payoff Amounts

DFA Section 1464 requires that servicers must credit consumer payments as of the date of receipt in connection with a consumer credit transact ion secured by the consumer’s principal dwelling, except if the delay does not result in any charge to the consumer or in the reporting of negative information to a consumer reporting agency. The servicer may, however, specify in writing requirements that the consumer must follow to make conforming payments. If non

conforming payments are accepted, the service r must credit the payment five days after receipt.

The prompt crediting provision generally codifies the current Regulation Z requirements

on prom pt crediting that fo r payments received from borrowers that fall short of a complete payment, the CFPB is considering proposing retention of the current rule in Regulation Z permitting partial payments be treated in accordance with the legal obligation as determined by applicable state or other law. As such, servicers generally would be allowed to hold partial payments in a non

- interest bearing suspense account until an amount equal to a full payment is received. Servicers also would have the option of re turning the non

- conforming payment to the

borrower. Alternatively , the CFPB is considering proposing a new requirement that as soon as the amount in the suspense account equals a full contractual payment, the servicer must credit that payment to the earli est delinquent payment

. This proposal under consideration would have the effect of rolling forward the borrower’s date of delinquency by 30 days.

The statute requires a creditor or servicer of a home loan to send an accurate payoff

balance within a reason able time, but no more than seven business days, after receipt of a written request for such balance from or on behalf of the borrower. Regulation Z currently addresses payoff amount requests, but creates a safe harbor for responses sent within five busin ess days

. The proposal generally would follow the statute and require an accurate payoff balance to be provided no later than seven business days (excluding holidays and weekends) after receipt of a written request from the borrower. The prompt crediting provision generally codifies the current Regulation Z.

3.5 Error Resolution and Response to Inquiries

DFA Section 1463 amends Section 6 of RESPA by adopting a number of servicer prohibitions with respect to handling alleged errors and inquiries, including revising the timeframe to respond to qualified writte n requests, and prohibiting the charging of fees in

connection with error resolution

.

Section 6 of RESPA and Regulation X currently contain procedures for handling alleged errors and inquiries. Section 6 of RESPA provides that when a servicer of a federally related mortgage loan receives a “qualified written request” from a borrower for information relating to the servicing of the borrower’s loan, the servicer must respond within certain timeframes.

Re gulation X limits application of the qualified written request provisions to “mortgage servicing loans,” which includes only first

- lien, closed

- end mortgages.

### 11 The CFPB is considering proposing a comprehensive set of requirements for investigating and corre cting errors and for responding to borrower inquiries. This approach would incorporate, but not be limited to, RESPA’s use of the qualified written request to address “servicing” issues, as defined by RESPA. Specifically, servicers would be required to c orrect errors relating to allocation of payments, provision of final balances for purposes of paying off the loan, avoiding foreclosures, or other standard servicer’s duties. Servicers also would be required to respond to inquiries about certain topics.

T he CFPB is considering proposing a timeframe for error resolution and responding to inquiries that generally tracks the timeframe for qualified written requests, as amended by the DFA, subject to certain explicit exceptions. See Attachment E for a detaile d de scription of these procedures.

3. 6 Reasonable Information Management Polic i es and Procedures

DFA Section 1463 requires servicers to comply with any obligation the CFPB finds appropriate to carry out the consumer protection purposes of RESPA

. The CFPB is considering using this authority to propose three rules in addition to those discussed above . These rules address Reasonable Information Management Policies and Procedures, Early Intervention for Troubled or Delinquent Borrowers, and Continuity of Cont act, as discussed below. Potential civil liability would arise from violations of these regulations under RESPA.

The CFPB is considering a proposal to address wide

- spread problems reported across major segments of the mortgage servicing industry , particularly among larger and specialty servicers, with regard to management of borrower documents and information. Reasonable policies and procedures for managing borrower documents and information would facilitate development of systems and operationa l processes for tracking and storing borrower documents and information with respect to borrower communications, error resolution, information requests, loss mitigation (including, without limitation, loan modification actions), foreclosure,

and other serv icer operations.

The CFPB further envisions a servicing industry capable of achieving mortgage loan servicing transfers without negatively impacting loss mitigation communications with borrowers. Through reasonable policies and procedures, servicers sh ould be capable of transferring all relevant and accurate documents and information to (1) a subsequent servicer when servicing rights are transferred in a form and manner that enables the subsequent servicer to comply with the requirements of this subpart and (2) a forum addressing foreclosure.

The CFPB is considering proposing that the reasonableness of a servicer’s information management policies and procedures would depend upon the size of the servicer and the nature and scope of its activities. Addit ionally, the CFPB is considering proposing to explain that a violation would occur if a servicer: (a) fails to establish reasonable information management policies and procedures or (b) demonstrates a pattern or practice of failing to comply with its

proce dures. However, an occasional failure to follow established policies and procedures would not constitute a violation of this p art of the regulation. P otential civil liability would arise from violation of the regulation under RESPA

.

### 12 3. 7 Early Intervention for Troubled or Delinquent Borrowers

Additionally, u nder DFA Section 1463, the CFPB is considering proposing early intervention procedures for troubled and delinquent borrowers to address mortgage servicing problems experienced by such borrowe rs. For this purpose, the CFPB is considering proposing a rule requiring servicers to make good faith efforts to contact delinquent borrowers no later than 45 days after the onset of delinquency and to respond promptly to troubled borrowers who

contact th eir servicers. 20 

### The proposal the CFPB is considering would require servicers to provide delinquent borrowers with written information about (1) options to help avoid foreclosures, such as loss mitigation programs available to them and how to access a hous ing counselor, and (2) the foreclosure process

.

The Bureau is also considering proposing a requirement that servicers provide this written information to any borrower who contacts the servicer about having or expecting to have difficulty making payments w ithin five days of the borrower making such contact. T he CFPB is considering proposing an exemption from the written disclosure requirements for small servicers for loans they hold in portfolio if they make good faith efforts to contact borrowers no later than 45 days after they first become delinquent.

3. 8 Continuity of Contact

Additionally, u nder DFA Section 1463, the CFPB is considering proposing to require servicers to provide delinquent and troubled borrowers with specific servicer points of contact

. This is intended to address wide

- spread problems reported with regard to inconsistent and faulty

servicer contact with borrowers. The proposals under consideration would require servicers to provide all borrowers who become 45 days delinquent or who requ est assistance in avoiding delinquency with direct and on

- going access to a staff of the servicer’s customer service employees dedicated to serving troubled or delinquent borrowers. The proposal would require that these employees have ready access to fil e s related to these borrowers.

The CFPB is considering proposing that a servicer does not violate the rule if ready access is temporarily unavailable as a result of computer systems issues, weather emergencies and similar force majeure events, or if record s have been received too recently to be readily accessible to the customer service employees.

If the CFPB finds that certain classifications of small servicers already maintain consistent, albeit less formal, contact with their financially challenged clie nts, the CFPB may consider proposing adjustments to this rule for such servicers.

4. Applicable Small Entity Definitions

For purposes of assessing the impacts of the proposals under consideration on small entities, “small entities” is defined in the RFA t o include small businesses, small nonprofit organizations, and small government jurisdictions. 5 U.S.C. 601(6). A “small business” is

20 The CFPB is considering permitting servicers, at their option, to initiate contact by telephone, mail, or other means generally used by the servicer to communicate with borrowers.

### 13 determined by application of SBA regulations and reference to the North American Industry Classification System (“NAICS” ) classifications and size standards. 21 

### 5 U.S.C. 601(3). A “small organization” is any “not

- for

- profit enterprise which is independently owned and operated and is not dominant in its field.” 5 U.S.C. 601(4). A “small governmental jurisdiction” is the government of a city, county, town, township, village, school district, or special district with a population of less than 50,000. 5 U.S.C. 601(5).

5. Small Entities That May be Subject to the Proposals Under Consideration

The CFPB identified five categories of small entities that may be subject to the proposals

under consideration for purposes of the RFA. These are the categories of servicers that may be subject to the proposed regulations . The categories a nd the SBA small entity thresholds for those categories are:

C ATEGORY 

### T HRESHOLD FOR 

### “S MALL 

### ”

Commercial Banks 22 

### $175,000,000 in assets

Credit Unions $175,000,000 in assets

Real Estate Credit $7,000,000 in revenue

Other Activities Related to Credit

Intermediation $7,000,000 in revenue

Nonprofit Organizations Not for profit; independently owned, operated; not dominant in field

6. Summary of Small Entity Outreach

6.1

. Summary of Panel’s Outreach Meeting with Small Entity Representatives

The CFPB convened the Panel on April 10 , 2012. The Panel held an outreach meeting/teleconference with small entity representatives on April 20 , 2012 (the “Panel Outreach Meeting”). To help the small entity representatives (“SERs”) prepare for the Panel O utreach Meeting, the CFPB sent to each of the SERs the materials described in Appendix B as “Materials Circulated in Advance of Panel Outreach Meeting.” In addition, the CFPB posted these materials on its website and invited the public to email remarks on the materials.

Representatives from 16 companies and organizations were selected as small entity representatives for this SBREFA process and participated in the Panel Outreach Meeting (either

21 The current SBA size standards are found on SBA’s website at http://www.sba.gov/c ontent/table

- small

- business

size

- standards

. 22 For the purposes of this Report, the categories of commercial banks and savings institutions are combined under

the label “commercial banks.”

### 14 in person or by phone). The PowerPoint slides forming the basi s of discussion are attached as Appendix D.

The CFPB also provided the SERs with an opportunity to submit written feedback until May 1 , 2012. The CFPB received written com ments from five of the representatives. Copies of

these written commen ts are attached as Appendix A.

6.2

. Other Outreach Efforts, Including to Small Entities

In addition to conducting the SBREFA process, the CFPB has conducted extensive outreach efforts to consumers, industry members, and repres entative groups, as discussed above

in Section 3

. Additionally, as discussed above, t h e CFPB has conducted three rounds of testing in three different parts of the country. 23 

### B etween February 13

- 23, 2012, the CFPB posted a draft model periodic statement on its website for general comment. A fourth round of testing may take place after the proposal is issued. T he CFPB will publish a report summarizing the results of the cognitive interviews, along with publication of its proposed mortgage servicing

rules.

7. List of Small Entity Representa tives

The following 16 small entity representatives were selected to participate in the Panel

process:

N AME 

### /T ITLE 

### B USINESS 

### N AME 

### /L OCATION



### Brian Barkdull American Southwest Credit Union, Sierra Vista AZ

Erica Fischer Sunset Bank and Savings, Waukesha, WI

Randy McElwee Security Savings Bank, Monmouth IL

Tiffany Michel Omaha Police Federal Credit Union, Omaha NE

Victor Petroni First New England FCU, East Hartford CT

Glen Thurman The First National Bank of Moody, Moody TX

Ralph Vinciguerra Northern Ohio Investment Company, Sylvania OH

David Wright Services Center, Yankton SD

23 The first round of testing took place in Towson, Maryland on February 1

- 2, 2012. The second round took place in Memphis, Tennessee on February 29 and March 1, 2012. The third round took place in the Los Angeles, California area on April 3

- 4, 2012. The OMB Control Number for this testing is: 3170

- 0018.

### 15 Frank Altman Community Reinvestment Fund, USA, Minneapolis, MN

Edward Fay Fay Financial, LLC, Chicago IL

Kevin Kanouff Statebridge Company, Denver CO

Royce Lewis Capital Mortgage Services, Lubbock TX

Cindy Moberly Spencer Farmers and Merchants Bank, Miamisburg OH

Mark Ross Cumberland Security Bank, Somerset KY

Mark Warshal Fairway Consumer Discount Company, Luzerne PA

Christine Wiley Rocky Mountain Law Enforcement, Denver CO

These small entity representatives were selected from the following five industry categories:

Commercial Banks 5

Credit Unions 5

Real Estate Credit 3

Other Activities Related to Credit Intermediation 2 Nonprofit Housing Organizations 1

The following is a breakdown of SERs by geographic region:

• Two SERs are from the Northeast and Mid

- Atlantic regions.

• Eight SERs are from the Midwest.

• Three SERs are from the South and Southwest regions.

• Three SERs are from the West.

The following is a b reakdown of SERs by type of locality ( i.e ., rural, urban, suburban, or metropolitan areas):

• Six SERs are located in small and/or rural areas with populations of less than 20,000. 24



### • Seven SERs are located in mid

- sized urban or suburban communities with populations of less than 500,000.

24 T he one additional individual identified as a potential SER who ultimately did not participate in the panel

discussion (noted in the immediately prior footnote) was located in a small and/or rural area

.

### 16 • Three SERs are located in larger urban or metropolitan areas with populations of more than 500,000.

8. Summary of S mall E ntity R epresentative C omments

This C hapter summarizes the feedback provided by SERs during the Panel Outreach

M eeting.

As discussed above, the SERs consisted of representatives from the following industry categories: non

- profit, commercial banks, credit unions, and other non

- depository servicers (classified under NAICS codes for Real Estate Credit and Other Activities Related to Credit Intermediation).

In general, the SERs stated that their companies

, and small lenders and servicers generally

, did not engage in many of the practices that contributed to the mortgage market crisis. With regard to the problems reported in the servicing industry generally, they emphasized that small companies generally use a “high

- touch” model that involves consta nt customer contact and high levels of service in order to ensure that loans perform well. The SERs stated that a number of these proposals do not reflect their current business practices, and would be expensive to implement. They expressed concern about the Dodd

- Frank Act’s extensive regulation of mortgage servicing, stating that the new compliance burden s would make it increasingly difficult for small firms to stay in the market and to provide choices to consumers.

8.1

. Periodic Statements and Coupon B ook Exception

In General

. As discussed below, SERs expressed concerns about the cost of providing periodic

statements : both about the large initial investment that they say would be required to set up the system, and the on

- going cost of sending statement s. The SERs did not object to offering the majority of the information ; they stated this information was easily available on re quest, but they objected to the cost of sending out what they believed were often unnecessary , and at times, unwanted, statement s

.

Compliance Costs . SERs identified the following costs associated with p roviding the periodic

statement:

One

- time C osts

. Some SERs do not issue periodic statements and would need to purchase a system or set up a vendor contract to create them . Other SERs do issue a periodic

statement already, often using a vendor. These SERs explained they would incur large costs in reformatting the statement to meet the proposed requirements for both organization and content. The SERs explained that these initial c osts would be incurred even if they only had to provide a periodic statement to one customer. Because the SERs used a variety of vendors and systems, different SERs would need to make different changes to comply with the CFPB’s requirements.

• One commerc ial bank SER explained that its periodic statement includes information on the breakdown of payments applied to principal and interest, insurance (if applicable)

, and late payments, but does not provide counseling information, transaction history, and

info rmation about escrow because th ey do not use escrow accounts.

### 17 • One credit union SER explained that its periodic statement is provided as part of a member’s overall periodic account statement. The mortgage portion of that statement includes information on fees charged during the year, interest rate, amount of interest owed, total interest charged for the year, payment balance, the next payment amount owed and due date, any amount past due, the previous month’s payment, the amount escrowed and the escrow balance, as well as the breakdown of principal and interest. This SER explained that it provides this statement through a third

- party core processor

.

• One non

- depository SER said that its statements already include s most of the information that would be required und er the Bureau’s proposal, except for information on maturity date, prepayment penalties, counseling, and delinquency. This SER also explain ed that mortgage counseling information would be difficult to keep track of because it changes frequently and would increase the length of the statement, resulting in greater aggregate printing and postage costs.

Several SERs explained that they currentl y provide some information that would be req uired under the Bureau’s proposal in separate notices rather than as part of a monthly statement

.

• Two SERs explained that they generate delinquency notices separately, instead of including the information on a pe riodic statement. One commercial bank SER explained

that it automatically generates a late charge notice one day after the grace period

, and provides follow

- up delinquency notices every 30 days (30, 60, 90, and 120 days out). The SER also explained that it engages in frequent phone contact with delinquent

borrowers.

• Another commercial bank SER explained that it provides monthly periodic statements that contain most of the information that would be required by the Bureau’s proposal, except interest rate re set dates, which it currently discloses to borrowers in a separate

advance notice.

While some SERs could not provide an exact estimate of vendor costs, they all stated that implementing the periodic statement requirement would be expensive. The SERs explained that they were too sma ll to have in

- house expertise and thus generally use third

- party vendors to develop their statements and notices. Additionally, because of their small size, they believe they

had no control over these vendor costs.

• One comm ercial bank SER explained that it uses a vendor to develop its forms, but could not provide an estimate of how much a vendor would charge to update its form.

• One non

- depository SER explained it uses a third

- party vendor to process p eriodic

statements for b orrowers

. This SER explained, however, that providing borrowers a periodic statement with a borrower’s delinquency information would require it to devote

time and resources to transmit ting its delinquency history data to the vendor’s processor.

• Another non

- depository SER estimated that it would cost $150,000 to $ 500,000 to convert to a new periodic statement system, depending on the software selected. This SER did not give the basis for this estimate.

### 18 • One commercial bank SER explained that it do es not i ssue periodic statements. This

SER reported that it would have to pay vendors one

- time costs to develop a periodic

statement because it does not have in

- house expertise , but expressed concern that,

because of its small size, it do es not have leverage over vendor costs.

• However, the SERs did agree that these costs might be partially mitigated if such changes were part of a regulatory compliance initiative

– because the vendor would be making changes to serve a large segment of its customers, the expense could be distributed across

those customers . One credit union SER explained that servicers would probably not face direct costs for global vendor processor updates, but that they would face indirect costs,

as reflect ed in overall pricing for the vendor’s product and in ongoing annual maintenance fees charged to vendor clients.

Some SER s attempted to estimate the costs based on past changes to their systems.

• One SER explained that some servicers may choose to create a parallel system

, which would impose new licensing and other costs. This non

- depository SER, citing past experience with implementing changes to Ginnie Mae’s servicing guidelines, estimated

that it would have cost approximately $150,000 to $ 200,000 to make its existing system compliant with the Ginnie Mae requirements . The SER explained that it chose instead to create a parallel system.

• One credit union SER

, whose institution prints its own statements

, estimated that the last

time it made m inor changes to its statements the cost was approximately $20,000.

• One credit union SER expected that switching to a periodic statement system w ould cost approximately $30,000 to $ 40,000 in startup costs, not counting the time involved in making this adjustment. This SER did not give the basis for this estimate.

On going C osts . SERs a lso expressed concerns about on going costs, both in the form of

vend or annual and maintenance fees and in the cost of printing and shipping. The SERs stated

that the more pages in the statement, the greater the overa ll printing and postage costs.

• One non

- depository SER that uses a third

- party vendor to process periodic statements explained that it would face on going statement

- by

- statement quality control costs to

ensure the vendor is transmitting accurate information to borrowers.

• One non

- depository SER and one non

- profit SER indicated that providing housing counseling information on the statement would impose on

- going monitoring and adjustment costs. Information about counseling programs and contact inform ation changes from time

- to

- time. T he SER s indicated that servicers would be required to monitor them and continuously update them to make sure their statements remain

accurate.

Although they did not state the basis for these estimates, SERs provided the following estimate

of monthly vendor costs:

### 19 • One non

- depository SER estimated that it would cost an add itional $11,000 per month in

on going support.

• Another non

- depository SER est imated that a vendor might charge $1,000

– $ 2,000 a month in fees for a periodic statement system.

• One commercial bank SER estimated monthly costs at $2,200, at a cost of approximately $1 per statement (the SER explained that it has about 4,200 loans, h alf of which are mortgage loans).

Other complications could increase the cost of this requirement

. One credit union SER explained that because it uses different processing systems for first and second mortgages, its costs could double in order to make both systems complia nt with the Bureau’s proposal.

Coupon Book Exception

. SERs agreed that t he ongoing costs of the proposed periodic statement disclosure are mitigated to some extent by the exemption for fixed rate re sidential mortgage loans where the borrower is given a coupon book with substantially the same information as required by the periodic statement. Different SERs reported varying degrees of borrower use of the coupon book. One credit union SER reported th at only 1% of borrowers actually mail in the coupons, while another credit union SER explained that 50% of borrowers req uested coupon books at closing. A non

- depository SER claimed a vast majority of its borrowers use coupon

book s , however many of these c oupon books are used for ARM loans; while the statutory exemption for coupon books is limited to fixed rate loans

.

• One commercial bank SER explained that it does not issue coupon books but rather a

cardboard tri

- fold “passbook” that is stamped each time a payment is made. The passbook contains some of the information that would be required by the Bureau’s proposal (payment amount, and contact information), but does not contain information on current principal and interest, the date of an interest rate rese t, prepa yment penalties, and

late fees. T he SER explained, however, that this information could be added to the passbook . The SER explained th at it would be more problematic f or the passbook to provide year

- to

- date information in one place , but noted tha t customers could derive this information themselves by totaling past activity on the passbook.

• One non

- depository SER explained that it uses coupon books that have less information

th a n what would be required by the Bureau’s proposal.

• Another non

- deposito ry SER noted that even with this exemption, it would still be required to issue periodic statements if a borrower who uses coupon books becomes delinquent.

Making Information Available, Rather than Providing It on a Periodic Statement

. During the conversation, the SERs were asked if they would prefer the idea of providing certain information through a method other than the periodic statement

– for example, making information available by telephone or online. The SERs were generally supp ortive of these alternatives as a way to mitigate costs. The SERs commented that such alternatives would avoid having to re

- state static information (such as the property address), and would allow them to more easily provide

### 20 dynamic information (such as a ccount balances, or contact information for housing counselors). Furthermore, a non

- profit SER suggested that the CFPB or HUD could host housing counseling

information. One non

- depository SER indicated that it might be expensive to provide this

informati on on web site, but it would be possible to provide the information on a telephone call.

Safe Harbor Period for Updating Dynamic Info rmation . Several SERs expressed concern that

their reliance on third

- party vendors can make it difficult to update their s tatements quickly. According to the SERs, their vendors issue major updates to their systems on varying frequencies, ranging from once every 18 months, to sporadically, as needed. One non

- depository

SER suggested a safe

- harbor time for compliance

– for e xample, if a housing counselor went out of business, the servicer would have a set period of time to remove that housing counselor from the periodic statement. This SER explained that this would provide some relief from the compliance risk.

Difficult Info rmation

. SERs expressed concern about certain pieces of information. One non

depository SER identified year

- to

- date payment history as a potentially significant cost. Another

non

- depository SER suggested that providing a segregated field for aggregated information on each statement was unnecessary and redundant because borrowers could determine relevant

information thro ugh their payment history.

Prepayment Penalty Information

. One non

- depository SER suggested that requiring a field for

prepayment pen alty information was unnecessary because prepayment penalties are rarely enforced in the current market and that information on prepayment penalties is available in the underlying loan document. The SER suggested only requiring that it appear on the perio dic

statement if the investor chooses to enforce them.

Electronic Statements

. Several SERs expressed support for an exemption if a borrower has an ACH automatic bill payment system in effect, although they recognized that a written statement may be necessary if a borrower becomes delinquent . Separately, o ne credit union SER expressed concern that the rule would require servicers to issue paper statements.

Other Exemptions . Several SERs offered suggestions for exemptions for servicers of GSE loans and for quarterly or semi

- annual statements (rather than monthly).

Machine

- Readable Format . One credit union SER requested clarification on what type of

machine

- readable format CFPB would require and how it would ensure confidentiality of the

information

. The machine readable format reference in the SBREFA materials addressed the concept that disclosures should be presented in a form that could be compared and contrasted. Often this is done by presenting information in a table. The CFPB considered mach ine

readability in designing the model disclosure requirement s
, but will not be including a machine

readability requirement in the proposed rule.

.

8.2 ARM Disclosures

In General . As discussed below, SERs expressed concerns about the one

- time development

c osts and on

- going maintenance costs from vendors associated with providing the initial ARM adjustment disclosures and the subsequent adjustment notices. They also expressed doubt that

### 21 the estimated numbers that would be required in the initial ARM disclos ures would be beneficial

to consumers.

Compliance Costs . SERs identified the following costs associated with providing the initial and subseq uent ARM adjustment disclosures:

• One

- time Costs . SERs generally explained that the proposed initial ARM disclosures would be a new, separate notice for them. Their typical practice is to notify borrowers of a rate adjustment when the small servicer knows the exact amount of the interest rate adjustme nt.

• The proposed initial ARM adjustment disclosures may require some servicers or their vendors to develop a new form or to reformat an existing form. One commercial bank SER explained that the initial adjustment good faith estimate notice would require a major programming change, but that vendors have not provided cost quotes at this point. This SER also explained that the more a notice has to be customized to a particular borrower, the more expensive it is to produce

.

• On

- going Costs

. Sending the proposed initial and subsequent ARM adjustment disclosures may impose new mailing and other costs on servicers or vendors. Two SERs

indicated that their annual vendor processor fees would increase . One credit union SER

asserted that even after they p aid the expensive initial cost, the annual maintenance fees would continue to be a problem

.

Other Comments . Several SERs expressed concern that the proposed initial reset disclosure would confuse consumers because it would only provide an estimate that wo uld not accurately reflect the actual reset rate. SERs believe their existing practices with regard to the 45

- day look back period required in most notes provides sufficient advance notice for consumers who know at the time they take out the loan what the adjustments periods are. One commercial bank SER was concerned that sending an estimated reset notice too far out in advance would cause some borrowers to miss a payment. This SER expressed support for an alternative that the servicer

issue a notice 60 or 90 days before the reset to notify the borrower of the index to which the rate will eventually adjust (the SER believed its core processor would be able to support this change easily).

8.3

. Force

- Placed Insurance

Advance Notice of Force

- Placed Insurance Coverage

. Under the proposal, servicers would be required to provide borrowers with two written notices before charging borrowers for force

placed insurance. SERs did not raise major c oncerns with this requirement. 25



### • One credit union SER explained that it currently provides two notices that are very similar to the ones that would be requ ired by the Bureau’s proposal.

25 Written comments submitted by the SERs suggested that the re may have been some confusion about the 45 day period during which the servicer may not charge for force

- placed insurance. The proposal under consideration does not require that the borrower may not place insurance during this 45 day period, only that t he borrower may not be billed for this insurance until the end of the 45 days.

### 22 • Another credit union SER explained that it currently exceeds the number of notices that

woul d be required by the proposal.

Refunds for Ov erlapping Coverage

. Under the proposal, servicers would be required to

terminate the force

- placed insurance and refund any premiums applicable to any period during which the borrower had coverage after the servicer receives confirmation of a borrower’s

ex isti ng coverage.

• SERs generally explained that the insurance providers typically refund premiums back to the borrower for pe riods of overlapping coverage.

• One credit union SER explained that the insurance provider it is currently using will not

refund premiums back to the borrower if the creditor is not protected under t he borrower

obtained coverage.

Escrow Advances

. The CFPB is considering amending Regulation X by proposing that the servicer must make timely disbursements from escrow funds to pay for a borrower’s insurance premium even if the borrower is delinquent, absent cancellation of the policy by the borrower or the insurance company (for any reason other than non

- payment of premiums). The amendment to the escrow disbursement rules, while poten tially limiting the frequency with which servicers force place insurance, would require servicers to advance funds for maintaining pre

- existing

insurance for borrowers who are more than 30 days overdue.

• Most SERs did not raise specific concerns with this proposal, but two SERs explained that they have on occasion been unable to obtain from borrowers the unused premium refund that they advanced. This problem has arisen when borrowers facing imminent foreclosure cancel their policies and collect the unused premium refund for themselves.

On

- Going Monitoring Costs

. SERs provided mixed responses to the Bureau’s question about monitoring costs associated with force

- placed insurance. Some SERs explained that force

placed insurance providers absorb or pass on t o the consumer costs related to providing notices, tracking borrower coverage, and placing the insurance, but others reported that they incur these

costs themselves.

• One credit union SER explained that some insurance providers, depending on their loss

ra tios, have charged for these on

- going costs

.

• O ne commercial bank SER explained that it prepares force

- place insurance notices in

house.

Documentin g Complianc e. One commercial bank SER pointed out that the servicers were not only concerned about the new obligations these rules would impose, but also about the costs the y would incur in documenting compliance to prepa re for regulatory examinations.

### 23 8.4

. Error Resolution and Responses to Inquiries

In General

. The SERs expressed that errors were rare, but when they did occur, they were quickly resolved. The SERs felt they have a high

- touch customer service model , which made it very easy for borrowers to report errors or make inquiries, and to receive a real

- time response.

The SERs reported not having prob lems resolving errors, and expressed due to reputational concerns they preferred to correct them quickly . However, the SERs expressed some concerns about error resolution procedures being used as a weapon against them, and about the burden imposed by trac king the responses to errors and inquiries.

Current conditions. The SERs explained that most inquiries and problems were presented orally or through an informal process

– i.e. walking in to the bank, calling, writing a note in the margin of payment. The vast majority of issues were resolved during the conversation. The few remaining errors were handled through informal escalation system s depending on the entity

– requesting to speak with a manag er, or simply walking into the company p resident’s office. Additionally, should these informal systems not be sufficient, the borrower has recourse to existing formal systems, such as filing a complaint with state or federal regulators. The SERs had no objection to the proposed response timeframes.

Qualified Writ ten Requests ( QWRs )

. The SERs expressed some concerns about abuse of the QWR process; most had received very few, if any, QWRs (single

- digits numbers over their

career s ). The SERs were happy to provide specific information on request, but felt that often QWRs were either vague forms found online, or lawyers using the forms as fishing expeditions. Such vague requests require large amounts of documents, which are expensive to produce. The

S ERs asserted that QWRs are sometimes used not for informational pu rposes, but as a foreclosure avoidance tactic by attorneys, and requested some sort of exemption for abusive requests, or if the intent of the request is to harass the servicer.

Written Responses. The SERs expressed concerns about the burden of providing a written response to all inquiries, particularly ones that were resolved during the conversation with the customer. They felt this added little, if any, benefit to the consumer, and was a large burden for the servicer. One SER suggested that the borrowe r should have to submit a request in writing to receive a response in writing. This would formally document the reque st, avoid disagreements

about whether or not a request was actually made, and could help deter frivolous requests.

Tracking. The SERs exp ressed concerns about the cost of tracking errors. Several explained that notes were kept in the consumer’s file: while these are available on a case

- by

- case basis, it would be difficult to produce a list of all errors and inquiries. Additionally, the SE Rs explained that due to the immediate response to most errors and their reputational motivations for resolving errors, it is unnecessary to have a system to track errors.

• Some SERS expressed concerns about monitoring compliance with this provision, as it would be difficult to determine if bad actors were not recording phone calls, and the potential incentives to not report errors.

Costs

. While the SERs had no objections to providing information in the proposed timelines, they expressed concerns about th e cost of written responses and tracking of response s

.

### 24 Additionally, one SER stated concerns about the cost of responding to anythi ng that might be a QWR: SERs will default to the more burdensome formal process for everything th at looks like it might be a QWR, rather than risk a RESPA violation. This additio nal cost is an expense that is passed on to borrowers.

Specific Information

. With one exception (t he investor in formation), the SERs felt fairly comfortable with the types of information subject to th e error resolution requirements , saying

this information would be found in the loan files.

• Information from a Prior Servicer . The SERs felt that they would be able to track down information from prior servicers, if given additional time.

• Investor Inform ation

. The SERs objected to the requirement of providing investor

in formation, explaining that (1) servicers are hired to handle customers so that investors don’t have to; (2) investors are not prepared to handle calls from borrowers; and (3) there may not be contact information for the investors, (for example, if the loans were in a trust).

8.5

. Reasonable Information Management Policies

Reasonable Information Management Policies

. The SERs had no objections to the requirement of establishing reasonable policies to achieve objectives. They appreciated the flexibility of th e proposals under consideration , and thought it was good that “ reasonable ” depends on the size, nature and scope of the entity. They emphasized that small firms do not nece ssarily use automated and/or online systems to record and track all borrower communications and interactions, and urged the Bureau to avoid structuring the requirement in such a way as to require expensive system upgrades.

Information Management for Loss M itigation

. The SERs appeared to be handling a relatively low number of delinquencies and foreclosures, making a complex process management system unnecessary. One servicer explained foreclosures were discussed at a weekly meeting. SERs with higher numbe rs of delinquencies had loss mitigation departments to manage the process.

Document Management

. The SERs mentioned that papers and conversation notes were tracked through their systems, which would allow employees easy access to the information.

8.6

. Early Intervention and Continuity of Contact

8.6.1 Early Intervention

In General

. The SERs generally already have contacted borrowers long before the 45 day timeline, but the content of the information is usually more tailored to the individual. Additionally, some SERs do not provide foreclosure information until after loss mitigatio n options have been explored. One SER stated that while the proposal under consideration was generally in line with what they are already doing, his company objected to an unnecessary process that would require sending yet another notice to the consumer.

### 25 • Time of C ontact

. The SERs explained that contact with delinquent borrowers was usually established well ahead of the 45 days proposed timeline, often within 10 days of the delinquency. One SER mentioned that the GSE s require contact at day 16, and possib ly as early as day 5 if there is a history of delinquency. The SERs agreed that if information was delayed until day 60, there might not be time to process loss mitigation options before foreclosure.

• Form of C ontact

. The SERs used a mixture of formal an d informal methods of contact, which included a soft reminder phone call, more formal phone calls, notices being sent, and certified letters being sent to the borrower.

• Content of the C ontact

. The SERs also d escribed a range of information provided to t he borrowers, but often the content was tailored to the specific situation. T he SERs report they were able to sort out which borrowers simply had forgotten to mail in a payment
from borrowers w ho were having trouble making payment s. The SERs stated that they wanted to try to work with the borrower and explore loss mitigation options before discussing foreclosure.

• Frequent Contact

. The SERs stated the y are very high

- touch in dealing with delinquen t borrowers, reaching out to the borrowers early in the de linquency process and trying to help the borrower with any paperwork required.

Dealing with Delinquent Borrowers

. The SERs stated they had relatively low numbers of delinquent borrowers. Because of the low numbers, the SERs say they were able to provide flexible responses and tailor solutions to the borrower’s needs, and were often able to get the

borrower current. The SERs stated that generally the only time they were not able to help was

when a borrower refused to talk to them.

• Chronically Delinquent

. One SER expressed concerns about borrowers who were constantly delinquent

– usually running a month or two late on payments. This SER did

not want to have to send the information under consideration for early intervention to

s uch borrowers every month. The SER felt that limiting such information to twice a year would be very helpful.

Agency Loans

. The SERs who service for Fannie Mae and Freddie Mac loans expressed that the strict rules and tight timeframe requirements of Fannie and Freddie drove that aspect of their

business . These SERs stated that they were required to follow these timelines, even when they

felt a slower timeline would make a modification feasible.

8.6.2 Continuity of Contact

In G eneral

. SERs generally stated that with their small s taff s , everyone had access to files and would be able to assist borrowers in delinquency

, so that a special dedicated staff was not required to handle the loss mitigation process. Some of these SERs had committee s that would

meet to discuss what should ha ppen if loss mitiga tion efforts were unsuccessful; such

committee s make the decision whether to refer a file to foreclosure.

### 26 Foreclosure

. Several SERs explained that once a decision to foreclose was made, the file would be handed off to a separate team, o r to outside foreclosure counsel. The SERs explained they would still be willing to communicate with the borrower during the foreclosure process, and one SER said they would be willing to bring the file back to consider a modification if the

circumstances were appropriate.

Natural D isasters

. The SERs liked the idea of an exception for natural disasters or unforeseen disruptions. One SER explained his company had had two problems in the past year, once when a hurricane knocked out power for 5 days, and ag ain when an October snow storm took out power for a week. This SER appreciated the agenc y’s understanding and being flexible about

timelin es in light of these disasters.

8.7 Prompt Crediting and Payoff Amounts

8.7.1 Partial Payments

Current H andling of Partial Payments . The SERs were split as to current practices , with about half of the SERs saying they post partial payments, while the other half held partial payments in suspense accounts, and posted when a full payment was received.

Definition of Full Payment

. The SERs ’ definition of a full payment varied depending if escrow was applicable, but none of the SERs would consider a payment not complete if the only deficiency was a late fee.

Negative Amortization of Interest

. While one SER did say his com pany used daily simple interest accounting, he said they did not capitalize unpaid interest. Partial payments would be applied to interest first, and if that was not sufficient, the deficiency would be taken out of the next month’s payment.

Auto

- Debit

. The SERs generally said that if an account were set up for automatic payments, and there were insufficient funds in the account, the borrower would be notified of the deficiency. Different SERs would handle the situation in different ways

– the funds may be deducted from escrow, or the system may continue to check for new funds being deposited in the linked

account.

De Mi n imus

. The SERs were asked if there was a de minimus amount

– if there was a deficiency so small they would credit the payment anyway. While no SER said his or her

company had such an amount, one SER said her company would ask the borrower for permission to withdraw the deficiency from escrow.

Foreclosure

. One SER expressed concern about the rule on partial payments, particularly in the foreclosure context. This SER stated that many of the borrowers are frequently behind, and would prefer to have the s ervicer take their money, even a partial paym ent, to ensure that the

money was not spent on other things. This SER did not want to be in a position of being forced

to return these funds.

Expense

. When asked about the expense of changing to a prompt crediting system, the SERs

stated that it would depend on their current s ystem . S ome have already set up to make this

### 27 change, while others have a more complicated situation if their curr ent software can’t be adapted to accommodate these changes

.

8.7.2 Pay

- off Statements

Timing

. The SERs stated they provide payof f statements q uickly, i.e. immediately, within the hour, or within 24 hours. One SER cautioned that there could be complications in a foreclosure / bankruptcy situation which could take additional time to produce the pay

- off statement

.

Fees

. None of the SERs charged a fee for providing a pay

- off statement, but mentioned that they have seen other servicers that do charge a fee. The example cited was a $50 fee with a $35 fax fee added on top.

Accuracy

. When asked what happens if there is an inaccuracy in a statement re ceived from another lender, all the SERs replied they use a title insurance to protect themselves.

8. 8

. Impact on the Cost of Business Credit

Th e SERs had few comments on the impact on the cost of business c redit. While they took this time to express conc erns that these regulations would increase their costs, they said these regulations would have little to no impact on the cost of business credit. When asked, one SER mentioned that at times people may use a home

- secured loan to finan ce a business, which was corroborated by a different SER based on his personal experience with starting a business.

9. Panel Findings and Recommendations

9.1 Number and Type of Entities Affected

For purposes of assessing t he impacts of the proposals under consideration on sma ll entities, “small entities” are 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 t he North American Industry Classification System (“NAICS”) classifications and size standards. 26 

### 5 U.S.C. 601(3). A “small organization” is any “not

- for

- profit enterprise which is independently owned and operated

and is not dominant in its field.” 5 U.S. C. 601(4). A “small governmental jurisdiction” is the government of a city, county, town, township, village, school district, or special district with a population of less than 50,000. 5 U.S.C. 601(5)

.

During the Small Business Review Panel process, the Bureau identified five categories of small entities that may be subject to the pro posed rule for purposes of the RFA: commercial banks/savings institutions 27 

### (NAICS 522110 and 522120), credit unions (NAICS 522130), firms providing real estate credit (NAICS 522292), firms engaged in other activities related to credit intermediation (NAICS 522390), and small non

- profit organizations. Commercial banks, savings institutions and credit unions are small businesses if they have $175 million or less in

26 The current SBA size standards are found on SBA’s website at http://www.sba.gov/content/table

- sm all

- business

size

- standards

. 27 Savings institutions include thrifts, savings banks, mutual banks, and similar institutions.

### 28 assets. Fi rms providing real estate credit and firms engaged in other activities related to credit intermediation are small businesses if average annual receipts do not exceed $7 million.

A small non

- profit organization is any not

- for

- profit enterprise which is in dependently owned and operated and is not dominant in its field

. Small non

- profit organizations engaged in mortgage servicing typically perform a number of activities directed at increasing the supply of affordable housing in their communities. Some non

- profit organizations originate and service mortgage loans for low and moderate income individuals, while others purchase loans or the servicing rights on loans originated by local community development lenders. Servicing income

is a substantial source of revenue for some small non

- profit organizations while others receive most of their income from grants or investments. 28



### The f ollowing table provides the Bureau ’s estimate of the number and types of entities that may be affected by the proposals under consi deration :

Estimated number of affected entities and small entities by NAICS code and engagement in

closed

- end mortgage loan servicing

Category NAICS Small entity

threshold Total

entities Small

entities Entities engaged in mortgage loan

servicing Small entities engaged in mortgage loan

servicing

Commercial banks & savings institutions 522110,

522120 $175,000,000 assets 7,724 4,250 7,502 4,098

Credit unions 522130 $175,000,000 assets 7,491 6,568 5,190 4,270

Real estate credit 522292 $7,000,000 revenues 5,791 5,152

1,388 8 00 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 comp iled by SNL Financial. Banks and savings institutions are counted as engaging in mortgage loan servicing if they hold

closed

- end loans secured by 1 to 4 family residential property or they are servi cing mortgage

loans for others. Credit uni ons are counted as engaging in mortgage loan servicing if they have

closed

- end 1

- 4 family mortgages on portfolio, or hold real estate loans that have been sold but remain serviced by the institution.

For firms pr oviding real estate credit and firms engaged in other activities related to credit intermediation, the total number of entities and small entities comes from the 2007 Economic Census. The total number of these entities engaged in mortgage loan servicing i s based on a special analysis of data from the Nationwide Mortgage Licensi ng System and Registry and is as of Q1 2011. The total equals the number of non

- depositories that engage in mortgage loan servicing, including tax exempt entities, except for those mortgage loan servicers

28 The CFPB is continuing to refine its description of small non

- profit organizations engaged in mortgage loan servicing and working to estimate the number of these entities, but it is not possible to estimate the number of these

entities at this time. Non

- profits and small non

- profits engaged in mortgage loan servicing would be included under real estate credit if their primary activity is originating loans and under other activities related to credit intermediation if their primary activity is servicing.

### 29 (if any) that do not engage in any mortgage

- relat ed activities that require a state license. The

estimated number of small entities engaged in mortgage loan servicing is based on predicting the likelihood that an entity’s revenue is less than the $7 million threshold based on the relationship

between se rvicer portfolio size and servicer rank in data from Inside Mortgage Finance. 29



### 9.2 Related Federal Rules

Th e CFPB is currently developing other proposed or final rules under Title XIV of the

Dodd

- Frank Act, including rules addressing ability

- to

- pay standards and qualified mortgages, mortgage loan originator compensation and qualification , mortgage loans subject to the Homeownership and Equity Protection Act, consolidation of the disclosures consumers receive under the Truth in Lending Act and the Real Estate Settlement Procedures Act of 1974 , and

, jointly with other agencies, appraisal practices. Except for the overlaps discussed in 2.4 above,

the Panel is not aware of any ot her Federal regulations that currently duplicate, overlap, or conflict with the proposals under consideration.

9.3 Panel Findings and Recommendations

As discussed earlier in this report, the SERs stated that their companies, and small lenders

and service rs generally, did not engage in many of the practices that contributed to the mortgage

market crisis. The SERs indicated that some of the proposals under consideration are not consistent with their current business practices. The SERs expressed concerns that having to change their business practices to comply with the proposals under consideration could be costly and burdensome and may impact their ability to continue to service mortgages for their

customers. The SERs urged the Bureau to broadly exempt t hem from new requirements

. However, Congress has placed limits on the Bureau’s exemption authority. The Panel recommends that the CFPB consider using its authority, consistent with the provisions of

the relevant statutes and adequate protection of consum ers , to pro vide flexibility to small servicers so that they can continue to service mortgage loans for their customers.

9.3.1 Periodic Statements and the Coupon Book Exemption.

In general, SERs expressed concerns about the cost s of providing periodic statements: both about the initial investment that would be required to set up the system, and the on

- going cost of sending statements. While SERs did not object to offering the majority of the information in the statement, they ind icated that much or all of this information was already provided through existing communications or easily available on request, and objected to the cost of sending out statements, which they felt were often unnecessary.

The Panel recommends the CFPB cons ider creating an exemption from the periodic requirement for certain small servicers. Such an exemption would be limited to servicers who meet certain conditions, including providing certain information to borrowers.

9.3.2 Adjustable Rate Mortgage Disclo sures

29 The CFPB is continuing to refine its estimate of the number of firms providing real estate credit and engaging in other activities related to credit intermediation that are small and which engage in mortgage loan servicing.

### 30 In general, SERs expressed concerns about the one

- time development costs and on

- going maintenance costs associated with providing the initial ARM adjustment disclosures and the subsequent adjustment notices. They also expressed doubt that the estim ated numbers that

would be provided in the initial ARM disclosures would be beneficial to consumers. The SERs suggested the Bureau should create a small servicer exemption from this requirement.

The Panel recognizes while there are some concerns about pr oviding estimates six months or more in advance, the statute established this time frame to give consumers adequate

time to consider alternatives. To ease the regulatory burden, t he Panel recommends the CFPB consider not requiring compliance with the curr ent ARM adjustment disclosure ( which is required to be issued 25

- 120 days before each rate and payment change)

, when the new ARM disclosure ( which is required to be issued six

– seven months before each rate and payment change) is provided.

9.3.3 Force

- Pl aced Insurance

The SERs had no major objections to the notices for force

- placed insurance, other than restating concerns about compliance costs. The SERs did express concerns about renewing an existing policy with advanced funds, because the borrower could cancel the policy and pocket

the refund.

The Panel recommends the CFPB avoid or mitigate the potential for unjust enrichme nt by proposing to allow servicers to advance funds in 30 day installments, rather than in annual

installments. This would red uce the incentive for consumers to cancel their policies and the potential loss to the servicers in the event of such a cancellation.

9.3.4 Error Resolu tion and Responses to Inquiries

The SERs indicated that errors were rare, but when they did occur, the y were quickly

resolved. The SERs stated that small lender/servicers have a high

- touch customer service model

, which made it very easy for borrowers to report errors or make inquiries, and to receive real

- time

response s

. The SERs stated that, for reputat ional reasons, they preferred to correct errors quickly . The SERs expressed some concerns about the error resolution procedures b eing used in litigation , and about the burden imposed by having to track the responses to errors and inquiries to prove compli ance with the regulatory requirements

.

The Panel recommends that the CFPB seek comment on whether or not to include a

catch

- all to the enumerated list of errors to limit the liability of the servicers. Additionally, the Panel recommends the CFPB consider the following alternatives:

• Adopting a more flexible process for tracking errors and demonstrating compliance for

small servicers.

• Requiring small servicers to comply with the error resolution procedures only when borrowers provide error notices in writing.

9.3.5 Reasonable Information Management Policies and Procedures

### 31 In general, the SERs had no objections to the requirement of establishing reasonable policies and procedures to achieve certain objectives, for example, providing accurate and timely

disclosures a nd other information to borrowers, facilitate prompt correction of errors, and facilitate loss mitigation efforts, as specified at pages 21

- 22 of Appendix C to this report. They appreciated the fact that the Bureau is considering defining “reasonable” as depending upon the size, nature and scope of the entity

– such that a policy considered reasonable for a small servicer may be very different from a policy considered reasonable for a large servicer. This approach would provide inherent flexibility for sm all servicers

.



### The Panel recommends the CFPB use the public comment process to solicit comment on further guidance that the CFPB may provide to clarify the types of policies and procedures that

would be reasonable for small servicers.

9.3.6 Early Interve ntion and Continuity of Contact

Early Intervention

The SERs said they generally contact borrowers who fail to make payments long before the 45 day time period in the proposal under consideration. However, the content of the information that is currently provided by the SERs varies from the information outlined in the CFPB materials, and is often tailored to the individual borrower and his or her particular circumstances. Additionally, some SERs do not provide foreclosure information until after loss

mit igation options have been explored.

The Panel recommends the CFPB consider more flexible early intervention requirements for small servicers or providing them with more flexibility in complying with the early intervention requirements in light of their e xisting practices.

Continuity of Contact

The SERs generally stated that with their small staffs, every employee has access to all the files and anyone would be able to assist borrowers in delinquency. Thus a special staff may not be required to handle the loss mitigation process.

The Panel recommends the CFPB include sufficient flexibility in the proposal under consideration to allow the successful current models of handling consumer contact to continue.

9.3.7 Prompt Crediting and Payoff Statements

Prompt Crediting

About half of the SERs indicated that they post partial payments, while the other half indicated that they held partial payments in suspense accounts, and posted the funds to the

### 32 borrower’s account when a full payment had accumulated. No ne of the SERs included late fees in calculating what constituted a full payment.

The Panel recommends the CFPB consider whether additional flexibility can be provided in the proposal for small servicers, to the extent that their current practices differ from the proposal and provide appropriate consumer protections

.

Payoff Statements

The SERs stated they provide payoff statements quickly

– immediately, within the hour, or within 24 hours. One SER noted there could be complications in a foreclosure or b ankruptcy situation which may require additional time.

The Panel recommends the CFPB consider whether additional flexibility can be provided in the proposal for small servicers, to the extent that their current practices differ from the proposal and provid e appropriate consumer protections

.

9.3.8 Impact on the Cost of Business Credit

This question caused some confusion. The SERs stated generally that while the proposals could provide value to customers of large servicers who do not take a high

- touch

appr oach; the proposals under consideration would provide minimal additional benefit to such borrowers, while raising costs which would have to be passed on to borrowers. However, other than general concerns about overhead and compliance burden, the SERs di d not identify any specific impacts on the cost of business credit.

### Appendix A

Written Comments Submitted by SERs

[See attached]

### ‐‐‐‐‐Orig i nal Message‐‐‐‐‐

From: Er i ca F i scher [ mailt o :ericaf@sunsetban k .n e t ]

Sent: T u esday, May 01, 2 0 12 1:46 PM

To: Ross, Ra c hel ( CFPB)
Subject: RE: Reminder ‐ M o rtgage Servic i ng S B REFA Comme n ts

Rachel,

I've attached a word doc u ment whe r e I ' v e answered the q u estio n s from one o f the original docum e nts w e received with
questions o n each cat e gory (also att a c h ed). I hope this will be he l pful an d ma y be add r ess items not tal ke d about last

week. T h a nk you for the opportun i ty to give you t h e smaller ban k 's feedback o n t h ese i mp o r t a nt r ule‐m a king issues.

Erica R. Fisc h er

SVP Lend i ng Operations

NMLS ID #747033

Sunset Bank & Savings

521 W S u ns e t Dr, Wau k esh a, WI 53189

Direct: 26 2

‐ 5 22‐1154; fax 262‐970‐90 9 0

This Message is intended o nly for the p e rsonal and c o nfide n tial use o f the de signa ted recipient(s) na m ed a b o ve. If you

are not the i n tend e d recipient o f this message you ar e her e by not i fied that a ny revie w, dissemination, distribution or copying o f th i s message is strictly proh i bited. Please notify the s e nder that you have received t h is email i n error by
replying via e mail. Please then del e te t h e email and any cop i es o f i t.

### RESPONSES TO DISCUSSION ISSUES FOR SERS

Topic A : Periodic Statements and Coupon Book Exception

1. We currently provide monthly billing statements and they are mailed out.

2. We currently do not provide the following on the statements : the current interest rate, the date on which the int erest rate may reset, the amount of any prepayment fees to be charged, a description of any late payment fee (we do indicate the date after which any late fees will be assessed but do not provide the amount), contact information for housing counseling agen cies or programs by HUD

, loan maturity date, breakdown of year

- to

- date payments by principal, interest, escrow, fees and partial payment, policy regarding application of any additional payment received from borrower, policy regarding application of parti al payments, foreclosure warning, summary of delinquency history and information about loss mitigation

alternatives. Most of this information is readily available for us to add to the monthly statement except for calculations of prepayment penalties. We ha ve 3 different calculation types depending on when the loan originated so this will be a manual process each month since our servicing system isn’t capable of calculating the penalty. Rather, just a statement indicating that there is a prepayment penalty

o n the loan and a number to call for the amount would be a viable alternative. The housing counseling information is always included on any late/delinquent notices so this would be a duplication of information already provided for those who need

it.

3. For the many small banks in Wisconsin that aren’t currently able to produce monthly statements, this would entail roughly $150,000

- $200,000 in one

- time set up for new software, printers and paper supplies and $5,000

- $6,000 in on

- going monthly maintenance fees plu s the cost of postage for mailing those statements

. This additional cost could equate to 15

- 20% of the bank’s monthly profits.

4. We do not currently store the information that will be required in a machine readable form. The data is stored in our mortga ge servicing system through which we are able to request reports containing all of the data required

– such as a data

download for exams and audits. To make the form s machine readable would entail purchase of new mortgage servicing software/system that wo uld print the machine readable forms and scanning equipment and software ranging in price from $200,000 to $250,000 one

- time cost. Because all of the data is already stored in our mortgage data system we feel that this would be a duplication of

efforts bo th in cost and in data availability

.

5. Updates to our servicing system are done when ne eded, not on a regular schedule but typically at least quarterly

.

### 6. We provide monthly billing statements but many banks in Wisconsin use coupon books as well as mortgag e passbooks for fixed rates and ARMs . For those banks, 100% of their borrowers get the coupon book or th e mortgage passbook even if they choose to do online banking which is an option at many small banks. One of your concerns with a coupon book or mortga ge passbook is “how do the borrowers know when to make their payments if they don’t receive monthly billing statements?” The small bank’s response is that 99% of our customers are responsible borrowers who know when their bills are due whether or not they get a monthly reminder

. For them, t his is no different than paying their monthly rents before they owned the home. The landlord didn’t send the tenant a monthly reminder to pay their bill. They knew that the payment was due on the 1 st 

### and that

is the sa me situation with the monthly mortgage payment. For the remaining 1%, a phone call prior to the expiration of the grace days is usually all it takes and in a small bank, this is standard procedure. As far as the additional information that is going to be required, cu rrently the small bank customer knows that all of this information can be obtained by either a simple phone call to their banker or a knock on the door of their banker on one of their weekly visits to the branch

. As an alternative, i t may be l ess costly for some small banks to provide this additional

information on their websites with an e

- signature indicating acknowledgement

rather than thro ugh monthly billing statements.

Topic B : Adjustable Rate Mortgage Disclosures

1. We send out ARM rate adjustment disclosures 44 days prior to the rate adjustment date and 74 days before the payment adjustment date

. Per the ARM closing documents, the rate is set 45 days prior to the actual rate adjustment date. The same timeframe is in place for both initi al disclosures as

well as annual ARM disclosure s

.

2. We currently do not provide the following on our statements: a good faith estimate of the rate and payment (only the actual rate and payment), a list of alternatives, contact info for HUD, contact info fo r the State housing finance authority, key terms of the ARM, prepayment penalty info, rate or payment

limits and amortization info.

3. We are on the Fiserv core servicing system and they would be required to modify the form to the CFPB’s required form. Becau se we are currently doing the annual disclosure after initial adjustment, no additional cost to prepare

. T here would be added postage costs for the initial disclosure proposed 6

- 7
months before the actual rate change because we would also continue to send

out the actual r ate change notice 74 days prior regardless if Reg Z no longer requires the initial reset notice. This is a document our borrowers are already familiar with and know that the rate is adjusting when they see this form. They

do not look to th e monthly billing statement for those same changes. We don’t
feel that the 6

- 7 month notice is neither necessary nor beneficial to the

### borrower. In fact, it will only confuse most borrowers when they get their actual rate change notice and it may be diff erent. (Once rates start rising steadily

– it

will be different). Since the disclosure will be come mandatory, a notice indicating that their rate may adjust in 6

- 7 months as a heads

- up rather than an estimate of what it will adjust t o would be a better al ternative.

4. See answer to # 5 above.

5. We have done 1/1, 2/1, 3/1, 4/1, 5/1 and 7/1 ARMs at various periods in our 12 year existence. In our experience, none of the adjustments have been problematic because in the past 8 years, the rate has only gone down or stayed the same. Prior to that, when the rate did adjust up, we had no problems with our borrowers, primarily because they were qualified at the 2% cap rate and none of our loans have ever gone up the full cap rate at the first adjustment. I

believe th e other reason we’ve never had a problem is because when our

borrower gets this loan, they fully understand the type of loan they are applying for and all of the potential changes that could occur. We and most SERS do a

very good job of explaining the loa n to the borrower so there are no surprises and also of making sure the borrower fully understands the loan

.

Topic C : Force

- Placed Insurance

1. We do not have any vendor costs at this time. All of the insurance monitoring,

communications with borrowers and force

- placing insurance is done by in

house loan staff.

2. Our current notice does not include an estimate of force

- placed costs. We also

do not send the borrower a notice after we’ve force

- placed the insurance. We

have force

- placed insurance on 2 properties in 12 years and in both cases, we ended up taking the property back in foreclosure so were n ever able to collect the premium from the borrower. The problem is not prevalent in the SER world. If a borrower stops paying their HO insurance, they probably aren’t paying their mortgage either. When we receive a cancelation notice from the insurance

a gency or find in our tracking spreadsheet that we never received a renewal, a call is placed to the borrower and the problem is usually quickly resolved with the borrower paying the premium due or we discover that a new insurance policy is in place from a different agency. If we are unable to reach the borrower, we do send them a notice asking for evidence of insurance or the agent name and number so we can track it directly with the agent. The problem with the bank paying the premium for the borrower to avoid high cost

force

- place insurance is that if the policy is cancelled by the borrower, the premium paid by the bank is returned to the borrower.

3. We do not have any force

- placed insurance policies in place currently so have not established any practices in respect to renewals. I don’t believe we would

### incur any costs other than postage to send out written disclosures to borrowers prior to renewing their force

- placed insurance.

4. We would need to put a written procedure in place for force

- placed insurance and required disclosures. If the intent is to provide it to all borrowers in the event of insurance disruption, we would provide the disclosure at closing. If only to the borrowers whose polices lapse, then we would document the file with copies of disc losures and dates of mailing. The costs would definitely increase due to postage, supplies and additional staff hours needed to send out

the disclosures and track those with force

- placed insurance.

5. We are in the process of changing insurance companies fo r force

- placed insurance and I don’t know the answer to that question.

6. We currently to do not collect escrow for hazard insurance unless the borrower requests it. If the borrower is escrowing and does not make a required monthly payment, thereby leaving the account short for payment of 1 year of insurance, we would advance the money to pay and collect the shortfall through the escrow analysis. I don’t believe we would ever force

- place the insurance since we are in control of the premium being paid to th e borrower’s own insurance agency so the rules would not apply in this situation.

Topic D: Prompt Crediting and Payoff Amounts

1, 2 & 3. For first mortgages, the partial payments are held in a suspense account on the loan until the full payment (excludi ng late charges) is made. The system then automatically applies the payment to the earliest delinquency and bumps the

due date. For 2 nd 

### mortgages (simple interest loans), the partial payment is applied and will satisfy the outstanding interest first. Onc e the amount of the scheduled payment is received, the due date is bumped to the following month. Depending on when the rest of the payment is received will determine whether any principal is reduced or if all of that month’s payment goes to interest. If a borrower is consistently late, this in turn can make the balloon payment larger at maturity. Because the Fiserv servicing system does this automatically, there would be no additional cost to the bank. I am unaware of how other banks in the area post

t hese partial transactions. As far as requests for payoff amounts, all requests

whether written or verbal or responded to within 3 business days so any changes

made will not be a burden to follow.

Topic E : Error Resolution and Responses to Inquires

1. When a customer contacts us regarding an error, if the contact is verbal (typical), the error is addressed and usually resolved that same day with contact made back to the customer verbally that the error has been corrected. If the request is in writing via em ail, we will respond back in writing via email. To date, we have never had a qualified written request at this bank. If we did,

### we would follow the regulatory requirements for response. The error list does

contain all errors that we have encountered and a ppears complete. We would not agree that a catch

- all category should be included on the list. Catch

- all categories are too vague for banks to follow to stay in compliance and for training purposes. The list you provide does appear to be complete.

2. The o nly issue we see with the time frames is the method of acknowledgement if the borrower request is verbal. We, as a SER, have never had a problem with resolving errors and responding to complaints or inquir i es because of the

sheer size of our staff. When a call comes, there are only 2 people that would

handle the call but both of these people wear multiple hats . If that problem isn’t resolved before the end of the day, the customer will contact the CEO the next day for resolution. This rarely happens sin ce, as I stated before, most errors, compl a i nts and inq uiries are handled the same day they come in

, if not in the same phone call. Since the proposal is also looking at inquiries, it would be a burden to our small staff to have to respond in writing to ev ery inquiry, complaint, error, etc. The exclusion for routine inquires would be a viable alternative for us but would like this list expanded to include corrections to accounts where the borrower didn’t provide direction so the correction of the payment is at the borrowers request after the payment has already been posted. For instance the borrower sends $100 additional payment with their monthly payment with no direction as to where to apply it. The teller posts it as a regular payment and the extra gets applied to principal but the borrower wanted it applied to next month’s payment. In this case, the verbal call is made, we make the correction and no written acknowledgement would need to go to the borrower. Your concern is that the customers are not bei ng responded to by the banks but that is just not the case with the SERs where all staff members are very involved and concerned about the customer service we give. Plus the potential for fraudulent lawsuits where the bank does not respond in writing to a supposed “verbal request” becomes greater. How does the bank prove they never got the verbal request to respond to it in the first place? By requiring the customer to put that request in writing, you are laying the groundwork for better response time b ack to the customer if banks are required to respond in writing to that provable request. I believe part of the ongoing cost to this written response is additional staffing.

Topic F Reasonable Information Management Policies

1. Yes, the way we currently ma nage information allows us to meet most of the duties

stated in the proposed policies and procedures. Our documents are stored on site in locked, fire proof filing cabinets. Once the loan is paid off, the file is scanned and stored electronically.

2. The on ly duty I feel that would be a burden and potential regulatory violation would be the record maintenance of borrower contact. Many times, in the bank lobby, the borrower will stop one the 2 people servicing the loans to ask a question.

### Typically the quest ion is answered and that employee continues on their way to whatever task they were in the process of performing and that leaves us open to

non

- compliance if the employee doesn’t immediately document the customer’s file. I believe that SERs should be exemp t from this specific portion of the rule due to

the small staff that maintains contact with the customers.

Topic G : Early Intervention and Continuity of Contact

1, 2 & 3. In all aspects of this rule, the SERs (including us) are contacting the

customers well before the 45 days specified. Our delinquency and collections policies and procedures are more restrictive than the proposal so I don’t see any additional costs to comply with the rules. The only issue would be for those SERs that sell to the

agenc ies. The agencies have recently modified their collection procedure requirements to be much more restrictive and the additional requirements (duplication) would be burdensome to the staff as well as add additional cost in the way of postage, staffing and training. An alternative would be that an exemption would apply for loans that are sold to the agencies. Regarding contacting the delinquent borrower in writing, due to the smaller staffs and the customer familiarity, the SERs are also more proactive in working with their customers to provide relief (either immediate or long

term) in hardship cases such as job loss, divorce or death. When a loan goes delinquent, if phone contact isn’t able to be made, a personal visit to that borrower’s home or workplace is made. We typically do not have a specific written policy in place

that could be sent to the borrowers as an alternative to foreclosure because we approach each delinquency differently, depending on the situation, looking at the best

alternative for th e borrower.

Topic H: Impact of the Cost of Business Credit

1. Of course there will be an impact on the cost o f business credit since most SERs operate as a whole entity not divided up between departments. If the costs are increased on the mortgage loan sid e, the fees would probably go up on the commercial side of the bank to attempt to make up some of the losses. If the cost of the periodic statement is too significant for the SER to continue offering portfolio loans and servicing sold loans, the SER would then have to make up that loss through their commercial loans through increased rates and fees. Many SERs that are in outlying areas strictly offer the mortgage loans as a convenience to the customers that aren’t able to qualify for secondary market

loan s so if the cost of the periodic statement requirement can’t be met, those customers will not be able to get a local loan to fund the purchase of their

homes unless they travel to the bigger cities

. Margins are extremely slim now

for the banks and the saf ety and soundness regulators (both state & fed) have indicated to us that they are looking for increased margins in future exams. The additional regulatory costs will only reduce those margins.

### First National Bank of Moody

Glen C

. Thurman Telephone (254 )853

- 2115

President

P.O. Box 128

7th and Avenue D Moody

, Texas 76557



### May 1, 2012

The Honorable Richard Cordray

Director

Consumer Financial Protection Bureau

1700 G Street NW Washington, D.C. 20552

Re: SBRE FA Panel for Mortgage Servicing Rulemaking

De ar. Mr. Cordray: Fox (254)853

- 2955



### I would like to thank you for the opportunity to participate with other small financial firms on the

recent SBRE FA panel for Mortgage Servicing Rulemaking. My bank, First National Bank of Moody

Texas is a $42 million asset community bank located in Moody Texas, a community of just over 1300

in population. First National Bank of Moody is a family owned community bank with a single location

dedicated to serving our community. We make mortgage loans which are held in po rtfolio, and we
service all mortgages we originate.

As a small institution with only 13 employees, we all wear many hats, have multiple duties, and work

very hard to meet our customers' needs and support our community. As discussed during the meeting

our primary focus is on helping our customers make good financial decisions, and working with them

when they have difficulty meeting their obligations. In fact, we explore every possible avenue to help

a struggling customer through a difficult period and wor k out their mortgage loan so they can remain

in their home. Since we generally know our customers on a personal basis, doing anything other than

what's in the best interest for the borrower would jeopardize our reputation in our community and put

my bank at risk. The last thing we ever want to do is to foreclose on a neighbor's home. Unlike the large national servicers, customers are more important to us than high volumes of transactions. This is

a very important distinction between community banks and the large national servicers. We know our
customers, they know us, and in fact transact much of their business with the bank in person. So they always know where to go if there is a problem. We resolve issues quickly, and work hard to help our

customers when they have problems. Over the last 5 years, First National Bank of Moody has only

had to foreclose on two mortgage loans, and in both cases the foreclosures were due to divorce.

In developing the final rules for mortgage servicing, I hope the CFPB w ill recognize the very important difference in our business model compared to the large national servicers. I urge the CFPB to fully utilize its authority to exempt or modify these rules for community banks, so that

### they do not impose unnecessary, excess ive and expensive burdens on us which may lead to my bank

and others like mine, to exit the mortgage lending business. This unfortunate outcome would harm

consumers by further restricting credit in small towns and rural communities along with driving

fur ther consolidation of the mortgage business to the largest national mortgage lenders which caused

the financial crisis and committed the mortgage servicing abuses that you are now trying to address.

The following comments are offered for your considerati on.

1. Periodic Statements. Do not require additional periodic statements/billing

statements beyond what a community bank c urrently provides. My bank currently

provides a monthly statement which gives the borrower all of the critical information regard ing

their account and the payment that is due. We provide the borrower with the phone number of

our office if they have a question or a problem in making their payments

. As stated earlier

many of borrowers make their mortgage payments in person at the ba nk where they can always

get up to date information on their account. Having to produce and mail additional statements,

or add additional language regarding specific housing counselors will require a significant and

costly upgrade from my core system prov ider. Those costs will be passed on to the consumer.

2. Adjustable Rate Mortgage Disclosures. Do not require an additional notice of

adjustment 6 months prior to the initial adjustment. We currently provide a notice of

adjustment which includes the ind ex value, margin, total new interest rate, total new payment

and the effective date of the new payment amount. The interest rate and new payment amount

on that notice is accurate. However, issuing a similar statement 6 months prior to adjustment

date wou ld require us to issue an estimated interest rate and payment, which is likely to be

different than the borrower's interest rate and payment amount at adjustment. This will only

create confusion with the borrower and will not hel p them plan for the rate c hange. Creating

an additional disclosure will also require a system upgrade from our vendor, which will be

costly. The current timeline for adjustment notices is adequate to permit the borrower to plan

and if necessary seek a refinance to avoid the rate change. First National Bank of Moody has

been writing an in house ARM for over 25 years, and the notice sent to our customer and the

procedures use d by the bank to make the adjustment has never caused a problem with our

mortgage customers. Please do not provide a costly fix to a problem that does not exist in the

community bank business model.



### 3. Forced Placed Insurance. Permit community banks to purchase forced place

insurance as soon as they are notified of a lapse in coverage by the borrower's

carrie r for non

- payment. Unlike the large national mortgage servicers, the commission

earned by community banks on forced place insurance is negligible. For all of 2011 total

commission earned by First National Bank of Moody on all forced place insurance (mortg age,

commercial and consumer) was only $221.95. If forced placed insurance is required, it's

because the homeowner has let the insurance lapse, causing both the bank 's collateral for the

loan and any equity the homeowner has in the property to be at risk. This presents safety and

soundness risks for the bank. We always try to get the coverage placed with the original

carrier if possible, but if not, we will use another provider. If the borrower subsequently gets

### coverage, we only ask for the agent's name and contact information. Once the borrower's

coverage is confirmed, we cancel the forced place policy and refund any premiums charged to

the borrower pro rata. We are concerned that the CFPB's proposal requiring the bank to wait

45 days to purchase this coverage puts the bank and the customer at risk of something

happening to the collateral for the loan. Weather events can cause significant damage causing

big losses to the consumer and the bank. While a $30,000 loss isn't significant to a large

national servicer, it has a big impact on our bank. Providing coverage quickly protects both

the bank and the consumer.



### 4. Error Resolution and Responses to Inquiries. Permit community banks flexibility

in tracking and documenting responses. As discussed duri ng the session, the majority of

errors (if any) or inquiries from customers are handled and resolved immediately, usually while

the borrower is on the phone or at the bank. We have never received a QWR but if we do we

would respond immediately as well. W e do not have an automated tracking system for these

requests and request that community banks be exempted from implementing one. We do not

send out a written statement to borrower confirming that we have resolved their issue or

answered their inquiry. S uch statements would be wasteful in terms of time to produce them,

and the postage to mail them. We would request that community banks be exempt from

having to provide these statements.



### 5. Reasonable Information Management Policies. Permit community ban ks flexibility

in complying with this policy. Community banks generally do not have robust loan

servicing systems that permit on line collaboration, or have the ability to record and track all

borrower communications and interactions. First National Bank o f Moody does not have any

such system and can not afford the expense to put such a system in place and does not require

such a system to provide excellent service to our customers. Many times notes are hand written

by the bank staff, or there may be copies of email exchanges placed in the file. We would

request that community banks be permitted to continue these practices which are effective for

our bank and not be required to make expensive and unnecessary system upgrades.

6. Early Intervention and Cont inuity of Contact. The CFPB should work with the

FH F A to align these policies with those required by the GSEs for servicing

mortgages. For mortgage loans serviced by community banks for the GSEs, we have to
comply with similar standards on early interventi on and continuity of contact. There is no

reason to have an additional set of rules in this area and we urge the CFPB to work with the

FH F A on aligning their policies. Loans that we hold in portfolio are generally serviced the

same way. We have a small staff that service mortgage loans, and they service all types of

loans for the bank. We contact borrowers usually by the 16th 

### of the month, and sometimes

sooner. Our borrowers will work with the same person throughout the collection process and

loss miti gation process. Many times, they come into the bank to meet with that person or the

loan officer who made loan. We would ask that the proposed rules recognize this difference

between community banks and large national servicers by permitting flexibility for

community banks on their implementation of this policy.

### 7. Prompt Crediting and Payoff Amounts. The CFPB should work with the FHFA to

align these policies with those required by the GSEs for the crediting of payments

and for providing payoffs. We alw ays credit payments immediately, usually while the

borrower is standing at the teller window. In all cases, payments (partial payments included)

are credited on the day received. We provide payoffs promptly when requested, as part of

good customer servi ce.

8. Impact on the cost of business credit. The CFPB should recognize that all changes,

especially those that require system upgrades, increase the overall cost of all types of

credit. We are a small organization and while pricing for business loans i s different than

mortgage credit, increased costs for one do get spread across all lines of credit. We urge the

CFPB to carefully consider this when writing rules that require technology upgrades or could

require additional staff to manage and monitor.

I n conclusion, I appreciate the opportunity to participate in the SEBR F A process on the proposed

mortgage servicing rulemaking. I urge the CFPB to exempt or permit flexibility for community banks

like mine when writing rules that would require changes to o ur current processes, or require expensive

upgrades to our servicing systems to accommodate new changes. As stated earlier i n this letter, we

deliver high quality personal service to all our customers, and work to resolve problem loans quickly.

Our custom ers come into the bank to see us when an issue arises, and w e work with them on a personal

basis to resolve it. Highly prescriptive and redundant procedure s and requirements will not result in any improvement in our customer service, but will unnecessaril y increase our costs and the costs to our

borrowers. For many community banks, the cumulative effect of additional regulatory burden in the

mortgage arena may lead them to exit the business, further concentrating the industry to the detriment of

consumers

. Our servicing business model is very different than the large national servicers and I urge the

CFPB to recognize these differences in its rulemaking.

If you have any questions, please feel free to contact me.

### Ross, Rachel (CFPB)

From: Brian Barkd u ll <bbarkd u ll@asc u .org>

Sent: Tuesday, May 01, 2012 3:51 PM

To: Ross, Rachel (CFPB) Subject: RE: Reminder

- Mortgage Servicing SBREFA Comments

Attachments: image002.png



### Thanks Rac he l.

I do not have any writte n comme n ts to s ubm i t. Regards,

Brian

Brian J. Barkdull President/CEO

520‐452‐30 9 9

NOTI C E: T h i s electron i c m a il message an d any files tr a nsmitted wit h it are intended exclusiv e ly for the

i n d i vidual or entity to w hich it is addres s ed.

The message, toge t her wit h any a ttac h ment, may contain confid e ntial and/or privileged i n for m a ti o n. A ny
unauthor i zed review, use, printing, saving, copy i ng, disclosure o r distrib u tion is strictly proh i bited. If you

have received t h is message in error, please imme d iately advise t he s e nder by reply email and d e lete all

cop i es.

From: R a che l. Ross@cfpb. go v [mailto:R a chel

. R oss@cfpb.gov] Sent: T u esday,

Ma y 01, 2 0 12 10:21 AMTo: bbar k dul l @ascu.org Subject: R e m i nder

‐ M o rt g age Serv i cing SBREFA Comments

Dear Mr. Barkdull

,

Thank you f o r taki n g the t i me to pa r t i c i p a te i n our pa nel meet i ng last week.

As a reminder, to t h e e xt e nt you have a ny; co m me nt s are due by close o f busi n ess today.
Sincerely,

Rachel

Rachel Ross
Research, M a rkets & R e gu l ations

< mai l to:rac h el.ross@cfpb

. go v > rache l

. r oss@cfpb.gov

Tel: 202 4 3 5‐7635 | M o b:

202 591‐ 6 915

consumerfin a nce

. gov

Confidentiality Notice: T he information contained in this transm i t t al, including a ttac h me n ts if any, may be

confide n tial o r privileged under appl i cable law, o r otherwise may be protected from disclosure to a nyone
other than t h e intended recipient(s). Any review, use, distrib u tion, o r copying o f the con t e n ts o f this e‐mail

o r its attachments by an y person other than t h e intended recipient for an y purpose other than i ts i nte n ded

use, is strictly pr o hibit e d an d may be unl a wful. This c o mm un ication is not intended as a waiver o f th e
conf i den t ial, privileged o r ex e mpted s tatus o f the i nformation transmit t ed. I f you have re ceived this e

‐ mail in

error, you should permanently delete t h e e

‐ mail and any attachments.

D o n ot save, copy, disclo s e, o r rely o n any part o f t h e information conta i ned in this e

‐ mail o r its

att a ch m e n ts. Also imme d iately notify the s e nder o f the misdirection o f this tran s mittal. Your
cooperation is appre c ia te d.

### Ross, Rachel (CFPB)

From: Frank Altman <Frank@crfusa.com>

Sent: Tuesday, May 01, 2012 1:42 PM

To: Ross, Rachel (CFPB) Subject: Re: Reminder

- Mortgage Servicing SBREFA Comments



### I appr e ciat e d the o p portu n ity to participate, b u t I will not have a ny written

c o m ments.

Th a n k s. Sent from my iPhone

On May 1, 2 0 12, at 1:20 P M, " Rachel .R oss@cfpb.gov<mailto:Rachel.Ross@cfpb.gov> "

< Rac h el

. Ross@cfpb

. gov<mailto:Rache l .Ross@cfpb. g o v >> wrote:

Dear Mr. Altman,

Thank you f o r taki n g the t i me to pa r t i c i p a te i n our pa nel meet i ng last week. As a reminder, t o the extent you
have an y; comm e nts ar e d u e by clo s e o f busi n ess today.

Sincerely,

Rachel

Rachel Ross
Research, M a rkets & R e gu l ations rachel.ross@cfpb

. gov

< m a ilto:rachel.r o ss@cfpb.go v >
Tel: 202 4 3 5‐7635

M o b: 202 591‐ 6 915

consumerfin a nce

. gov< http://consumerfi

nance.go v >

Confidentiality Notice: T he information contained in this transm i t t al, including a ttac h me n ts if any, may be

confide n tial o r privileged under appl i cable law, o r otherwise may be protected from disclosure to anyone
other than t h e intended recipient(s). Any review, use, distrib u tion, o r copying o f the con t e n ts o f this e‐mail

o r its attachments by an y person other than t h e inten ded recipient for an y purpose other than i ts i nte n ded

use, is strictly pr o hibit e d an d may be unl a wful. This c o mm un ication is not intended as a waiver o f th e
conf i den t ial, privileged o r ex e mpted s tatus o f the i nformation transmit t ed. I f you have re ceived th is e

‐ mail in

error, you should permanently delete t h e e

‐ mail and any attachments.

D o not save, copy, disclo s e, o r rely o n any part o f t h e information conta i ned in this e

‐ mail o r its

att a ch m e n ts. Also imme d iately notify the s e nder o f the misdirection o f this tr an s mittal. Your
cooperation is appre c ia te d.

# Cumberland

SECURITY BANK

April 27, 2012

The Honorable Richard Cordray

, Director

Consumer Financial Protection Bureau

1700 G Street NW

Wa s hi n gton

, D .C. 20552

Re : SBREFA Pan e l for Mor tgage Servicing R ulemaking

Dear

. Mr. Cordray:

I would li k e to thank you for the opportunity to participate with other small financial firms on the recent

SBREFA panel for Mortgage Servicing Rulemaking. My bank Cumberland Security Bank i s a $163,000,000 Asset

community bank located in Somerset, KY. We make mortgage loans which are held in portf o li o

, as well as sold

in the secondary market to both Freddie Mac and Fannie Mae. We ser v i ce all mortgages we originate.

As a sm a ll institution with only 67 (59FTE a nd 7 PT) em ployees

, we all wear many hats, ha v e mul t i ple duties,

and work very h ard to meet our customers' ne e ds and help our community. And as discussed du r i n g the

mee t i ng our p r im ary f o cus i s on helping our customers make good financial decisions

, and working with them

when they h a ve difficulty meet i ng their o b l i gations. In fact, we e x plore every pos s i b l e avenue to help a

st r uggling customer through a difficult period and work out the ir mortgage loan so t h ey can remain in their

home. Since we gener a l l y know our cust omers on a personal b a sis, doing any t hi n g other than what's in th e

best in t erest for the borrower would jeopar d i ze our reputation in our community and put my bank at risk.

Unlike the large national servicers, customers are more important to u s than h i g h vo lumes of transactions.

This is a very important distinction between community banks and the large national servicers. We know our

customers, they know us, and in fact transact m u c h of their business with the bank in perso n

. So they a l ways

know where to go if t h ere is a problem. We resolve issues quickl y

, and work hard to help our c u stomers

when they have prob l ems.

In developi n g the fi n a l rules for mortgage servicing

, I hope the CFPB will r ecognize this very i m p o r t ant

diffe r e n ce in o u r business model c o mp ared to the la r ge nation a l servicers. I urge the CFPB t o fully utilize its

authority t o exempt

, or modify these rules for commun i ty banks

, so that they do not impose

P .O. Box 70

· Somers e t, KY

42502

- 0070

· 606

- 679

- 9361Hon. Richard Cordray, Director

Consumer Financia l Protection Bureau

April 27

, 2012

P a ge 2

unnecessary

, excessive and expensive burdens on us which may lead to my bank and others like mine,

to exit the mort g age lending bu siness. This unfortunate outcome would harm consumers more by

fur ther restricting credit in sm a ll towns and rural communities along w ith driving f u r t h er conso l idat i on

of the mortgage business to the largest national mortgage lenders which caused the financial crisis and

committed the mortgage servicing abuses that you are now trying to address.

T h e following comments are offered f o r your cons i de r ation.

1. Periodic Statements. Do not require additional periodic statements/billing statements

beyond what a community bank currently provides. My bank currently provide s a coupon

book which g ives the borrower all of the critical information regarding their account and the

payment that is due. We provide the borrower with the phone number of our office if they

have a question or a problem in making their payments. As stat ed earlier many of borrowers

make their mortgage payments in person at the bank where they can always get up to date

infor m a t ion on their account. Having to produce and mail additional statements

, or add

ad d itio n a l l anguage regarding specific housing couns elors will require a s i gnificant and costly

upgrade from my core system provider. Those costs will be passed on to the consumer.



### 2. Adjustable Rate Mortgage Disclosures. Do not require an additional notice of adjustment

6 months prior to the initial ad justment. We curren t l y provide a notice of adjustment which

includes t he ind e x value

, margin, total new interest rat e

, total new payment and the effective

date of th e new payment a moun t

. The interest rate and new payment amount on that notice is

accurate. However

, i s s ui n g a sim i l ar statement 6 months prior to adjustment date would

requi r e us to issue an es t i m ated interest rate and payment

, which is likely to be different than

th e borrower's interest rate and payment amount at a d jus t ment. T h i s will only cr eate confusion

with the borrower and will not h e l p them plan for the ra t e change. Creating an addition a l

disclosure will also require a system upgrade from our vendor, which will be cos t l y

. The cu r r ent

t i m e line for adjustment notices is adequate to permit the borrower to plan and if necessary

seek a refina n ce to avoid the rate change.

3. Forced Placed Insurance. Permit community banks to purchase forced place insurance as

soon as they are notified of a lapse in coverage by the borrower's carrier for no n

- payment.

Unlike the la r ge national mortgage servicers

, community banks don't receive commis s i ons on
forced placed i n sur a n ce. If forced p l aced insurance is required, it's because the homeowner has

let the i n s ura n ce lap s e

, and now the bank's c o llat e ral fo r the loan i s at risk. This presents safety

and soundness risks for the bank. We always try to get the coverage placed with the ori g in al

carrier if possible

, but if not, we will u se ano t h e r provider. If the borrower subsequently gets

coverage,Hon

. Richar d Cordra y

, Director

Consumer Financia l Protection Bureau

April 27

, 2012

Page 3

we only ask for the agent's name and contact information. Once the borrower's coverage is

confirmed, we canc e l our policy and refund any premiums collected from the borrowe r

. We are

concerned that the CFPB's proposal requiring the bank to wait 45 days to purchase this coverage

puts the bank and the customer at risk of something happening to the collateral for the loa n

. Weather events can cause significant damage causing big l osses to the consumer and the bank.

W hile a $30,000 l oss is n ' t s i g n i f ican t to a large national ser v i cer

, it has a big impact on our bank.

Providing coverage quickly protects both the bank and the consumer.

4. Error Resolution and Responses to Inquirie s

. Permit community banks flexibility in

tracking and documenting responses. As discussed during the session, the majo r i t y of

errors (if any) or inquir i es from c u stomers a r e h an d l ed and resolved im m ediately, usu a l l y wh i l e

the borrower is on the phone or a t the bank branc h

. I cannot recall rec e i ving a QWR but if we

do we would respond immediately as well. We do not have an automated tr a cking system for

these r equests and request that community banks be exempted from impl e menting one. We

do not send out a w r it t en s tatement to borrower confirming that we have resolved their issue

or answered their inquiry. Such statements would be wasteful in t erms of time to pro d uce

the m

, and the postage to mail them. As stated prior we know our customers and our

rep utatio n is at risk if we do not handle th i s promptly. We wo u ld r equest t h a t community

banks be exempt from havi n g to provide the se statements.

5

. Reasonable Information Management Policies. Permit community banks flexibility in

complying with this polic y

. Commu n i t y banks generally do not have robust l oan servicing

systems that permit on line c o l l aboration, or h ave the ab ili t y to record and track all borrower

communications and interactions. Many times note s are hand writt e n by the bank staf f

, or there

may be copies of email exchanges placed in the f i l e

. We would request that commu n ity banks

be permitted to co ntin u e these pract i ces w h i ch are effective for our bank and not be required to

make expensive and unnece ss a ry sy s t e m upgrad e s.

6

. Early Intervent ion and Continuity of Contact. The CFPB should work with the FHFA to

align these policies with those required by the GSEs for servicing mortgages. For

mortgage loa n s s e r viced by community banks for the GSE s

, we have to com p l y with sim i l ar

standards on ea rly intervention and continuity of contact. There is no reason to have an

additional set of r u l es in this area and we urge the CFPB to work with the FHFA on aligning their

policies. Loans that we hold in portfolio are generally serviced the same way. We ha ve a small

staff that service mortgage l oans

, and they service a ll types of l oans for the bank. Our l enders

co n t ac t b orrowers usually by the 16 th of the month, and sometimes sooner. The borrowers

will work with the same person throughout the collection pro cess and loss mitigation

process. Many time s

, they

### 1 Ho n

. Richard Cordray

, Di r e c tor

Consumer Financia l Protection Bureau

April 27

, 2012

Page 4

come into the bank to meet with that person or the loan officer who made loa n

. We would ask

that the pro p ose d ru l e s reco g n i ze th i s differe n ce bet w e e n community banks a nd lar g e national

servicers by p e rmitting fl e x ibility for community ban k s on their implementation of this policy.

7. Prompt Crediting and Payoff Amounts. The CFPB should work with the FHFA to alig n

these policies with those required by the GSEs for the crediting of payments and for

providing payoffs. We always cre dit p ayme n t s immediatel y

, u su a lly while the borrower i s

st a nding at t h e tel l e r w i n d ow. We pr o v i d e p ay o f f s promptly when requested

, as pa rt of good

custom e r ser v i ce.



### 8. Impact on the cost of business credi t

. The CFPB should recognize that all change s , especially those that require system upgrades, increase the overall cost of all types of

credi t

. We a re a sm a ll organization a n d wh i l e pr icing for b u siness loans is dif f erent than

mortgage credit, inc r eas e d costs for one do get s pread across a ll lin e s o f credit. We u r ge the

CFPB to c a r e f ul l y consid e r this when writing rules t h at r e q u i r e technology u p grades o r co u ld

r e qu i re ad d itional staff to man age and monitor.

In c o ncl u sion

, I appreciate the opp o r t uni t y to participate in the SEBRFA process o n the proposed

m o r t gage s e rv i c i n g r u l e m a k i n g. I u r ge t h e CF P B to exe mpt or p e rmit flexibility for c o mmuni t y banks like

mine when writing rules t h a t would require ch a n ges to our curre n t processes, or require expensive

u p gr a d es to o ur s e rvicing syst e m s to acco m mo d ate new changes. As s t at e d e a rl i e r in th i s l e t t er

, we

d e l i ver high quality personal ser v i ce to all our c u s to m e r s

, and work to resolve problem l o a n s q u i c k l y

. Our c ustom e rs come into the bank to see us when an issue arises

, a nd we work with them on a p e r s on a l

b a s i s to r e s o l ve it

. High l y prescriptive a nd r e dun d a nt procedu r es and requi r em e n ts will not res u l t in a ny
improvement in our c u s to m er servi ce

, but will unn e c ess a rily increase o ur costs a nd the costs to o u r

borro w e r s

. For many community ban k s

, th e c umu l a ti v e e f f ect of a d dition a l r e g ulatory burden in t h e

mortgage arena may l ead them t o ex i t t h e business

, f urther c o n c e n t r a ti n g the in d u s t ry to t h e detriment

o f consumers. Our ser v i c i n g b u s i n ess model i s very different t h a n the l a r g e nat i on a l ser v i ce r s a nd I u r ge

the CFPB to r ecog n i ze these differences in its rulemaking.

If you h ave a ny qu e s tio n s, please f e e l free to c ont a c t m e

.

Sincerely,

CUMBE RLAND SECURITY BANK

Mark Ross

Executive Vice P r esid e nt

### 2 Ross, Rachel (CFPB)

From: Mark Wars h al <mwars h al@epix. n e t >

Sent: Friday, April 27, 2012 12:36 PM

To: Ross, Rachel (CFPB) Subject: Follow

- up from SBREFA Ou treach Session

- P l ease Make Part of Pub li c
Record



### April 27, 20 1 2

Ms. Rac h el Ross

CFPB
Research, M a rkets & R e gu l ations

Dear Ms. Ross:

Please acc e pt my tha n ks for being giv e n the o p portu n ity to participate in t h e S B REFA O utr eac h Session

whic h took pl a c e o n April 24, 2 012. T h i s be i ng my first c o ntact with t h e CFPB, I c a m e away from the

me e ting extr e mely impressed with the professionalism o f the bureau. T he use o f t e c h nology that

allowed m e to p a rticip a te remotely was te r rific. T h e distrib u tion o f writt e n materials well pr io r to t h e

me e ting date, inc l uding a detailed ag e nda, wa s most app r eciat e d. T h e straightforward and logical

man n er in w hich t h e me e ting was co n ducted was refreshing. I hav e to say, t h e level o f both organization

and e xecuti o n was supe rb

. I a m certain that the CFPB is a shi n ning example o f ho w a gover n ment organization can an d should be run.

The purpose o f this l e tter t o the CFPB is to address an issue which was brought up several t i mes by David

Ste i n, Es q
., the CFPB representative who mod erated the outreach session. Whi l e discussing s everal o f the
discretionary areas where the CFPB has the a uthority to make ex e mptions for s mall loan se r vicers who

ma ke and service their own fixed term, fixed r a te lo a ns, Mr. St e in expressed his con c ern that any

e xe m pt io ns from regulation would cre a te two classes of consumers

‐ ‐ consumers w ith different r ights

based u p o n t h e siz e o f their loan servicer.

It is my belief that whe n C o ngress enacted the Dod d ‐Frank A ct, i t was not intending to c r ea t e new
add i tional rights for consumers as m u ch as it wa s intending t o regulate di f fer ent classes o f loan servicers.

The dif f erence is in the focus. Congress was focused o n r egulat i ng bad actors in t h e loan servicing
business, while providing exemptions t o the smalle s t loan servicers who were d o ing thi n gs t h e right way already.

The f a ct is

, all loan service r s are not the same. As a consumer my s elf, I can attes t that the la r gest loan

se r vicers are extr e mely di f ficult to deal with. O ne m u s t traverse e ndless te l ep h one m e nu systems just

to get to a cust o mer service representative who will inevi tably i ndicate that you have reached the

wrong d epartm e nt an d m u s t call a different toll‐ free n u mbe r

. I would co nc ede that t h e lar gest loan

s ervicers m i g h t n e ed additional regulat io ns s o that t h ey b e tter respond to t h e ne e ds o f their cu s t o mer s.

But for a sm a ll, family owe d co m pany l i ke Fairway C o nsumer Discount Co., an d the h u ndr ed s o f other
companies l i ke us, the a bility o f the consu me r to speak with his loan servicer is absolutely never a n issue.

As o wner operat o rs, we have every incent i ve to comm u nicat e continually with our borrowers. We are n o t dealing with an O P M situation, OPM meaning "o th er peopl e 's mo ne y ". We are lending our own money,

### 3 retaining o w nership, and servicing the loans. When a loan goes ba d, it is our own money tha t is be i ng
lost. Conseq u e ntly, we have every incent i ve to speak w ith our customers w henever they are having a problem. Customers kn o wing the statuses o f their accou n ts is a bsolutely ne v er an issue.

I am hopeful that you now un d erstand that the cust o mer e xpe r i en ce with a small l oan servicer is, and

alw a ys has been, much dif f er e nt an d much better than that which a customer e x p e r iences at a large

service r

.

Unfort u nate l y, the costs o f additional r egulations will disproport io nately inju r e t h e smalle s t loan

servic e rs like mine, while most l i kely not even marginally i mproving our cust o mers' e xpe r ie n ce s

. We are
small businesses. We do not h a ve IT staff. We don't have compliance officers. Every new regulation is a major problem for us to procedur a lly imp l em e nt, even though we have be e n c omplying with the spiri t o f

the r e gu l ation already. A b ov e all, ev ery new r e g ulati o n has costs, and th e add i tional costs imposed by

the new r egulations b e ing proposed by t h e CFPB a re signif i cant. S m al l loan servicers like Fairway

Consumer Discount Co

. are t h e ones that ar e least able t o handle t h ese increased costs.

M y g r eat fear is th a t the CFPB's new regulations will push the s mallest loan se r vicers like m i ne out o f
business, ther eb y eliminat i ng the servicers who were giving the absolute best cus t omer ser vice.

Ult i mately, only large se r vicers will ex i t and cons u m e rs will no longer have the choice o f go i ng to t h eir

l o cal finance c o mpany to g e t the money they n e ed. T h is is not in the bes t interest o f consu m ers.

The issue is no t different classes o f consumer r i ghts. The issue is different classes o f loan servicers.

There already e xist several laws relating to the lend i ng bus i ness, including R E SP A i tsel f

, which are
d epen d ent u p on the size o f the lender. This is fu r ther evidence o f the lon g held belief o f Congr ess that

t h e size o f t h e entity be i ng regulat e d do e s matte r

.

Congress, in the Dodd‐Fra n k Act, spelled out several a reas where i t intended th a t the smallest loan

servicers be exempt e d fr o m regulation. T h es e areas were well id e ntified dur i ng the outreach session. I

u r ge you to c a utiously use the CFPB's d i scretionary powers to imp l emen t regul a tions th a t will un d uly

harm the smallest loan servicers, particularly small companies th a t ma k e, retain and service fixed term,

fixed rate loans us i ng their own mo ne y

. W e ar e not the businesses t h at cre a ted t h e mortg a ge mess. It

seems particularly unjust to p u nish us with r egulations t h at are costly and b u r d e n so me to com p ly with,

esp e cially given t h e clear intent o f Congress t o spare us thi s terrible bu r den.

I urge you to provide to t h e smallest loan servicers, a t every o p portun i ty that y o u are sta tuto r ily able, an exemption from costly a nd b u r d e n so me r e gulati o ns that do not give our cu s tomers even a marginally

better customer e xpe r i en ce.

Thank you again for having allowed me t o partic i pate in the outreach panel. If I can b e o f any additional

s e rvi ce to you, please do not hesitate to l e t m e k n ow.

Mark Warsh a l

NMLS ID 10 6 231
Fairway Fin a nce

8 Marion St.

PO Box 12

Luzerne, PA 18709

570

- 288

- 4535
www.FairwayLoans.com

### 4 22 0 E a s t B r o a d w a y
, P O B o x 8 00

Mon m o u t h

, I L 61462

309

- 734

- 93 33

M a y 1, 20 1 2

**By e**  **l ec**  **t r** 

**on ic**  **d eli**  **v e**  **r**

**y t**  **o :**  **Da n** 

**. S**  **o k**  **o l**  **o v@c**  **fpb**

**. go**  **v**

M r

. Dan S o k o l o v Depu t y A ss o c i a t e D i r e c t or Re s ea rc h, M a r k ets & Reg u l at i o ns D i vi s i on Con s u m er F i nan ci al P r ote c t i on B u r eau 1700 G S t r e et, N

. W

., W a s h i ngton, D.C. 20 0 06

Re: Co m m ents of S m a l l E n t i t y Rep r e s e n ta t i v e R a n d y M c E l w ee to t he s m a l l b u s i ne s s r e v i e w p an e l f or the r u l e m a k i ng on m o r tga g e s e r vi c i ng d i scl o s u r es

M r

. S o k o l o v :

I app r e c i ate h a v i ng the op p o r tun i t y to s e r v e as a s m a l l ent i t y r e p r e s en t at i v e ( S E R) to t h e S m a l l B u si ne s s Reg u l a t o r y E n f o rc e m ent F a i r ne s s A c t R e v i e w P a n e l ( S B R E F A P a n el or P an e l ) a s s e m b l ed t o p r o v i de

i n p ut o n t h e c o s ts and b en e f i ts of p r opo s a l s t o i m p l e m ent ne w m o r t gage s e r vi ci ng d i sc l o s u r es r e qu i r ed b y

s e c t i ons 1 418, 1 4 20, 14 6 3 ( a )

, and 1 4 64 ( a) of t h e D od d

- Fr ank W a l l S t r eet R e f o r m and Con s u m er P r ote c t i on A c t ( D o dd

- Fr ank A c t )

. I w a nt t o a c k now l e d g e the out s t an d i ng w o r k of the s ta f f that o r g a n i z e d

the A p ri l 2 4, 2 012 m eet i ng of SE R s

. T he h e a r i n g w as we l l m anaged and m ade v e r y e ff i c i ent u s e of the

t i m e a v a i l a b l e. A s r e que s te d at t he cl o s e of the m eet i n g, I o ff er the f o l l o w i ng w r i tt e n c o m m ents about t h e

p r opo s a l s u n der c on si de r a t i on.

I am a Vi c e P r e s i d ent of S e c u r i t y S a v i ngs B ank l o c at e d i n M o n m outh, I l l i no i s w i t h r e s pon si b i li t y f or

o v e rs e e i n g o ur Con s u m e r

, Mo r tg a ge, and C o m m e rc i al Le n d i n g a nd l o a n s e rv i c i n g de p a r t m ent. S e c u r i t y S a vi n gs B ank i s a 1 3 0 y e ar o l d m utual s a vi n gs b a nk w i th a p p r o x i m ate l y $ 1 73M i n a ss et s

. O ur bank has

two b r a n c h o ff i c es and e m p l o y s f o r t y fu ll

- t i m e s taf f e rs

, i n c l u d i ng s i x l o an o ff i c e r s a nd th r e e l o a n

p r o c e ss o rs

. S e c u r i t y S a v i n gs B ank ho l ds e i gh t y pe rc e nt of the m o r tgages we o r i g i na t e i n p o r t f o li o

, a n d

we r et a i n s e r vi ci ng on a l l l o ans s o l d i n the s e c on d a r y m a r k et; w e c u rr en t l y s e r vi c e $ 3 0M i n r e si de n t i al

m o r tgage l o a n s

.

I p r e f a c e m y c o m m ents b y u r g i n g t h e P an e l t o r e c o g n i z e t hat an un i nt e nd e d c on s equ e n c e of the c u rr ent

m o r tgage r e f o r m ef f o r t m a y be t o s e r i o u s l y l i m i t the a b i li t y of s m a l l ban k s to s e r v e the i r c o m m un i t i e s

. Ind e ed, i n t he r u r a l M i d we s te r n I l l i n o i s m a r k et w e s e rv e, t h e r e a r e no b r an c h o ff ic es of l a r ge ban k s w i th

f u l l t i m e m o r tgage o r i g i n at o r s or s e r vi c e r s on s ta ff

. T he r e a r e o n l y a r e f iv e s m a l l c omm un i t y b an k s

, our si z e and s m a ll e r

, he a d q ua r te r ed i n t he t wo c o u n t y m a r k et, and i t i s m y u nde rs t a n d i ng that at l ea s t t w o of

our c o m pet i to r s a r e c u rr en t l y e v a l u a t i n g w h et h er th e y c an c on t i n ue t o u n de r w ri te a nd s e rv i c e m o r tgage
l o a ns i n l i ght of the a nt i c i p a ted c o m p li a n c e c o s ts r e s u l t i ng f r om Dodd

- Fr ank A c t i m p l e m enta t i on.

M y e x pe ri en c e w i th the o n l y t wo m o r tgage l oans t hat ha v e b e c o m e de l i nq u ent i n the l a s t s e v e r a l y e a r s i s

a g o od e x a m p l e of the h i g h l y r e s p on si v e c o m m un i t y b ank s e r vi c i ng m ode l

. A f ew m onths a f ter c l o s i ng o n

a m o r tgage l oan, o n e of o u r c u s to m e r s had a s t r o k e t h at l e f t h i m d i s ab l ed a nd un a b l e to r e t u r n to w o r k i n h i s j ob w i th the U. S

. P o s tal Se rv i c e. H e b e c a m e pa s t d ue o n h i s m o r tgage w i t h i n a f ew m onth s

. A not h er

s e r vi c er m i ght h a v e i n i t i a te d f o r e c l o s u r e p r o c e e d i ngs as the de l i n qu e n c y d r ag ge d on, but w e wo r k ed w i th

our c u s to m e r

, w a i t i ng f ou r t een m onths u n t i l h i s po s t a l s e r vi c e d i s a b i l i t y b ene f i ts s t a r ted a nd he was a b l e
to r e s u m e m a k i ng h i s m onth l y p a y m ent. S i n c e t he n

, t h e c u s to m er has ne v er m i s s ed a m o r tgage p a y m e n t.
Si m il a r l y

, when a c oup l e, b e c a m e 180 d a y s d e l i nq u ent on t h e i r m o r tgage l o a n, we a s k ed them

to c o m e i nto t he b ank to d i s c u s s the d e l i nq u en c y

. Du ri ng a r e v i e w of the c o u p l e ’ s f i nan c e s

, w e d i sc o v e r ed

that one of the i n d i v i d u a l s h ad d e v e l o ped a g a m b li ng p r ob l e m

. W e of f e r ed pe rs o n al c o u n s e l i ng a n d

### 5 wo r k ed w i th t hem to b r i n g t he l oan c u rr ent when ot h er ban k s m a y ha v e f ou n d i t m o r e e x p e d i ent t o f o r e c l o s e. T he c oup l e h as not m i ss ed a p a y m ent f or o v er th r ee y ea rs

.

I ho p e t h at t he s e e x a m p l es and tho s e p r o vi d ed b y ot h er S E Rs du ri ng t he A p ri l 2 4 th m eet i n g d e m on s t r ate
that t he s t a nda r ds f or s e rvic i ng b e i ng c on s i de r e d b y th e Con s u m er F i n a n c i a l P r ot e c t i on B u r eau ( B u r e au)

a r e b e i n g m et v o l unta r i l y to d a y b y c o m m un i t y b a n k s

. I m po s i ng a h i g h l y p r e scr i p t i v e s e r vi ci ng r e g i m en on

s m a l l i n s t i tu t i o ns w i l l not a d v an c e c on s u m er p r ote c t i on ; r athe r

, i t m a y f o rc e m o r e and m o r e s m a l l b an k s to

e x i t t h e m o r tgage l e n d i ng a nd s e rv i c i n g b u s i ne s s to t h e det r i m ent of c on s u m er p r ote c t i on, c h o i c e, and

a cc e s s to cr ed i t.



### R es pon se s t o S p e c i f i c Qu es t io n s:

A

. P E RI O D I C S T A T E M E N T S

1. Do y o u c u r r e nt l y p r o v i d e bo rr o w e r s w i t h a p e r i o d ic s t a t e m e nt ? If s o , ho w d o y o u d i s t r i but e it ( mail, e m ail, w e b si t e, po r t al, oth e r ) ?

W e p r o vi d e 70% of our b o rr o w e r s w i t h a l o an p a ss bo o k ; the other 3 0% h a v e e l e c t ed to u s e o n l i ne ban k i ng. T he l o a n pa ss b oo k i s a t r i

- f o l d p a y m ent c a r d wh i c h c o nt a i ns ba s i c l o an pa y m ent de t a i l s

, c on t a c t
i n f o r m at i on, a n d i t a l s o s e rv es as a r e c o r d of p r e v i ous t r an s a c t i o n a c t iv i t y

, r e c o r d i n g h o w ea c h p a y m ent

was a l l o c a t ed t o p ri n c i p al a nd i nte r e s t, e scr o w s

, l a t e c ha r ge s

, a nd f ee s

. A pa y m e nt a n d p a ss book c an be

p r e s ent e d at the t e ll er l i ne or d ri v e

- th r o ugh f or i m m ed i ate p o s t i n g, or a c u s to m er c an m a i l the p a y m ent
and pa ss book to t h e b a n k

. E a c h t r a n s a c t i o n i s i m p r i nted i n t h e l oan pa ss b o ok w h en t h e pa y m e n t a n d

pa ss book a r e p r e s en t ed f or p a y m ent; a pp r o x i m ate l y 5 5 t r an s a c t i ons c an be i m p r i nted i n ea c h boo k

. B e c au s e ea c h pa ss book c onta i ns a r e c o r d of p r e v i ous l o a n p a y m ent s

, our c u s to m e r s p r e f er pa ss boo k s to

paper or e l e c t r o n i c s tate m ents or p a y m ent c o up o n s

. In f a c t, du r i ng our 20 0 9 c ha n ge of c o r e p r o c e ss o rs

, c u s to m er d e m and r eq u i r ed us to w o r k w i th t he n e w c o r e p r o c e ss or to a cc o mm odate t h e c on t i n u ed u s e of

l o a n pa ss b o o k s

. ( A s a m p l e p a y m ent p a ss book i s atta c hed.)

2. T ake a l oo k at th e i nfo r m a t i o n th at m a y b e r e qu ir ed o n th e p r opo sed p e r i o d ic s t a t e m e n t
d iscl o s u r e. If y o u p r o v i d e a p e r i od ic s t a t e m e n t d i scl o s u r e, w h at i n fo r m a t i o n o n th is list d o y o u

no t c u rr e nt l y p r o v i de ? W h y not?

I am c on c e r ned th a t t h e p r o po s ed li s t of i n f o r m at i on t o be i n c l u ded on pe ri od i c s t at e m ents w i l l p r e v ent our

c ont i n ued u s e of pa ss b oo k s

. Rather t han f o rc i ng a l l b a n k s to u s e a m odel p a per o r e l e c t r o n i c s tate m ent
that i n cl udes n on

- pa y m e n t s pe c i f i c i n f o r m at i on ( i .e

. , i n f o r m at i on ab o ut t he s e r vi c e r ’ s p o li ci es f or

ap p li c a t i on of ad d i t i o n al p a y m e nt s

, p a r t i a l pa y m e nt s

, a nd a m o r t i z a t i o n f or p a y m e n t op t i on l o an s)

, I b e l i e v e that ban k s li k e m i ne t h at u s e pa ss b o o k s or c oupons s h ou l d be pe r m i tted t o po s t t h i s i n f o r m at i on on the

bank w e b s i te f or c u s to m e r s to a cc e s s as n e ed e d.

Si m il a r l y

, I b e l i e v e t h at i n f o r m at i on ab o ut l o s s m i t i gat i o n a n d c on s u m er c oun s e l i ng s hou l d n ot b e r e q u i r e d

to be p r i n ted on pe ri o d i c s tate m ent s

, c oup o n s

, or pa s s boo k s

. T h i s i n f o r m at i on c an be m ade a v a i l a b l e o n the web s i t e a n d a web a d d r e s s li nk to t h at i n f o r m at i on c an be i n cl ud e d i n t he d e l i n quen c y s ta t e m ents

m a il ed to d e li n qu e nt c u s t o m e r s

. Al te r n at i v e l y

, i f the B u r eau b e li e v es t hat i t i s i m po r tant t o p r o v i de th i s i n f o r m at i on d i r e c t l y to c u s t o m e r s

, I s ugge s t t h at we do s o w i th an an n u a l d i sc l o s u r e i ss ue d

, on p a per or

e l e c t r o n i c a l l y

, s i m u l ta n eous w i th the a n nu a l e scr o w an a l y s i s

.

F i n a l l y

, i f pe r i o d i c s ta t e m ents a r e r eq u i r e d

, I u r g e y ou t o pe r m i t c u s to m e r s to op t

- out of r e c e i vi n g t h em as

we pe r m i t our c u s to m e r s to f o r go a pa ss b ook and i n s t ead u s e our e l e c t r on i c and on l i ne b a n k i ng s e rv i c e s

. Mo r e a nd m o r e of our c u s to m e r s a r e c hoo s i ng t o “ go g r een” a nd t o u s e e l e c t r on i c ban k i ng s e rv i c e s

. T he s e c u s t o m e r s r e c ogn i z e th a t t he y c a n f i nd a l l t h e i n f o r m at i on t he y n e ed o n e i t her our web s i t e or our

on l i ne b a n k i ng s i t e

. T h e y w i l l n o t w a nt m onth l y s ta t e m ent s

.

### 6 3. W h at ac t i o n s w ou ld y o u n eed t o t ake t o d e v el o p , p r odu ce a n d se n d a p e r i od ic s t a t e m e n t
d iscl o s u r e w i t h all o f th e p r opo sed i nfo r m a t i on ? W h at w o u ld th ese ac t i on s c o s t ? W h ich c o s t s

w ou ld b e on e

- t ime c o s t s a n d w h ich w ou ld b e ongo i n g c o s t s?

W e e s t i m ate that p r o d u c i ng the s ta t e m ents m onth l y

, s t u ff i ng them i n e n v e l o p e s

, a nd m a il i ng t hem w o u l d

c o s t an e s t i m ated $1

. 00 pe r l oan per m ont h 1 W h il e t h i s m ay not s eem g r eat on the s u r f a c e, w h e n y ou

m u l t i p l y i t b y e v e r y l o an a n d c on s i d er t h at p r o po s a l s a r e pe n d i ng t o l i k e l y r e du c e s e r vi c i n g i n c o m e on

s e c onda r y m a r k et l oan s

, i t i s c l ear th a t our m a r g i ns w i l l c ont i nue to s h ri nk

– and t h i s does n o t a cc ou n t f or i n cr ea s ed v en d or c o s t s

.

Ind e ed, t he s e c o s ts a r e m i n i m al c o m pa r ed to w h at ou r i n cr ea s ed v e ndor c o s ts c o u l d be f or e s t a b l i s h i n g a

s tate m ent s y s t em that does not e x i s t t o d a y

. H o w e v e r

, i t i s d i ff i c u l t to d ete r m i ne v e ndor c o s t s

. O ur v e n do r s

a r e a l m o s t as o v e r w h e l m ed w i th the pa c e of r egu l ato r y c han g e as w e a r e; th e y a r e u n w i l l i ng at t h i s t i m e
to c on si der p r e

- p r o po s a l a l t e r nat i v es un d er c on si de r a t i on, a nd g i v en our s m a l l siz e, w e a r e po w e rl e s s to get t hem to do s o. W e c an on l y a nt i c i pa t e e i t h er a o n e

- t i m e a ss e s s m ent i n the t h o u s ands of d o l l a rs

, a

s i gn i f i c a n t i n cr ea s e i n o ur c ont r a c t r a t es at r e ne w a l s

, o r s o m e c o m b i na t i on of both

– t h e m o s t li k e l y

sc ena r i o.

I a l s o want to note th a t a l t h ough m odel s tate m ent f o r m ats p r o v i d ed b y t he C F P B m ay be h e l p f ul, t h e y a r e
not e x p e c ted to m i t i g a te c o s t i n cr ea s e s

. It i s t h e p r o g r a m m i ng to p l a c e da t a i n s p e c i f i c f i e l ds w i th i n an y f o r m that cr eates the e x p en s e, not de si gn i ng t he f o r m i t s e l f

. In a dd i t i o n, t he f o r m i t s e l f c an i n cr ea s e ou r

c o s ts due to c ha n ges i n f o r m a t t i ng. F or e x a m p l e, e x i s t i ng e n v e l o pe s to c k w e u s e c u rr ent l y to s e nd

not i c es m a y h a v e to be d i s c a r ded a nd n e w e n v e l o p e s to c k m ay h a v e to b e p u rc ha s ed i f t h e l o c at i on of the

a dd r e s s b l o c k on the s t ate m ent does not f i t w i t h i n t he e x i s t i ng a d d r e s s w i n d o w. Si m il a r l y

, p l ea s e note that

i f we c o u l d n o l on g er u s e p a y m ent p a ss boo k s

, w e wo u l d b e f o rc ed to d i s p o s e of our s to c k of pa ss boo k s

as w e l l as m a n y r e c ent l y p u rc ha s ed pa ss b o ok p r i nte r s that ea c h c o s t $ 500

- $ 600, or m o r e, and r e q u i r e d c on s i de r a b l e I T t i m e to p r og r am and s et up.

F i n a l l y

, we e s t i m ate that we w o u l d ne e d to s pe n d a n i n i t i al t w o to t h r ee hou r s t r a i n i n g t i m e f or ea c h l o an depa r t m ent e m p l o y e e t o en s u r e th e y c an an s w er ba s i c que s t i ons a bo u t t h e r e g u l a to r y c h a nge s

. O ng o i n g
t r a i n i ng wo u l d li k e l y be a r o und t wo h ou r s per y e ar f or ea c h s ta f f m e m be r

. Fr ont li n e s ta f f w o u l d r e c e i v e

m a n y a d d i t i on a l a nd m o r e det a i l ed q ue s t i ons t hat t h e y a r e n o t t r a i n e d to an s w er c u rr ent l y

. W e e s t i m ate

s pen d i ng f our hou r s a nn u a ll y w i t h ea c h f r ont l i ne e m p l o y e e to en s u r e t h e y c an an s w er que s t i o ns

a cc u r ate l y

. A d d i n g t i m e e x pen d ed b y Co m p li an c e a n d T r a i n i ng s t a ff

, w e e s t i m ate our to t al t r a i n i n g b u d g et

wou l d i n cr ea s e b y $5 0 00 t o $6 0 00 p er y e a r

.

4. W h at fo r mat d o y o u s to r e th e i nfo r m a t i o n th at wou ld b e p r o v i d ed in a p e r i od ic s t a t eme nt?

W h at fo r m at d o y o u s to r e r ec o r d s o f y ou r p e r i od i c s t a t eme nt s, if y o u a l r ea d y p r o v i d e th e m ? W h at

ac t i on s w ou ld y o u n e ed t o t ake t o s to r e th e i nfo r m a t i o n in a m a c h i n e

- r ea d a b le fo r m (no t a P D F

, bu t r a th er an el e c t r on ic f o r m in w h ic h th e i nfo r m a t i o n c ont ai n e d in th e d i sc l o s u r es c ou ld b e

a n a l y z ed a utom a t ical l y ) ? W h at w ou ld t h ese ac t i o n s c o s t?

O ur c o r e p r o c e ss or s to r es t he d ata and p r o d u c es the d ata i n a te x t f i l e f o r m at. I a m una w a r e of a n y
p r og r am or te c hno l o g y t hat wou l d a l l o w t h e s to r a ge of s tate m ent te x t f il es i n a m a c h i ne

- r e a da b l e f o r m at.

H o w e v e r

, ba s ed on r e s e a rc h i n to t he c o s t of do c u m ent i m ag i ng ( as a pd f )

, the c o s t i s l i k e l y t o be

p r oh i b i t i v e f or s m a l l i n s t i t ut i on s

. In ad d i t i on, the c o s t, wh i c h w i l l u l t i m ate l y b e b o r ne b y t h e c o n s u m e r

, wou l d n ot i m p r o v e c u s t o m e r s e r vi c e. W hene v er one of our l o an c u s t o m e r s c onta c ts us w i th a q ue s t i on, I

or a m e m ber of m y s t a f f c a n p u l l the l o an f i l e t h at i s s t o r ed l e s s th a n t h i r t y s t eps do w n t he h a l l

.

1 I f t h e B urea u de t e r mi ne s t ha t e l e c t ron i c de l i ver y is ac c ep t ab l e

, i t m u s t under st an d t ha t a ver y s m a ll per c en t ag e o f ou r c us t o m e r ba s e (30 % ) ha s ac c ep t e d t h e e l e c t ron ic s t a t e m e n t de li ver y f o r c h e c k i n g ac c ount s

. W e be li ev e t h a t t h is is c o n s i st e n t w i t h o t her

ban k s t ha t opera t e in rura l area s a c ros s t h e c oun t ry

.

### 7 5. If y o u p r o v i d e a p e r i o d ic s t a t e m e n t d iscl o s u r e, w h at w ou ld y ou r no r m a l sc h e du le b e fo r th e

n ext upd a t e o f th e p r o c e s ses a n d s ys t ems th r oug h w h ich y o u g e n e r a t e th e d iscl o s u r e?

G iv e n t h e p a c e of r eg u l a t o r y c h a nge i n the l a s t s e v e r a l y e a r s

, “ upd a te s ” a r e n e i t h e r r egu l ar nor t i m e l y

. F or e x a m p l e, w e c o n v e r ted to o ur c o r e p r o c e ss or i n J u ne of 2 0 09. A sc h e du l ed u pda t e w as p l a nn e d f or the f a l l of 20 1 0. It w as d e l a y e d d u e to v a r i ous i ss ues

– p r i m a r i l y t o r o l l o ut a nu m ber of r egu l ato r y

c hanges i n a c oo r d i n a ted m anner

– s o the up d ate w a s r e

- sc hedu l e d f or A u g u s t 2 011. T h i s u pd a te was

scr apped at t h e l a s t m i nute due to m o r e r egu l ato r y c h a nge s

. I n F eb r u a r y 20 1 2, we f i na ll y r e c e i v ed our upd a te. B a s e d on t h i s e x p e r i en c e, I b e l i e v e t h at i t c o u l d ta k e up t o 18

- 2 4 m onths f or our c o r e p r o v i der to upd a te o ur s y s tem gene r a t e the n e w d i scl o s u r e.

G iv e n t h e i nhe r ent de l a y s

, we u r ge the B u r eau to r e c o n s i der t he i n cl u s i on of i n f o r m at i on ab o ut t he n a m e and add r e s s of c on s u m er c r ed i t c o un s e li n g s e rv i c e s

. I n our r u r a l m a r k et, we h a v e s een c on s o l i da t i o ns and cl o s u r es w i th t he s e ag en c i e s

, not t o m ent i on a d d r e s s and p ho n e n u m ber c hange s

. P r o v i d i ng t h i s i n f o r m at i on on pe ri od i c s t at e m ents w o u l d not o n l y r eq u i r e c o m p li an c e o ff i c er t i m e and e ff o r t to en s u r e

ea c h m onth l y s ta t e m ent c onta i ns the c o rr e c t c on s u m er i n f o r m at i on, r eg u l ar s y s te m updates wo u l d be

r equ i r e d to k eep a g en c y i n f o r m at i on a cc u r ate. T he B u r eau s h ou l d a l s o n ote t hat t he e ff e c t iv e ne s s of

c on s u m er c oun s e li n g a g e n c i es i n our m a r k et i s d i m i n is hed d ue t o t h e f a c t t hat t h e n e a r e s t a p p r o v ed

agen c y i s o v er 60 m il es a w a y

.

6. Do y o u p r o v i d e bo rr ow e r s w i t h c oupo n boo ks f o r m aki n g p a y m e nt s? T o w h at f r ac t i o n o f

bo rr o w e r s d o y o u p r o v i d e c oupo n boo ks?

A s m ent i on e d p r e v i ou s l y

, we u s e p a ss boo k s f or about 70% of our m o r tgage c u s to m e r s

. A pp r o x i m ate l y 30% of the c u s to m e r s s et up an au t o m at i c p a y m ent t r a n s f er and u s e on l i n e b a n k i ng f or t r a c k i ng the

p a y m e n t d e t a il s

. W e be li e v e th a t p a y m ent pa ss b o o k s a r e m o r e bene f i c i a l to the c on s u m er than c ou p on boo k s be c au s e t he y s ho w t he a c t u al i m p r i nted p a y m ent a n d l oan b a l an c e i n f o r m at i o n as t he t r a n s a c t i o n i s p r o c e ss ed. W e be li e v e we c an p r o v i de m o r e s pe c i f i c l o a n i n f o r m at i on on a p a y m ent pa ss book f or a l l

l o a n t y pe s

, ad j u s ta b l e and f i x ed r a t e l oan s

, t h a n w e c o u l d on a c ou p on boo k

, and we u r ge the B u r eau to

i n c l u de both pa ss b o o k s ( f or both f i x ed r ate a n d A R M l o an s ) i n a n y e x e m pt i on f r om the r e qu i r e m ent to

p r o v i de pe ri o d i c s tate m ent s

.

I u r ge t he B u r e au t o c on si d er the f o l l o w i n g a l te r n at i v es f or p r o v i d i n g t h e r e q u i r e d i n f o r m at i on:

1. P a y m ent P a ss boo k s c ou l d i n c l u de ( * E x i s t i ng da t a i n o ur pa ss boo k s ):

o Loan a cc ount nu m be r *

o Loan m atu r i t y d ate,

o Mon t h l y pa y m e n t a m ount a nd d ate due ea c h m onth*

o Cu rr ent p r i n ci pal b a l an c e*

o Cu rr ent i nte r e s t r ate

o Date of the n e x t i n te r e s t r a t e ad j u s t m ent

o T he a m ount of a n y p r ep a y m ent, i f a n y

, or s t ate m ent t hat t he r e i s no p r ep a y m ent pen a l t y

o A de scr i p t i o n of h o w l a te pa y m ents w i l l b e a ss e s s ed, i n c l u d i ng l a te f ee a m ounts

o Conta c t i n f o r m at i on f or the l e n de r / s e rv i c e r

, i n c l u d i n g a dd r e ss es and w eb s i te l i n k s f o r ad d i t i on a l i n f o r m at i o n *

o Re c ent p a y m ent a c t i v i t y w h i c h i n c l u d es a m onth l y b r e a k do w n of h o w ea c h p a y m e nt w as

ap p li e d to p ri n c i p a l

, i n t e r e s t

, e scr o w s

, and l a t e c ha r g e s .*

### 8 2. B ank web s i t e In f o r m at i on

, a v a i l a b l e 2 4 h ou r s a da y

, c ou l d i n c l u d e:

• Conta c t i n f o r m at i on f or the bo rr o w er t o o b ta i n i n f o r m at i on a bout the m o r tgage

• Conta c t i n f o r m at i on f or ho u s i ng c o u n s e l i n g a g en ci es o r p r og r a m s

• T he s e r vi c e r ’ s p o l i c y w i th r ega r d t o a d d i t i on a l p a y m e n t ap p li c a t i on

• T he s e r vi c e r ’ s p o l i c y w i th r ega r d t o p a r t i a l pa y m e nts

• De l i n q uent bo rr o wer i n f o r m at i o n, f o r e c l o s u r e i n f o r m at i on, a nd l o s s m i t i ga t i on a l t e r nat i v es that m a y be a v a i l a b l e.

3. De l i n q uen c y n ot i c es c o u l d i n c l u d e :

• In s t r u c t i ons d i r e c t i ng the b o rr o w er t o t h e i n f o r m at i on l o c ated o n t h e w e b s i te as m ent i o ned

ab o v e.

In f o r m at i on a bo u t y e a r

- to

- d ate pa y m e n ts of p r i n ci p a l

, i nte r e s t, e scr o w

, f ee s

, and pa r t i a l p a y m ents w o u l d

not b e a b l e to be p r i n t ed o n a pa ss b o o k

. Howe v e r

, t h i s i n f o r m at i on c an b e c a l c u l at ed e a s i l y f r om the

p a y m e n t h i s to r y da t a i m p r i nted on t he pa s s boo k

. In a dd i t i o n, t h i s i n f o r m at i on c ou l d a l s o b e vi e wed

th r ou g h m o s t on l i ne b an k i n g a p p l i c at i on s

, a nd we c o u l d en c o u r age bo rr o we r s to e n r o l l i n t h e o n l i ne ban k i ng t o v i e w t h i s i n f o r m at i o n. Fi n a l l y

, s m a l l c o m m u n i t y b an k s do m o s t o f the i r s e r vi c i n g f a c e

- to

- f a c e

w i th our c u s to m e r s du r i ng wh i c h we c an p r o vi d e t h em i n

- pe rs o n a l l of th i s i n f o r m at i o n o n a m o m ent ’ s
not i c e

.

B. A D J U S T A B L E R A T E M O R TG A G E S T A T E M E NT

1. If y o u c u r r e nt l y p r o v i d e A RM i nt e r est r a t e a d j u s t m e n t d iscl o s u r e s , ho w mu ch in a d v a n ce o f th e f i r s t a d j u s tm e n t d o y o u s e n d th e d iscl o s u r e? Is t h e t i m e f r a me d i ff e r e n t fo r a d j u s tm e nt s th at a r e

s ub se qu e n t t o th e f i r s t?

T y p i c a l l y

, the n e w r ate i s c a l c u l at e d 45 d a y s p ri or to t he r ate c ha n ge dat e

. C h a n ge p r o c e ssi ng t a k es

app r o x i m ate l y 3 d a y s

, a nd t hen t he n o t i c e i s m a il e d. W e p r o vi d e t h e n ot i c e a m i n i m u m of 25 d a y s

, and

t y p i c a ll y 42 d a y s

, p ri or to th e n e w i n te r e s t r a t e be c o m i ng e ff e c t iv e and 55

- 7 2 da y s p r i or to the due da t e of

n e w pa y m e nt. W e f o ll o w th i s p r o c edu r e f or a l l ad j u s ta b l e r a t e l oans and f or a l l i n te r e s t r ate a d j u s t m ent s

. O ur bank a v e r a ges 2 2 da y s f r o m app li c at i on t o l o a n cl o s i ng on our m o r tgage l o an s

– thu s

, we a l l ow

p l e n t y of t i m e f or bo rr o w e r s to r e f i n a n c e, i f ne c e ss a r y

, p r i or to r e s et.

I u r ge t he B u r e au t o c on si d er the un i nt e nd e d c on s e q u en c es l i k e l y to f l o w f r om the p r o p o s ed r e qu i r e m ent

to s end a n ot i c e th a t p r o v i d es a “ go o d f a i t h e s t i m ate, b a s ed o n a cc ep t ed i n d u s t r y s tanda r d s

, of the

cr ed i tor or s e r vi c er of the a m ount of the m onth l y p a y m ent t hat w i l l a p p l y a f ter the date of the a d j u s t m ent

or r e s et” ( the N ot i c e) s i x to s e v en m onths p r i or to the i n i t i al i n te r e s t r a t e r e s et or a d j u s t m ent of a h y b ri d

ad j u s ta b l e r a t e m o r tgage

. 2 F i rs t, I b e l i e v e t h at p r o v i d i ng the N ot i c e s i x to s e v en m o nths p ri or to t he r e s et

m ay c on f u s e c u s to m e r s about when the n e w p a y m ent be g i n s

, a nd m a y

, i n s o m e c a s e s

, r e s u l t in

un i nte n ded c on s u m er de l i n quen c i e s

. It has b een m y e x pe r i en c e th a t c u s to m e r s not i f i ed of p a y m ent

a m ount ad j u s t m ents f r equent l y a ss u m e that t h e c h a n g e i s e ff e c t iv e on t he ne x t pa y m e nt d ate. 3 T hu s

, c u s to m e r s r e c e iv i ng t he N o t i c e m a y be g i n m a k i ng the e st i m ated p a y m ent t he ne x t m onth, and i n the c a s e of a r edu c ed i n te r e s t r a t e, c u s to m e r s m ay te n der a pa r t i al p a y m ent, r e s u l t i ng i n an un i nte n ded

de l i n q uen c y

, l ate f ee s

, a n d a cr ed i t sc o r e d o wng r a d e.

S e c o n d, a “ go o d f a i th e s t i m ate” of the ad j u s t e d p a y m e nt a m ount p r o v i ded s i x to s e v e n m onths be f o r e t h e

2 S e e Dodd

- F ran k A c t §1418.

3 E ver y yea r a ft e r S e c ur i t y S av i ng s ban k m a i ls t h e annua l es c ro w ana l y s is t o c u st o m er s

, w e hav e c us t o m e r s t ha t i mm ed i a t e ly ad j u s t

t he ir pa y m en t a m ount

. T h i s happen s w i t h s u c h regu l ar i t y t h a t w e a l er t ou r l ender s t o beg in w a tc h i n g f o r i n c orre c t pa y m en t a m ount s

s o t ha t t he y c a n c a ll t h e c us t o m e r t o a l er t t h e m t o t h e m i st a k e b e f or e it is t o o l a t e an d a part i a l pa y m e n t re s u l t s in a n u n i n t ended
d e li nquen c y

.

### 9 r e s et da t e m a y not r e f l e c t t he a c t u al p a y m ent a m ount i n e ff e c t on t h e r e s et da t e, and y et i t m a y i n v i t e f a l s e r e l i an c e. F or e x a m p l e

, i n a r i si ng r a t e e n v i r on m ent, t h e N o t i c e m a y s h o w an e s t i m ated n e w p a y m ent
that t he c u s to m er c an a ff o r d; h o w e v e r

, i f i nte r e s t r a tes c ont i nue to i n cr ea s e du ri n g the s i x m onths

be t w e en t he N ot i c e a n d t h e r e s et da t e, t he c u s to m er c ou l d be s ub j e c t to p a y m ent s ho c k

. Si m il a rl y

, a Not i c e c o u l d c au s e t he c u s t o m er to r e f i nan c e

– and i n c ur r e f i nan c e f ees

– un n e c e ss a r i l y

. F o r e x a m p l e, if

the N ot i c e s ho w s t h at t h e i nte r e s t r a t e m a y ad j u s t up wa r d, b ut b e f o r e r e s et i t f a l l s aga i n, c u s to m e r s

r e l y i n g on the i n i t i al No t i c e m ay r e f i nan c e u n ne c e ss a r i l y

. In bo t h sc ena r i o s

, I h a v e s e r i ous c on c e r ns a b o ut
the n eg a t i v e i m pa c t on our c u s to m er r e l at i on s h i p and e v e n w o r r y t h at t h e b ank c ou l d be s ub j e c t to l e g a l

li a b i li t y

.

T o a v o i d t h e s e u n i n te n ded c on s equ e n c e s

, I u r ge t he B u r eau t o s ho r t en t he p r op o s ed No t i c e p e r i o d.

Under t h i s a pp r oa c h, r at h er than a g ood f a i th e s t i m ate of the n e w p a y m en t

, t h e N o t i c e c o u l d s et the

a c tual n e w p a y m ent a m ount, i n e ff e c t l o c k i ng i n t he i n t e r e s t r ate and p a y m ent a m oun t

. A l th o u g h u n der

th i s sc ena r i o b oth the bank and t he c o n s u m er w o u l d fo r go the po ssi b i li t y of f u r the r

, po ss i b l y fa v o r a b l e

, i nte r e s t r ate c h an g e s

, bo t h wou l d a l s o g a i n f r o m the c e r ta i n t y p r o v i d e d. C on s u m e r s w o u l d b e ne f i t b y ha v i n g e x a c t i n f o r m at i on a b out t he i r p a y m ent r e s et w e l l i n a d v an c e of the c h a n g e, and ban k s w o u l d a v o i d

c u s to m er d i ss at i s f a c t i on a n d the th r e a t of l i a b i l i t y

.

In a d d i t i o n, t h i s a l te r n at i v e c ou l d be i m p l e m ented w i t h m o r e l i m i ted s y s t em p r og r a mm i ng c han g es a n d

e x pen s e t han the g o od f a i t h e s t i m ate b e i n g c on si de r e d b y t h e B u r ea u

. E x i s t i n g r e s et n o t i c es no w
p r o v i d e d c an be r e v i s ed an d c o r e p r o c e ss es c an be a d j u s ted to en s u r e th a t t h e n ot i c e i s p r o v i ded to t he

c u s to m er 60 d a y s p r i or to r e s et. N o te c o n t r a c ts c an b e ad j u s ted r e l a t i v e l y ea sil y to r e f l e c t the e x a c t

p a y m e n t/d a te r e s e t

. In c o n t r a s t, to i m p l e m ent the B u r e au ’ s N ot i c e w i l l r e q u i r e s i gn i f i c ant, a nd e x pen si v e

, p r og r a m m i ng c han g e s

. Co r e p r o c e ss i n g s y s te m s a r e gene r a l l y d e s i g ned to cr ea t e the e x i s t i n g r ate

c hange no t i c es w h en an “ o ff i c i a l ” r ate c h an g e ta k es p l a c e. It i s m y un d e rs tan d i n g t hat t hat i n t en s e

r e w r i t i ng of p r o g r a m m i ng c ode w i l l b e r e q u i r e d to i n e s s en c e “ t r i c k ” the s y s tem i n t o p r o d u c i n g a no t i c e

w i th an e s t i m ated r ate c h a n ge t h at d oes n ot d r i v e an a c tual r a t e c h a ng e

. E ff e c t i ng th i s c h a nge c ou l d c o s t

l e n de r s th o u s ands of do l l a r s and t a k e at l e a s t 18 to 2 4 m onths to i m p l e m en t

.

2. T ake a l oo k at th e i nfo r m a t i o n th at m a y b e r e qu ir ed o n th e p r opo sed A RM r eset not i c e. If y o u

c u rr e nt l y p r o v i d e A RM r e set not ice s , w h at i nfo r m a t i o n o n th e list d o y o u no t c u r r e nt l y p r o v i d e?

W h y not?

O ur c u rr ent no t i c es p r o v i de a l l of the i n f o r m at i on r e q u i r ed b y R eg u l a t i on Z

, b ut d o not c o n ta i n t h e l i s t o f

a l te r n at iv es that c on s u m e r s m a y pu rs u e or c o n ta c t i n f o r m at i on f or c oun s e l i ng s e r v ic e s

.

3. W h at ac t i on s w ou ld y o u n eed t o t ake t o d e v el op , p r odu ce a n d se n d an A R M r eset not ice w i th

all o f th e p r opo s ed i nfo r ma t i on ? W h at w ou ld th e se a c t i on s c o s t ? W h ich c o s t s w ou ld b e on e

- t ime

c o s t s a n d w h ich w ou ld b e ongo i n g c o s t s?

W e w o u l d li k e l y i n c ur a o n e

- t i m e, up

- f r ont c o s t to r ede s i gn our c u rr ent no t i c e t o i n c l u d e t h e a d d i t i o n a l

r equ i r e d i n f o r m at i on. S o m et i m es w e c an pe r f o r m th i s r ede si gn i n

- h o u s e, a t a c o s t of t w o t o f our da y s of IT

s uppo r t f or de si gn and te s t i ng; ho w e v e r

, t o a cc o m m odate t he p r o po s e d c ha n ge s

, our c o r e p r o c e ss or m a y need to r e de si gn t he i r no t i c e te m p l ates to a l l o w f or m u l t i p l e p ages per n ot i c e. In a dd i t i o n, as d i sc u ss ed

ab o v e, the m a j or c o s t w o u l d be i n the i n t en s e p r og r a mm i ng c ode c ha n ges r e q u i r e d to cr ea t e a n e s t i m ate
that does n ot d r i v e a n a c t u al r a t e c ha n ge on t he s y s te m

. M a k i ng the s e c ha n ges c ou l d ta k e 18

- 2 4 m onths

to i m p l e m ent at a c o s t that wou l d c e r t a i n l y be pa ss ed onto the bank f r o m our c o r e p r o c e ss o r

.

### 10 4. If y o u p r o v i d e A RM r eset not ices, w h at is y o u r n o r m al s c h e du le fo r th e n e xt upd a t e o f th e

p r o ce s ses a n d s ys t e m s th r oug h w h ich y o u g e n e r a t e th e d iscl o s u r e?

T he r e i s no sc he d u l ed up d ate p l a nn e d b y us or the c o r e p r o c e ss o r

. A n y c h an g es wou l d r e s u l t i n ad d i t i on a l c ha r g es to our b an k

.

5. S o m e A R M s p r o v i d e bo rr o w e r s w i t h y e a r s o f f i x ed p a y m e nt s b e fo r e an i n i t ial r eset m a y o c c u r

. Oth e r s p r o v i d e bo r r o w e r s w i t h on ly a s h o r t p e r i o d o f f ixed p a y m e nt s b e fo r e an i n i t ial r e s et m a y

o cc u r

. In y ou r ex p e r ie n c e, is th e f i r st i nt e r est r a t e r eset g e n e r al l y mo r e p r o b lema t ic fo r bo rr o w e r s th an s ub se qu e n t r ese t s?

W e do not s ee a n y d i ff e r en c e be t ween the f i rs t r e s et a nd s ub s e qu e nt r e s et s

.

C. FO RC E D P L A C E IN S U R A N C E

1. Do y o u h a v e a n y v e nd e r c o s t s ass o cia t ed w i t h fo r ce

- p l a ced i n s u r a n c e ( **e. g**  **.,** p r o v i d i n g d iscl o s u r es t o bo r r o w e r s, c o m mun ica t i n g w i t h bo r r o w e r s, mon i to r i n g th e i n s u r a n ce c o v e r a g e o n

p r op e r t i e s in y o u r po r tfo l i o , p laci n g fo r c e

- p la c ed i n s u r a n c e )

. If s o , w h ich o n es?

W e i n c ur c o s ts a ss o c i ated w i th m on i t o r i ng to en s u r e c ont i nu o us i n su r an c e c o v e r a ge; we e m p l o y o n e

pa r t

- t i m e s taff m e m ber

– at a c o s t of $1 5 ,0 0 0 per y e ar

– to do t h i s m on i to ri ng f or u s

. T he p r opo s a l s un d er

c on s i de r a t i o n c o u l d h a v e th e e ff e c t of i n cr ea s i ng our p a rt

- t i m e s taff m e m ber to f u l l t i m e, r equ i ri ng an ad d i t i on a l $ 15

, 000 per y ear i n l a b or c o s t s

.

In our ban k

, m on i to r i ng i s d one m anu a l l y b y a pa rt

- t i m e e m p l o y e e who t ho r o u g h l y i n v e s t i ga t es the c a u s e of the l ap s e i n c o v e r a ge an d at t e m pts to r e s o l v e, i n pe rs on, the i ss ues l ong be f o r e w e get t o a c o m p l e t e
te r m i nat i on b e y o n d t h e r e i n s tate m ent pe r i o d f or c o v e r a ge. W e s end r e m i nde r s about p r e m i u m s c o m i ng due and r eq u e s t th a t bo rr o we r s p r o v i de p r oof of i n s u r an c e. I n a d d i t i o n, w e c ont a c t the i n s u r er o u rs e l v es

on b eh a l f of the bo rr o wer to i n q u i r e as to t he s t atu s

, an d the r e a r e on l y t wo c a s es whe r e we a r e un a b l e to

r e s o l v e t h e i ss ues be f o r e f o rc e p l a c i ng i n s u r a n c e: i f t h e ho m e has be c o m e un i n s u r ab l e or t h e i n s u r er i s

no l on g er r en e w i ng p o l i c i es i n t hat m a r k et, or i f the bo r r ower d o es not h a v e t he a v a i l a b l e f unds t o p a y t he

p r e m i u m

. ( In that c a s e, our bank u s ua ll y i n i t i ates m i t i g a t i on c oun s e l i ng a nd s e ts up e scr o w s .)

W e do not c ha r g e a f ee f or the s e s e rv i c e s

. H o w e v e r

, t he c o s ts to t r a c k and d o c u m ent c o m p li an c e w i th the

m andato r y p r o c e s s u n d er c on s i d e r at i on m i ght r e q u i r e us to l o ok f or w a y s t o o f f s et the ad d i t i o n al c o s t s

, p r oba b l y b y i m po s i n g r ea s o n a b l e f ee s

. T he a ss u m pt i on th a t f o rc ed p l a c e i n s u r e r s w i l l b ear t h e add e d

c o s ts f or d i sc l o s u r e s

, t r a c k i ng i n s u r a n c e, a nd p l a ci ng the i n s u r a n c e i s i n c o r r e c t. T he add e d c o s ts w i l l

e i t h er be bo r n e b a n k s

, li k e ou rs

, that pe r f o r m a l l of the s e d ut i e s

, or b e p a ss ed on to c on s u m e r s i n the

f o r m o f h i gher p r e m i u m s

.

3. W h at a r e y ou r c u r r e n t p r ac t i c es w i t h r es p e ct t o not i f y i n g bo r r o w e r s w ho se fo r c e

- p l a ced

i n s u r a n c e po lic i es a r e c o mi n g u p fo r r e n e w al? W h at c o s t s w ou ld b e i mpo s e d o n y o u b y a

p r opo sal th at r e qu i r ed y o u t o p r o v i d e w r i tt en d iscl o s u r es t o b o rr o w e r s p r i o r t o r e n e w i n g th eir

fo r ce

- p la c ed i n s u r a n ce po licies?

F i rs t, the B u r e au s h ou l d un de rs tand that f or s o m e bo rr o w e rs

, w e a r e f o rc ed to c o n s i s ten t l y f o rc e

- p l a c e i n s u r an c e

. E v e r y q ua r te r

, t he i r i n s u r an c e l a p s es de s p i te our c o nt i n u i ng e ff o r ts to c onta c t t h e s e b o rr o w e rs
to r e m i nd them that ha vi n g h a z a r d i n s u r an c e i n p l a c e i s a r eq u i r e m ent of the l oa n

. O f ten the l ap s e i n

c o v e r a g e i s due to t h e i r i na b i l i t y to ob t a i n i n s u r an c e c o v e r a g e d ue t o t h e s t r u c tu r e ’ s c ond i t i on or l o c at i on. T h r oughout the pe ri od t hat f o rc e p l a c ed i n s u r a n c e i s i n p l a c e

, w e c o nt i nue to d e l iv er r e m i nder no t i c es to
the b o rr o w er t o o b ta i n t h e i r o w n i n s u r an c e a n d n o t i f y u s of s u c h c o v e r a g e. A t e a c h r en e wal pe ri od f or t h e

### 11 f o rc e p l a c ed i n s u r a n c e, w h ic h f or us i s m onth l y

, we a tt e m pt c onta c t the bo rr o w er t o e x p l a i n t h e d i s a d v a nta g es of f o rc e p l a c ed i n s u r an c e. T he i n cr ea s e d c o s ts we w o u l d i n c ur as a r e s u l t of t h i s p r o p o s al

a r e not j u s t a ss o c i a t ed w i th p r epa r i ng and d e l i v e r i ng a not i c e

. T he r e w i l l be ad d i t i o nal l a bor c o s ts to

m anage the p r o c e s s

– to e n s u r e th a t n o t i c es a r e d e l iv e r ed at the r eq u i r ed i n te rv a l s

, to s et u p e scr o w s f or the f o rc e p l a c ed i n s u r a n c e p r e m i u m

, t o r e f und p r e m i u m s

, and to r e pe a t t h e p r o c e s s the ne x t qua r ter
when c e r t a i n bo rr o we r s do not pa y th e i r p r e m i u m s aga i n. W e e s t i m ate that our c o s ts w o u l d i n cr e a s e b y at
l ea s t $15

, 000 a n nu a l l y w i th no c o rr e s p o nd i ng be n e f i t t o c on s u m e r s or bank s a f e t y a nd s o u nd n e ss

.

4. W h at ac t i on s w ou ld y o u n eed t o t ake t o e n s u r e t h at a fo r ce p la c ed i n s u r a n ce d i s cl o s u r e w i t h all

o f th e p r opo sed i nfo r m a t i o n is p r o v i d ed t o bo rr o w e r s? W h at w ou ld th ese a c t i on s c o st y ou ?

W h ich c o s t s w ou ld b e one

- t ime c o s t s a n d w h ich wou ld b e ongo i n g c o s t s?

B e c au s e we u s e a M i cr o s o f t W o r d do c u m ent to cr eate the s e n ot i c e s

, we c an ea sil y c h a nge the no t i c e f o r m at. W e e s t i m ate that d o i n g s o w o u l d r e q u i r e app r o x i m ate l y 8 h o u r s of c o m p l i an c e t i m e to en s u r e t hat

our no t i c e m eets a l l r e g u l at o r y r e q u i r e m ent s

.

5. Do y o u (o r y ou r p r o v i d e r ) c u r r e nt l y r e fun d p r e m i um s p aid b y ho m e o w n e r s fo r all p e r i od s in

w h ich h a z a r d i n s u r a n c e i s also in p la c e?

Y e s

, b ut o ur e x i s t i ng p r o c e du r es a r e t o a c t p r oa c t i v e l y to e n s u r e c o v e r a g e d o es n ot l ap s e, s o we r a r e l y ha v e o v e r l a p p i n g p o l i c i e s

.

D. P R O M P T CR E DI T ING A N D R E Q U E S T S FO R P A Y OF F A M O UN T S

1. H o w d o y o u c u rr e nt l y h a nd le p a r t ial p a y m e nt s f r o m bo rr o w e r s?

F or po r t f o l i o l oan s

, we a cc e pt pa r t i a l p a y m ents and a p p l y t h e pa r t i a l pa y m ent as f o l l o w s : i nte r e s t i s

c o ll e c t ed f i rs t, th e n p r i n c i pa l

, a nd f i n a l l y f ee s

. F or s e c o nda r y m a r k et l oan s

, we r e q u i r e a f u l l p a y m ent a nd

a l e r t t he c u s to m er of that f a c t at the t i m e th e y a t te m pt to m a k e a pa r t i a l pa y m e nt. W e ut il i z e a s u s p e n s e

a cc ount i f ne c e ss a r y ; ho w e v e r

, o ur s y s tem r equ i r es m anu a l i nte r v e nt i on t o a p p l y t he pa y m ent w h en t he

f u l l a m ount h as be e n p a i d

. Pl e a s e n ote t hat a l l of our s e c onda r y m a r k et l oans a r e s et up t o h a v e
auto m at i c p a y m ents m ade p r i or to the e n d of the g r a c e pe ri od.

2. If y o u c u r r e nt l y p l a ce p a r t ial p a y me nt s in s u s p e n se a c c ount s, w h en d o y o u c r e d it th e bo rr o w er

w i t h a p a y m e nt?

W e cr ed i t the b o rr o w er o n l y when w e h a v e a f u l l p a y m ent a m ount a nd t he p a y m ent i s cr e d i ted on the

date the f u l l pa y m e nt i s r e c e i v ed. A cc ep t i n g pa r t i a l pa y m ents f or l oans s o l d to the s e c onda r y m a r k et

wou l d cr ea t e s i g n i f i c ant a cc oun t i ng a n d r e p o r t i n g i ss u e s

. W h il e w e app r e c i ate c o n c e r ns about pa r t i a l

p a y m e n ts not b e i ng cr ed i te d to t he l o a n, i t s h o u l d be u nde rs to o d t h at a pa r t i al p a y m ent does not e l i m i nate
l ate f ees or r epo r t i ng to cr e d i t bu r e a us i f the bo rr o w er does n ot pa y the r e m a i nder of the pa y m ent on t i m e. Al s o, m o r tga g e l oans a r e sc hed u l ed i n t e r e s t c a l c u l a t i o n s

, not s i m p l e i n t e r e s t, s o t he cr ed i t i ng of a pa r t i al

p a y m e n t d o es n o t ne c e ss a r i l y cr e ate an i n t e r e s t s a v i n gs to t h e c u s to m e r

. Mo r e o v e r

, the a l t e r na t i v e b e i ng

c on s i de r e d t h at wou l d a l l o w a b ank to r etu r n t he pa r t i al pa y m e nt to the c on s u m er i s not a l w a y s t he be s t

an s w e r ; m a n y c u s to m e r s a s k us to h o l d t he p a r t i al p a y m ent i n a s u s p e n s e a cc o un t i n o r der t o en s u r e t h at
the f unds a r e not c on s u m ed b y d a i l y e x pen s e s

.

F u r the r

, p l ea s e n o te t hat in m o s t c o m m un i t y b an k s

, i n c l u d i ng S e c u r i t y S a v i n gs B a n k

, a c u s t o m er c an wa l k

i n to a n y b r an c h a nd o bta i n a n a cc u r ate p a y o f f s tate m ent w i t h i n m i nute s

. T he p r o p o s al t o r e q u i r e a bank

to s end an a cc u r ate pa y o f f ba l a n c e w i t h i n s e v e n d a y s ( e xcl ud i ng ho l i da y s a nd w e e k end s ) wou l d

neg a t i v e l y a ff e c t our ab i li t y to s e r v e our c u s to m e r s and to c l o s e l o ans q u i c k l y

. C omm un i t y b an k s s u cc eed

### 12 b y be i ng e ff i c i ent, o f ten cl o s i ng l o a ns w i t h i n 21

– 3 0 da y s of h a v i ng a c o m p l eted ap p li c a t i o n

. T he

a l l o w a n c e of s e v e n da y s fo r a bank to p r o v i de an a cc u r ate p a y o f f c ou l d d e l a y t h e c l o s i ng b y up to 10

d a y s

.

E

. E RR O R R ES OL U T I O N A N D R ES P O N S E T O IN Q UIRI E S

1. T ake a l oo k at th e l ist o f e rr o r s th at th e C F P B m a y p r opo s e. If a bo rr o w er c ont ac t s y o u in

w r i t i n g a n d clai m s th at o n e o f th ese e rr o r s h a s o c c u rr e d

, ho w d o y o u c u r r e nt ly r es pond ? If a bo rr o w er c ont ac t s y o u o r al l y , i s y o u r r es pon se d i f f e r e nt ? D o e s y o u r r e s po n se d e p e n d o n th e t y p e

o f l o an th e bo rr o w er h as? W h at c on s u mer ma tt e r s o r e r r o r s d o y o u c u rr e nt l y r es pon d t o th at a r e

no t o n th e lis t?

2. T ake a l oo k at th e t i m e f r a m es th at th e C F P B m a y p r opo se f o r r e s pond i n g t o alle g ed e r r o r s f r o m c on s u m e r s. A r e th e r e a n y al l e g ed e rr o r s t o w h ich y o u d o no t c u r r e nt l y r es pon d in th e s t a t ed

t ime f r a m es? If s o , w h at ac t i on s w ou ld y o u n e ed t o t ake in o r d er t o r es po n d w i th in th ese t i m e f r a m es? W h at w ou ld th o se a c t i on s c o s t ? W h ich c o s t s w ou ld b e on e

- t ime a n d w h ich w ou ld b e
ongo i ng ?

In t h e 14 y e a r s I h a v e w o r k ed at S e c u r i t y S a v i n gs B an k

, I ha v e not r e c e i v ed one w ri tten c u s to m er

c o m p l a i nt a bout l o an s e r vi c i ng. T hat does not m ean t h at w e do not h a v e c u s to m e r s w i t h c o m p l a i n t s ; h o w e v e r

, t y p i c a l c u s to m e r s of s m a l l ban k s s i m p l y c o m e i n to t he b ank to d i sc u s s t he i r c on c e r n i n pe rs o n

or i f t i m e does not pe r m i t a t r i p to the b a n k

, th e y u s e t h e p h one. T he k e y po i nt i s t hat we a r e a v a i l a b l e to
d i sc u s s the i ss ue s

, a n d n i n e t y

- n i ne pe rc e n t of the c on c e r ns a r e r e s o l v e d to the c u s to m e r ’ s s at i s f a c t i on be f o r e he or s he l e a v es t he bank or ha n gs up the ph on e, n o t i n w r i t i n g f iv e d a y s l a ter as p r o p o s ed. W e

c annot s ta y i n bu si ne s s w i t hout p r o v i d i n g t h i s l e v e l of s e r vi c e w h i c h i s f ar s upe r i o r to the l e v e l of s e rv i c e that t he B u r e au i s atte m pt i n g to m andate w i t h t he p r op o s ed e rr or a nd i n q u i r y r e s o l ut i o n p r o c e ss

.

Req u i r i n g c o m m un i t y b an k s to e s ta b li s h the p r e scr i p t i v e e rr or r e s o l u t i o n p r o c e s s p r opo s e d b y t h e B u r e a u

wou l d i m po s e a bu r d e n s o m e c o m p li an c e e x e rc i s e w i t h out c on s u m er bene f i t. W e wou l d h a v e to e s ta b li s h

a p r o c e d u r e j u s t to en s u r e t hat we h a v e p r o v i ded a w ri t ten r e s p o n s e t o t h e c u s to m er ab o ut i ss u es that

ha v e a l r e a dy be e n r e s o l v e d on the s p ot. T h i s w o u l d r eq u i r e us to d r a f t te m p l ate not i c es of r e s o l u t i on; to

cr eate m anual l ogs or t r a ck i ng s y s te m s to do c u m ent c o m p li an c e w i th p r e scr i bed r e s pon s e t i m e s ; and

f i na l l y

, to a u d i t t h e p r o c e s s to en s u r e c o m p li an c e. W e e s t i m ate th i s w i l l r e q u i r e a p p r o x i m ate l y 24 h ou r s of

c o m p li a n c e s ta f f t i m e and a t l e a s t 12 hou r s of s ta f f t r a i n i n g t i m e

— a o ne

- t i m e e x p e n s e to t he bank of at

l ea s t $4 0 00 t o $ 6 0 0 0. O n g o i n g c o s ts w o u l d i n cl ude a b out a n h our of e m p l o y e e t i m e per c o m p l a i nt j u s t t o do c u m ent c o m p li an c e w i th an ( u n ne c e ss a r y ) e rr or r e s o l u t i o n “ p r o c e ss .”

F

. R E A S O N A B L E IN FO R M A T I O N M A N A G E M E NT P OL ICI E S A N D P R O C E D UR E S

1. W ou ld y o u sa y th at t h e w ay y o u c u r r e nt l y m a n a g e i nfo r m a t i o n a l l o w s y o u t o meet th e dut ie s

s t a t ed in th e po li c ies a n d p r o ce du r es?

2. If th e r e a r e c e r t ain dut ies y o u ca nno t m eet b e c a u se o f th e w ay y o u c u r r e nt ly m a n a g e i nfo r m a t i on , w h at ac t i on s w ou ld y o u n eed t o t a k e i n r e g a r d s t o ho w y o u m a n a g e i nfo r m a t i o n to

m eet th ese dut ies? W h at w ou ld th es e ac t i on s c o s t ? W h ich c o s t s w ou ld b e on e

- t i m e a n d w h ich

w ou ld b e ongo i ng ?

Cu rr ent p r a c t i c es at our ba nk w o u l d s a t i s f y the p r o p o s ed r e q u i r e m ents f or i n f o r m at i o n m anage m ent

po l i c i es a nd p r o c edu r e s

. A s p r e v i ou s l y d i sc u ss ed, we a r e p r o u d of our t r a c k r e c o r d f or r e s o l v i ng s e rv i c i ng

e rr o r s and l o s s m i t i gat i on. Do c u m ent i ng t he s e p r a c t i c es as f o r m al po l i c i es a nd p r o c edu r es wou l d a dd

### 13 one

- t i m e c o s ts f or the i r d e v e l o p m ent, c o m p li an c e r e vi e w

, a n d b o a r d a pp ro v a l s

. In ad d i t i on, i m p l e m entat i on wo u l d r e q u ir e i n i t i al t r a i n i n g at a c o s t of app r o x i m ate l y $ 2 0 00 t o $ 3 000 and an n u a l

t r a i n i ng at a c o s t of app r o x i m ate l y $ 1 00 0

.

W h il e w e ge n e r a ll y s up p o r t the p r opo s a l f or the d e v e l o p m ent of i n f o r m at i on m anage m ent po l i c ies and

p r o c edu r es t hat r e f l e c t the si z e of the s e rv i c er a nd t h e natu r e a n d sc ope of i ts a c t i vi t i e s

, we c on t i n ue t o be

v e r y c on c e r n e d t h at e x a m i ner o p i n i ons of w h at i s “r e a s ona b l e” c an v a r y w i d e l y

. It has b e en our

e x pe r i e n c e t h at e x p e c ta t i o n s f or s m a l l c o m m un i t y b an k s a r e f ar too o f ten i n f l u en c e d b y t h e p o li c i es a n d

p r o c edu r es p ut i n p l a c e at l a r ger i n s t i t u t i o n s

, a c o n c e r n e x a c e r ba t ed b y the f a c t that ci v i l li a b i li t y c a n a r i s e f or f a il u r e to e s ta b li s h a “r e a s ona b l e” i n f o r m at i on m anage m ent p o li c y a n d p r o c ed u r e.

G

. E A R L Y IN T E R VE N T I O N FO R T R O UB L E D O R D E L IN Q U E NT B O RR O W E R S

1. H o w l on g a ft er d eli nq u e n c y d o y o u c u r r e nt l y a tt e mp t t o c ont a c t bo rr o w e r s? W ou ld y o u e v er

w ait l ong er th an 45 d a ys b e fo r e a tt e m p t i n g t o c on t act th e bo rr o w e r ? W h y?

W e a r e a s t r ong s u p po r ter of ea rl y i n t e rv en t i on f or a l l de l i n q ue n t l oan s

. T he f i rs t c on ta c t o cc u r s w i t h i n 2

d a y s a f ter the e nd of the g r a c e pe ri od. A d d i t i o n a l c on t a c t i s m ade b y p h one i f po s s i b l e be f o r e a p a y m ent
i s 30 d a y s l a t e. An o ther n o t i c e i s d e l i v e r ed w i t h i n 2 da y s of be c o m i ng 30 da y s p a s t due. Un t i l the l o an i s

c u rr ent a g a i n

, t h e c u s t o m er r e c e i v es w r i t t en no t i c es at the f o l l o w i ng i n t e rv a l s : 3 0, 60, 9 0, & 1 2 0 da y s l a t e

as we l l as p ho n e c on t a c ts or c e r t i f i ed l et t e r s f or bo rr owe r s un a v a i l ab l e b y p h o ne. T he 30 a nd 6 0 da y
not i c es i n cl ude m anda t o r y cr ed i t c o u n s e l i ng a n d S e rvic e m e m ber C i v i l R e l i ef A c t d i sc l o s u r es t o a ss i s t t h e deb t o r

.

2. If y ou r p r o c e du r e i s d i f f e r e n t f r o m th e p r opo sed ea r l y i nt e r v e nt i o n p r o c e d u r e, w h at ac t i on s

w ou ld y o u n eed t o t ake in o r d er t o c omp l y w i t h th e p r opo sed p r o c e du r e? W h at w ou ld tho se

ac t i on s c o s t ? W h ich c o s t s w o u ld b e on e

- t ime a n d w h ich w ou ld b e ongo i ng ?

T he B u r eau i s c on s i de r i ng r eq u i r i n g s e rv i c e r s to p r o v i d e d e l i nq u ent bo rr o w e r s w i th w r i tt e n i n f o r m at i on abo u t l o s s m i t i g a t i o n p r o g r a m s

, r equ i r e m ents f or qua li f y i ng and ne c e ss a r y do c u m ent s

, t h e f o r e c l o s u r e

p r o c e ss

, and hou s i ng c o u n s e l o rs

. T h i s d i sc l o s u r e w o u l d h a v e to b e p r o v i d e d to t h e c u s to m er w i t h i n 45

d a y s of the d ate of de l i n qu en c y and w i t h i n f iv e d a y s of c onta c t b y a c u s to m er e x pe r i en c i ng f i n an ci al

ha r d s h i p. T he p r o po s a l

, l i k e the p r o p o s ed e rr or r e s o l u t i on p r o p o s a l

, w o u l d i m po s e a b u r d e n s o m e

c o m p li a n c e e x e rc i s e w i t h o u t c on s u m er bene f i t

. It wo u l d r equ i r e t h e d r a f t i n g of the not i c e

, e s t a b l i s h m ent of

p r o c edu r es t o en s u r e t i m e l y d e l i v e r y

, and t r a c k i ng s y s te m s to do c u m ent c o m p li a n c e.

Co m m un i t y b a n k s

, li k e ou rs

, s e r vi c e a l l l oans e qu a l l y and h a v e t he s a m e ea r l y i n te r v e nt i on p r o c edu r es f or both po r t f o l i o and s e c o n da r y m a r k et l o a n s

. I n de e d, g i v en the c o m p li c a t i o ns of H A M P a nd H A R P as we l l

as t h e r i s k of l oan r e

- p u rc ha s e f r o m the G S E

, s m a l l s e r vi c e r s li k e S e c u r i t y S a v i ngs B ank c on c ent r a t e m o r e

ea rl y i nte r v en t i o n e ff o r ts on s e c on d a r y m a r k et l o ans th a n o n po r t f o l i o l o an s

. A s a r e s u l t, s i n c e 2 008, our

b a nk has not h ad a s i n g l e l a t e pa y m e n t on a n y l o a n s o l d to t he s e c o nda r y m a r k et.

I m p l e m ent i ng th i s s y s t em j u s t f or non

- po r t f o l i o l o a ns w i l l e r o de t he s m a l l p r o f i t s e c onda r y m a r k et l oans

p r o v i de. P r o po s ed m o r tgage l o an c o m pen s at i on c h an g es a l o ng w i th the a d ded c o s ts of add i t i o n al

d i sc l o s u r es m a y r e s u l t i n s m a l l ban k s e x i t i ng the m o r t gage m a r k et

– thus d o i n g m o r e ha r m to the

c o n s u m e r

. W e r e c o m m end that t he p r opo s e d a d d i t i o n al i n f o r m at i on be po s t e d on the bank web s i t e f or 24

hour a cc e s s a n d a s i m p l e l i nk to th i s i n f o r m at i on b e p l a c ed i n l a te n ot i c e s

. T h i s w o u l d de cr ea s e our

c o m p li a n c e c o s ts and w o u l d m a k e i t r e l a t i v e l y ea s y to up d a te a nd m a i nt a i n a cc u r ate i n f o r m at i on,

e s pe c i a l l y

, hou si ng c o un s e l i ng i n f o r m at i on t h at i s e v er c han g i ng.3. T h e p r opo sed p r o ce d u r e m a y r e qu i r e s e r v ice r s t o c ont act a d e li nqu e n t bo rr o w er in w r i t i ng

. W ou ld th e c o s t s o f c omp l yi n g b e s ub s t a nt ial l y m i t i g a t ed if y o u d id no t h a v e t o c ont a c t a d eli nqu e n t bo rr o w er in w r i t i n g if y o u o r i g i n a t ed th e d eli nqu e n t l o an a n d h eld it in po r tfo li o ?

No, w e w o u l d c o nt i n u e our c u rr ent p r o c e d u r es

– n o t i f y i ng c u s to m e r s b y m a i l w i t h not i c es and l e t te rs

, a n d

b y ph o ne when po s s i b l e.

H. C O N T INUI T Y O F C O N T A CT

1. H o w mu ch s t a f f d o y o u c u r r e nt l y p r o v i d e t o w o r k w i t h t r oub led bo rr o w e r s? H o w d o y o u
p r o v i d e ac c ess t o th is s t a ff?

O ur o r i g i na t i n g l oan o ff i c e r s ha n d l e the c o l l e c t i ons f or the l oans t h e y o r i g i na t ed. T h e y h a v e f u l l a cc e s s to a l l

l o an do c u m ents and p a y m ent h i s to r y a nd a r e b e s t s u i t e d to p r o v i de n e c e ss a r y i n f o r m at i on a nd gu i dan c e to

t he d e l i n qu e nt bo rr o w e r

. B o rr o w e r s h a v e r ea d y a cc e s s to t he i r l o an o f f i c er i n pe rs o n

, b y m a il , e m a il

, te l e p ho n e, a nd v o i c e m a il.

2. If y o u d o no t c u rr e nt l y p r o v i d e t r oub led bo rr o w e r s w i t h d i r ect a n d ongo i n g acc e ss t o s t a f f ( e. g ., a d e d i c a t ed phon e num b er th at is s t a ff ed du r i n g b u si n ess hou r s )

, w h at ac t i on s w ou ld y o u h a v e to

t ake t o d o s o ? W h at w ou ld th ese a c t i on s c o s t?

I am unawa r e of a n y s m a l l c o m m un i t y b ank that d oes not p r o v i de d i r e c t and o n g o i ng a cc e ss

.

3. D o e s th e s t a f f th at w o r ks w i t h t r oub led bo rr o w e r s h a v e r e a d y ac c ess t o t h e i nfo r m a t i o n d esc r i b ed in th e p r opo sa l ? If not

, w h at i nfo r m a t i o n is no t r e a d i l y a v ail a b l e? W h at ac t i on s w ou ld

y o u n eed t o t a k e in o r d er t o make s u r e th at s t a f f h a s a c ce s s t o th is i nfo r ma t i on ? H o w mu ch

w ou ld th ese ac t i on s c o s t ?

Y e s

, t he y h a v e f u l l a cc e ss ; the l o a n f il e i s r i g ht do w n t h e h a ll

.

C O NC L U S I O N

T hank y ou ag a i n f or t h e o p po r tu n i t y to p r o vi d e s m a l l e nt i t y i n p ut o n t h e p r o po s ed s e r vi c i n g r u l e s

. Pl e a s e f eel f r ee to c on t a c t m e at r m c e l w e e @ s e c u r i t y s a v i ng s

. c o m or 309

- 7 3 4

- 9 3 33 e x t. 2310 i f y o u h a v e a n y ad d i t i on a l q ue s t i on s

.

Re s pe c t f u l l y s ub m i tte d

,

Ra n d y D. M c E l w e e Vi c e P r e si den t

, Co m m e rc i a l

, M o r tg a ge, & Con s u m er Lend i ng De p a r t m ent

C c

. J enn i f er S m i th

, S B A O ff i c e of A d v o c a c y S h a gu f ta A h m ed, P o li c y An a l y s t

, O IRA

# Security Savings ACCT #



# BANK

MORTGAGE LOAN PASSBOOK

Loan payments must be accomp anied by the account number, loan passbook or loan bill.

Loan payments received in person or by mail on business days during hours of operation will be credited

the same business day. All other payments delivered when the bank is closed will be credited on the next
business day. Payments may be delivered to either address shown below.



### Payment Amount 

## $ 4_ 8_1_.3_ 5

_ Due Date: 

## 1st

----------------- 1st 

### Mortgage



# Security Savings Bank

220 East Broadway

PO Box 800 Monmouth, IL 61462

309

- 734

- 9333 www.securitysavings.com

BANKLINE

- 

### Bank by



### Phone

1

- 888

- 329

- 6559 Broadway at Nichols

PO Box 7 Stronghurst, IL 61480

309

- 924

- 1172



## Customer
Name &

Address

L _j



# Please present this book when maki ng payments



# G

E<li.W

. H O 

# :

U S 

# r

ING LENDER1 

## 61,600.00 61,600.00

(243.83) (19.52) 61,580.48

04 

## 4 04

- 07

- 11 (1,10 2 .0 0 ) 742.56

05 5 

## 04

- 08

- 11 205.32 947.88 (58

. 03) 61,522.45

06 

## 6 04

- 22

- 11 (243

. 57) (19.78) 61,502.67

07 

## 7 04

- 27

- 11 731.87 1,679.75

08 

## 8 04

- 27

- 11 300.00 1,979.75

09 

## 9 05

- 03

- 11 (767

. 52) 1,212.23

10 

## 10 05

- 03

- 11 (48

. 78) 1,16 3 .45

11 

## 11 05

- 05

- 11 11.28 1,174.73

12 

## 12 05

- 06

- 11 216.60 1,391.33 (5 8 .0 3 ) 61,444.64

13 

## 13 05

- 16

- 11 16.07

14 

## 14 05

- 17

- 11 (16.07)

15 

## 15 05

- 20

- 11 (243.24) (31

. 39) 61,413.25

16 

## 16 06

- 03

- 11 227.88 1,619.21 (46.75) 61,366.50

17 

## 17 06

- 17

- 11 (242.88) (31

. 75) 61,334.75

18 

## 18 07

- 01

- 11 227.88 1,847.09 (46.75) 61,288.00

19 

## 19 07

- 29

- 11 (242.54) (32

. 09) 61,255.91

20 

## 20 08

- 02

- 11 (767.52) 1,079.57

21 

## 21 08

- 02

- 11 (48.78) 1,030.79

22 

## 22 08

- 12

- 11 227.88 1,25 8

. 6 7 (46.75) 61,209.16

23 

## 23 08

- 26

- 11 (242.35) (32.28) 61,176.88

24 

## 24 09

- 09

- 11 227.88 1,48 6 .55 (46.75) 61,130.13

25 

## 25 0 9

- 23

- 11 (242.01) (32.62) 61,097.51

26 

## 26 10

- 07

- 11 227.88 1,714.43 ( 46.75) 61,050.76

27 

## 27 10

- 21

- 11 (241

. 66) (32.97) 61,017.79

28 

## 28 11

- 04

- 11 227.88 1,942.31 (46.75) 60,971.04

29 

## 29 11

- 18

- 11 (241.31) (33.32) 60,937.72

30 

## 30 12

- 02

- 11 227.88 2,170. 19 (46.75) 60,890.97

31 

## 31 1 2

- 09

- 11 (13

. 79) 2,156.40

32 

## 32 12

- 30

- 11 (240.98) (33.65) 60,857.32

33 

## 33 01

- 13

- 12 227.88 2,384.28 (4 6 .7 5 ) 60,810.57

34 

## 34 01

- 27

- 12 (240

. 79) (33.84) 60,776.73

35 

## 35 02

- 10

- 12 227.88 2,612.16 (46.75) 60,729.98

36 

## 36 02

- 22

- 12 (1, 

## 034

. 00) 1,578.16

37 

## 37 02

- 24

- 12 (240.42) (34.21) 60,695.77

38 

## 38 03

- 09

- 12 227.88 1,806.04 (46.75) 60,649.02

39 

## 39 03

- 23

- 12 (240

. 09) (34.54) 60,614.48

40 

## 40 04

- 06

- 12 227.88 2,033.92 (46.75) 60,567.73

41 

## 41 04

- 20

- 12 (239.74) (3 4

. 89) 60,532.84

42

43

44

45

46

47

48

49

50

51

52

53

54

55 Escrow Late Charges Loan Number

Date Payments Escrow Assessed Loan

(Payouts) Balance (Paid/Waive) Interest Principal Balance



### 01 

## 1 03

- 01

- 11

02 

## 2 03

- 01

- 11 827.60 1,844.56

03 

## 3 03

- 25

- 112 

### Ross, Rachel (CFPB)

From: Victor Petroni <VPetro n i@firstnewengland.org>

Sent: Tuesday, May 01, 2012 4:43 PM

To: Ross, Rachel (CFPB) Subject: RE: Remind er

- Mortgage Servicing SBREFA Comments

Attachments: image001.gif; image002.jpg



### Rachel,

I had hoped t o put something toget h er fo r the panel o n the mort g age servicing issues, espec i ally to addre s s my concern
for small cre d it u n io ns and the i mp a ct t h at t h e mort g age servicing rules will have o n their se r vicing o f clo s ed e nd second

lien mortga g es.

As usual I ran out o f ti m e (typical probl e m for small ba nk & cred i t union staff ) I guess th a t I will have to us e the c omme nt period once the proposed rules as p u bl i shed to try a nd address t h e issue.

Thank you f o r the opport u nity to pa r t i c i p a te. I enjo y ed meet i ng the CFPB te a m and my fellow panel particip a nts. If I

can ever be o f any fu r ther assistance p l ease do not h esitate to call upon me.

Victor

Victor H

. Petroni

SVP Lend i ng, First New England F C U
President, Mortgage Mar k ets CUSO, L L C

616 Burnside Avenue

East Hartford, C T 06108

860‐282‐00 0 1, ext. 106 vpetroni@fi r stnewe n gla n d .org<mai l t o:vpetroni@fi r stnewe n gla n d.or g > [cid:image0 0 1.gif@01CD27B9.78FCF850]
[ci d:image0 0 2.jpg@01CD27B9.78FCF850]

From: R a che l. Ross@cfpb. go v [mailto:R a chel

. R oss@cfpb.gov]

Sent: T u esday, May 01, 2 0 12 1:21 PM

To: Victor Petroni Subject: R e m i nder

‐ M o rt g age Serv i cing SBREFA Comments

Dear Mr. Petroni

, Thank you f o r taki n g the t i me to pa r t i c i p a te i n our pa nel meet i ng last week. As a reminder, t o the exte nt you have any;

comm e nts ar e d u e by clo s e o f busi n ess today.

Sincer e ly,

Rachel

Rachel Ross
Research, M a rkets & R e gu l ations rachel.ross@cfpb

. gov < m a ilto:rachel.r o ss@cfpb.go v >

### Tel: 202 4 3 5‐7635 | M o b:

202 591‐ 6 915

consumerfin a nce

. gov

Confidentiality Notice: T he information contained in this transm i t t al, including a ttac h me n ts if any, may be

confide n tial o r privileged under appl i cable law, o r otherwise may be protected from disclosure to a nyone
other than t h e intended recipient(s). Any review, use, distrib u tion, o r copying o f the con t e n ts o f this e‐mail

o r its attachments by an y person other than t h e intended recipient for an y purpose other than i ts i nte n ded

use, is strictly pr o hibit e d an d may be unl a wful. This c o mm un ication is not intended as a waiver o f th e
conf i den t ial, privileged o r ex e mpted s tatus o f the i nformation transmit t ed. I f you have re ceived this e

‐ mail in

error, you should permanently delete t h e e

‐ mail and any attachments.

D o n ot save, copy, disclo s e, o r rely o n any part o f t h e information conta i ned in this e

‐ mail o r its

att a ch m e n ts. Also imme d iately notify the s e nder o f the misdirection o f this tran s mittal. Your
cooperation is appre c ia te d.

### ----- Original Message

----From: Kevi n Kanouff [mailto:KevinKanouff@statebridgecompany.com]
Sent: Wednesday, May 02, 2012 9:03 AM To: Ross, Rachel (CFPB)
Subject: RE: Reminder

- Mortgage Servicing SBREFA Comments

Thank you for the reminder Rachel. Unfortunately, we were unable to secure the data from our providers in

time. Kevin

4600 S. Syracuse Street

Suite 700
Denver, Colorado 80237 T: (720) 931

- 6200 kevin@statebridgecompany.com<mailto:kkanouff@statebridgecompany.com >

[SB Logo RGB 72dpi]

From: Rachel.Ross@cfpb.gov [mailto:Rachel.Ross @cfpb.gov]
Sent: Tuesday, May 01, 2012 11:21 AM

To: Kevin Kanouff
Subject: Reminder

- Mortgage Servicing SBREFA Comments

Dear Mr. Kanouff,
Thank you for taking the time to participate in our panel meeting last week. As a reminder, to the extent you

have any; comments are due by close of business today.

Sincerely,

Rachel

Rachel Ross
Research, Markets & Regulations
rachel.ross@cfpb.gov < mailto:rachel.ross@cfpb.gov >
Tel: 202 435

- 7635 | Mob: 202 591

- 6915 consumerfinance.gov

Confidentiality Notice: The information contained in this transmittal, including attachments if any, may be
confidential or privileged under applicable law, or otherwise may be protected from dis closure to anyone other than the intended recipient(s). Any review, use, distribution, or copying of the contents of this e

- mail or
its attachments by any person other than the intended recipient for any purpose other than its intended use,
is strictly pr ohibited and may be unlawful. This communication is not intended as a waiver of the confidential,
privileged or exempted status of the information transmitted. If you have received this e

- mail in error, you
should permanently delete the e

- mail and any att achments. Do not save, copy, disclose, or rely on any part of

the information contained in this e

- mail or its attachments. Also immediately notify the sender of the
misdirection of this transmittal. Your cooperation is appreciated.

_____________________ ___________

"This message and any accompanying communications are covered by the Electronic Communications Privacy Act, 18 U.S.C. 2510.2521, and contain information intended for the specified individual(s) only. The
information is confidential. If you are not the intended recipient or an agent responsible for delivering the
communication to the intended recipient, you are hereby notified that you have received this communication
in error and that any review, dissemination, copying, or the taking of any act ion based upon the contents of
this communications strictly prohibited. If you have received this communication in error, please notify us
immediately by email and delete the original message. Please note that any views or opinions presented in

this e

- mail are solely those of the author and do not necessarily represent those of The Company. Finally, the
recipient should check this e

- mail and any attachments for the presence of viruses. The Company accepts no
liability for any damage caused by any virus tran smitted by this e

- mail."

### Appendix B

List of Materials Shared with SERs

Materials Circulated in Advance of Panel Outreach Meeting:

• Outline of Proposals under Consideration and Alternatives Considered

• Discussion Issues for Small Entity Representatives

• Fact Sheet: Small Business Review Panel Process

Panel Outreach Meeting Materials:

• PowerPoint slides

### Appendix C

Outline of Proposals Under Consideration and Alternatives Considered

[See attached]

### April 9 , 2012

2 

### SMALL BUSINESS REVIEW PANEL FOR

MORTGAGE SERVICING RULEMAKING

OUTLINE OF PROPOS ALS UNDER CONSIDERATION AND

ALTERNATIVES CONSIDERED

I. INTRODUCTION

• Congress passed the Dodd

- 

### Frank Wall Street Reform and Consumer Protection Act (Pub.

L. 111

- 203, approved July 21, 2010) (“D odd

- Frank Act,” “DFA,” or the “A ct” ) 1 

### in the

wake of the greatest financial crisis since the Great Depression. At the epicenter of this

crisi s was the mortgage meltdown. The serious and widespread deficiencies in the mortgage market damaged American homeowners, financial instit utions, and the wider

economy.

• 

### Mortgage servicing in particular has been marked by pervasive and profoun d consumer

pro tection problems. 2 

### I n examinations of fourteen major servicers, the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Office of Thrift Supervision concluded that servicers were “emphasiz[ing] speed and cost

efficie ncy over quality and accuracy” in their foreclosure processes. 3



### • The Dodd

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

their loans , including :

(1) new disclosures (periodic statements, notice prior to reset of adjustable rate

mo rtgages (“ARMs”), and force

- placed insurance notices) that will help provide

consumers with comprehensive and comprehensible information , when they need it, in a form they can use, so they can better manage their obligations and avoid unnecessary problems; (2) new requirements for servicers to respond in a timely way to homeowners who complain to their servicer about a potential mistake, and for responses that tell the homeowner how the complaint was resolved and why; (3) prompt crediting of payments , so consumers are not wrongly penalized with late fees or other fees because a servicer did not credit their payments quickly; and (4) timely response to requests for payoff information, so consumers can get their

balance information when they need it.

• These new statutory requirements will take effect automatically in January 2013, as

1 Dodd

- Frank Act, secs. 1418, 1420, 1463(a), and 1464(a) ( http://www.gpo.gov/fdsys/pkg/PLAW

111publ203/pdf/PLAW

- 111publ203.pdf ). See Attachment A.

2 See e.g., Testimony of John Walsh, Acting Comptroller of the Currency, before the U.S. Senate Committee on Banking, Housing and Urban Affairs at p. 16 (February 17, 2011 ; United States of America et al. v. Bank of America Corporation et al ., Compl. ¶¶ 47

- 101 (D.C. Cir.), available at: www.nationalmortgagesettlement.com

. 3 Federal Reserve System, Office of the Comptroller of the Currency, and Office of Thrift Supervision, “Interagency Review of Foreclosure Policies and Practices,” p. 5, (April 2011), http://www.occ.gov/news

- issuances/news

releases/2011/nr

- occ

- 2011

- 47a.pdf

.

### April 9 , 2012

3 

### written in the statute , unless final rules are issued first . The statute authorizes the CFPB to adopt implementing regulations and, by doing so, extend the effective date. The

Bureau intends to use these authorities to adopt regulations that provide servicers with clarity about their statutory obligations and permit servicers sufficient time to come into compliance. The Bureau will also consider adjusting servicers’ statutory obligations to
ease burden where consistent with adequate protection of homeowners.

• The CFPB is also considering whether to propose additional standards to improve the way servicers treat homeowners in distress. S ervicers, in particular the larger ones, can make it very difficult for distressed homeowners to explore and take advantage of potential ways to avoid a foreclosure. For example, s ervicers have frequently neglected

to reach out or respond to a distressed homeowner in time, lost documents of

homeowners who h ave sought modifications or other relief , failed to track communications with homeowners, and forced homeowners who have invested substantial time communicating with an employee of the servicer to “start over” with a different employee. 4



### • To address thes e concerns, the CFPB is considering proposing new servicing operations

standards in three areas:

(1) servicers would have to maintain reasonable information management policies and procedures

, (2) servicers would have to intervene early with troubled and delinqu ent borrowers,

and (3) servicers would have to assure that staff who deal with homeowners have access to records about that homeowner, including records of the homeowner’s previous

communications with the servicer.

• The Bureau recognizes that a one

- size

- fits

- a ll approach may not be optimal with regard to either the mandated or additional requirements. In convening a Small Business Review Panel, the CFPB seeks input to help it determine to what extent it may be appropriate to consider adjusting these standards for small servicers, to the extent the statute allows adjustments. This document provides the small servicers that will consult with the panel, and the broader public, details about the proposals under consideration. These details will help servicers pro vide the CFPB useful feedback before the CFPB proposes a regulation. The CFPB is particularly interested in learning whether adjustments may be

called for in the case of small servicers that originate loans for their customers and self

service those loan s either while held in portfolio or after selling the loans (servicing retained) to Government

- Sponsored Enterprises (“ GSEs ”) or other investors

. The CFPB seeks to understand how consumers would be protected in those cases where adjustments may be appropr iate.

• Consistent with SBREFA, this summary provides a preliminary assessment of the

4 See e.g. Larry Cordell, Karen Dynan, Andreas Lehnert, Nellie Liang and Eileen Mauskopf, “The Incentives of Mortgage Serv icers: Myths and Realities,” Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, Working Paper 2008

- 46, at p. 9 (2008 )

.

### April 9 , 2012

4 

### potential benefits and costs to the types of small businesses and other small entities that would be subject to the proposals under consideration

— namely, mortgage service r s (such as community banks, credit uni ons, independent servicers, small non

- profit organizations and possibly small government jurisdictions )

. Without making an official data request,

the CFPB states tha t it welcomes any quantitative information Small Ent ity Representatives may choose to provide with regard to the costs and benefits of the rules the CFPB is considering proposing. Drawing in part on information gained through the SBREFA panel process, the CFPB will publish with the proposed rule an analysi s of the

benefits and costs to consumers and industry and of the impacts on small entities specifically. Comments received during the notice and comment period after the publication of the proposed rule will further inform the CFPB during the rulemaking

p rocess

II. STATEMEN T OF OBJECTIVES AND LEGAL BASIS

• The Dodd

- Frank Act imposes certain requirements concerning mortgage servicing that

become self

- executing and enforceable on January 21, 2013 , unless final rules are issued

on or before that date. F inal rul es must take effect no later than 12 months after the date

of issuance ( i.e. , not later than January 21, 2014). The CFPB plans to implement the mandatory statutory provisions by proposing amendments to Regul ation Z and Regulation X , which implement TILA a nd RESPA respectively

.

• DFA TILA Amendments

o Section 1418: ARM notice provided 6 months prior to the initial reset of the

interest rate for closed

- end credit transactions secured by a consumer’s principal

residence. This rulemaking also would amend the ti meframe and content of the periodic ARM adjustment notices required under current regulations. 5



### o Section 1420: Periodic s tatement provided each billing cycle for closed

- end credit

transactions secured by a dwelling , except not required for fixed rate loans with coupon books containing substantially the same information.

o Section 1464: Prompt crediting of mortgage payments in connection with

consumer credit transactions secured by a consumer’s principal dwelling and

accurate response to requests for payoff amo unts for home loans

.

• DFA RESPA Amendments

o Section 1463 requires the following for federally related mortgages :

 Two notices must be sent to borrowers with lapsing or lapsed hazard

insurance policies alerting them to the servicer obtaining f orce

- place d

in surance policies and setting forth requirements and procedures servicers

5 See TILA’s Regulation Z 1026.20(c) (formerly 226.20(c)).

### April 9 , 2012

5 

### must follow before charging consumers for such coverage . Servicers must terminate such coverage and reimburse borrowers for premiums charged during any period of overlap ping coverage

.

 Timely response to borrower s ’ requests to correct certain types of errors and to respond to borrowers’ inquiries

.

 Respond ing within ten business days to a borrower ’s request for the identity, address, and other relevant contact information about the owne r or assignee of the loan.

 A prohibition on charging fees for responding to valid qualified written

requests.

 S ervicers must “comply with any other obligation found by the [CFPB], by regulation, to be appropriate to carry out the consumer protection

purpos es of this Act.” In light of the systemic problems identified in the servicing industry, the CFPB believes it may be appropriate to exercise this authority by amending Regulation X to mandate processes and services intended to prevent avoidable foreclosur es. To this end, t he CFPB is considering proposing that servicers :

• E stablish reasonable policies and procedures for managing

borrower information

,

• Undertake early intervention with troubled and delinquent

borrowers

, and

• Provide troubled and delinquent bor rowers with continuity of contact with staff equipped to assist them

.

III. OUTLINE OF PROPOSAL S UNDER CONSIDERATION

A. M ORTGAGE 

### S ERVICING 

### D ISCLOSURES 6



### • The Dodd

- Frank Act requires the following new disclos ures : a periodic statement, notice s prior to charg ing f or any force

- placed insurance

, and a notice pri or to the first reset of

6 The C FPB is accumulating information about the one

- time and ongoing costs of new disclosures for small entities, but the CFPB does not currently have information that is clearly applicable to the disclosures in this rulemaking. Small Entity Representatives rece ntly provided the Bureau with information about the cost of integrating the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) mortgage loan origination forms.
However, the integrated TILA/RESPA form is distinctive in both the a mount of information that is both requ ired

from and provided to consumers. The costs of software, training, and fees (including attorney fees) associated with developing an d providing the TILA/RESPA form may not be directly applicable to the simpler discl osures in this rulemaking. The CFPB is therefore asking Small Entity Representatives for information about the one

- time and ongoing costs for developing and providing the new disclosures in this rulemaking.

### April 9 , 2012

6 

### hybrid adjustable rate mortg ages

. The new disclosure requirements will take effect with or without a Bureau regulation. The Bureau believes a regulation will aid consumers and

servic ers by clarifying legal rights and obligations and specifying disclosure requirements based on empirical testing.

• The CFPB is conducting outreach to both industry and consumer groups regarding DFA’s mortgage servicing disclo sure amendments, including s m all business servicers

. In addition, between February 13

- 23, 2012

, the CFPB posted a draft model periodic

state ment on its website for general comment.

• The CFPB is considering proposing a model form for the periodic statement, ARM reset notices, and fo rce

- placed insurance notices

. Generally, m odel forms benefit servicers by providing them with safe harbors for complying with disclosure obligations, while preserving flexibility for servicers to vary from the model so long as they adhere to the regulatio n. With regard to the periodic statement and the ARM notices, the CFPB is considering a proposal that woul d require them to contain certain items and to group some of those items tog ether for clarity and emphasis, but would permit servicers and

creditors to customize the form in other respects.

• Through one

- on

- one interviews with consumers , the CFPB is testing the optimal amount, content, and presentation of information to include in each of the disclosure s

. Th e CFPB

has conducted three rounds of testing in three different parts of the country

. 7 

### A fourth round of testing may take place after the proposal is issued

. The s election of testing

locations took into account geographic, economic, and size diversity as well as diversity

of consumer demographic s, such as age , race, and mortgage experience

. T he CFPB will publish a report summarizing the results of the cognitive interviews

, along with publication of its proposed mortga ge servicing rules

.

(1) Periodic Statement

• DFA Section 1420 amends TILA by add ing a new requirement that a creditor, assignee, or servicer of any residential mortgage loan

– a closed

- end credit transaction secured by a dwelling

-- provide a periodic statement to the borrower for each bil ling cycle

.

• Required Content : According to t he statute, t he statement may be provided electronically

and must include:

o the amo unt of the principal obligation,

o the current interest rate in effect,

o the date on which t he interest rate may next reset,

7 The first round of testing took place in Towso n, Maryland on February 1

- 2, 2012. The second round took place in Memphis, Tennessee on February 29 and March 1, 2012. The third round took place in the Los Angeles, California area on April 3

- 4, 2012. See Attachments B, C, and D for prototypes tested t o date.

### April 9 , 2012

7 

### o the amount of a ny prepayment fee to be charged,

o a description of any late payment fees

, 8



### o contact information for the borrower to obtain information about the mortgage,

o contact information for housing counseling agencies or programs approved/certified by the Secretary of Housing and Urban Development (“HUD”) or a State housing finance authority, and

o such other information as the CFPB may prescribe.

• Additional Content : The required content does not include t he billing informat ion servicers generally provide to borrowers but instead cons ists of gener al loan information

and other information that may be helpful to troubled borrowers. The CFPB is considering proposing an integrated periodic statement that includes both types of

information as well as how to disput e and resolv e errors. The CFPB is cons idering proposing the following additional content in the periodic statement:

o L oan account number and property address;

o S ervicer name and address;

o A mount and due date of next payment ;

o A mount of

, and date after which , any late fee s will be assessed ;

o L oan maturity date;

o R ecent transa ction activity, including itemization of fees and charges;

o B reakdown of current, most recent, and year

- to

- date payments by principal, interest, esc row, fees, and partial payment;

o The servicer’s policy with regard to app lication of any additional payment

received from the borrower ;

o T he servicer’s policy with regard to partial payments received from the borrower ;

o Amortization in formation for Payment Option loans ; and

o Delinquent borrower alerts, such as foreclosure warning, a summar y of the delinquency history, and information about loss mitigation alternatives.

8 The CFPB understands “prepayment fee” to mean pre

- payment penalty.

### April 9 , 2012

8 

### • Timing : In keeping with current industry practice, the CFPB is considering proposing that the servicer send the periodic statement no later than four days after t he end of the late fee grace period.

• Scope :

o Exemptions :

 Coupon Book for Fixed Rate Residential Mortgages : The periodic

statement re quirement exempts fixed rate residential mortgage loan s where the borrower is given a coupon book with substantially t he same information as required by the periodic statement. The CFPB is considering proposing different methods of presenting the DFA required

and additional content in light of the constraints inherent in the coupon

book format , such as size and the inabi lity to provide updated information for each billing cycle

. The CFPB is considering seeking comment on (1) whether certain dynamic information (such as payments received,

breakdown of payments , and results of late or delinquent payments) could

be made ava ilable through a website or voice

- response unit (or left off entirely in the case of certain information not statutorily mandated) and (2) the circumstances under which the exemption should cease to apply, such as when the borrower becomes delinquent

.

 Rev erse Mortgages : The CFPB is considering exempting reverse mortgages from the periodic statement requirement. Reverse mortgages

are un ique and better off addressed separately at an appropriate time.

• Consumer Testing : T he CFPB is testing a model periodic statement in the field

. The first round of testing focused on a statement for borrower s current in their mortgage
payments ; t he second and third round s emphasize distressed borrower s and those with Payment Option loans

. 9 

### See n. 7 regarding dates and locat ions of consumer testing.

• Potential Impacts on Small Entities

The CFPB is not yet aware of any data or reports on how common it is for small servicers to provide borrowers with periodic statements. F or servicers that do provide periodic

statements

, the CFPB does not yet have information on how much of the proposed

content is already included in the statements. A question to the SERs asks about current practices in providing periodic statements and the content of those statements.

Benefits

9 See Attachment B

- 1 for the draft periodic statement tested in the first round. See Attachment B

- 2 for the draft periodic statement tested in the second round. See Attachment B

- 3 for a draft periodi c statement tested in the third

round.

### April 9 , 2012

9 

### o Providing the proposed content on a regular basis to both current and delinquent borrowers may reduce the frequency with which borrowers contact the servicer

for information and reduce the time servicers spend answ ering borrower questions.

Costs

o T he proposed periodic statement disclosure may require some servicers or their

vendors to develop a new form or to reformat an existing form. These are one

time costs. The CFPB is mitigating the one

- time cost s by providing serv icers

with a tested form

. A question to the SERS asks about the costs of developing a

statement with the required content.

o P roducing the propos ed statement, which includes calculations specific to each loan, may require servicers or their vendors to acquire new or updated software

, provide training to staff

, use additional staff time , and incur paper, printing, and

other production costs. Routine systems updates may mitigate the software costs since improved software would , in part, alread y be budgeted. The possibility of producing only electronic stat ements for certain borrowers , consistent with the E

SIGN Act, may mitigate the paper and printing costs. A question to the SERs

asks about the one

- time and ongoing costs of producing the proposed statement.

o The CFPB is considering the optimal form of reco rd keeping for periodic

statements and the financial information contained within them. In connection with another project focusing on integration of mortgage loan origination disclosures required under the Truth in Lending Act and Real Estate Settlement Procedures Act, the CFPB learned through another small business review panel that many participants retained PDFs or similar electronic archives of disclosures

but did not maintain them in a machine readable form in which the information

contained in the d isclosures could be analyzed automatically. The participants believed that it might be expensive to change the record

- keeping format. The CFPB believes that much or all of the financial data contained on a periodic statement is likely being maintained ele ctronically by servicers as part of their ongoing accounting system s . A question to the SERs asks about existing record

keeping formats and the potential costs of different alternatives.

o Sending the proposed periodic statement disclosure may impose n ew mailing and

other costs on servicers or vendors

. The possibility of sending only electronic statements for certain borrowers may mitigate the mailing costs. A question to the SERs asks about the ongoing costs associated with sending the disclosure

.

o Th e ongoing costs of the proposed periodic statement disclosure may be mitigated

to some extent by the exemption for fixed rate residential mortgage loans where the borrower is given a coupon book with substantially the same information as required by the pe riodic statemen t. A question to the SERs asks about the provision of coupon books to borrowers.

### April 9 , 2012

10 

### (2) ARM

– Notice 6 Months Prior to Initial Interest Rate Reset

• DFA Section 1418 amends TILA by adding a new requirement that a creditor or servicer provide a not ice regarding the initial interest rate reset or adjustment of a hybrid adjustable rate mortgage at the end of the introductory period either (a) between 6 and 7 months prior to such reset, or (b) at consummation of the mortgage if the first reset

occurs d uring the first 6 months after consummation. The notice must be separate and

distinct from all other correspondence. Additional discretionary authority in the statute permits the CFPB to require creditors or servicers to provide the hybrid ARM notice or other notice for adjustable rate mortgages that are not hybrid ARMs.

• Required Content : According to the statute, t he notice must include:

o Any index or formula used in adjusting or resetting the interest rate and a source

of information about the index o r formula;

o An explanation of how the new rate and payment would be determined, including how the index may be adjusted, such as by the addition of a margin;

o A good faith estimate, based on accepted industry standards, of the amount of the resulting monthly payment after the adjustment or reset and the assumptions on which the estimate is based;

o A list of alternatives that the consumers may pursue, including refinancing, renegotiation of loan terms, payment forbearance, and pre

- foreclosure sales, and descrip tions of actions the consumer must take to pursue these alternatives; 10



### o Contact information for HUD

- or State housing agency

- approved housing counselors or programs reasonably available; and

o Contact information for the State housing finance authority for t he State where the

consumer resides.

Except for the contact informatio n and list of alternatives, all of DFA 1418’s requi red

content is currently required by existing regulations

. 11



### • Additional Content : T he CFPB is considering proposing to include the fo llowing loan

information in the disclosure: account number and property address ; servicer name and

10 Based on results from consumer testing, the proposal under consideration would substitute “loan modification” for “renegotiation of loan terms.” The CFPB is also considering adding “deed in li eu” as an alternative, expressed simply as “transfer of ownership to the lender.”

11 The first two disclosures under Section 1418’s required content are the same as those required under Regulation Z 226.19(b) (now 1026.19(b)), which must be provided to co nsumers around the time of application. The third disclosure currently must be provided to consumers 25

- 120 days prior to the due date of any payment change caused by an interest rate adjustment. See Regulation Z 1026.20(c) (1), (2), and (3). (That same regulation requires a similar notice sent annually to consumers if no interest rate adjustment during that time period effected a change in payment.) Note that Regulation Z applies to all ARMs (not just hybrid ARMs).

### April 9 , 2012

11 

### address; key terms of the ARM such as length of the introductory period and when future interest rate adjustments will take place ; and date of upcoming inter est rate adjustment

and due date of the first payment after the adjustment

. The CFPB is also considering including, if applicable, the amount and expiration date of any pre

- payment penalty

, any interest rate or payment limits , and amortization information for negatively amortizing

and Interest

- Only loans

. ( Much of this additional content wa s proposed by the Federal

Reserve Board in its 2009 proposed rule to amend Regulation Z’s ARM reset notice. )

• Scope : The statute defines a “hybrid adjustable rate mortg age” as a consumer credit transaction secured by the consumer’s principal residence with a fixed interest rate for an introductory period that adjusts or resets to a variable interest rate after such period.

o The CFPB understands the statutory definition of hybrid ARM to encompass the following loan products: 2/1, 3/1, 5/1, 7/1, and 10/1 12 

### (or any ARM product with an introductory period of longer duration than its ensuing periods of adjustment). This is consistent with how the banking industry refers to h ybrid ARMs. The CFPB is considering proposing that these loan products receive the notice under

DFA 1418.

o The CF PB is considering proposing to use its discretionary authority to require

this notice for A RMS that are not hybrid ( 1/1, 3/3, 5/5, etc. )

. 13 

### It is considering soliciting comments on whether this disclosure will be helpful to borrowers with

these ARMs.

o Reg ulation Z 10 26.20(c) requires creditors to send disclosures for all ARM s prior

to each interest rate adjustment that effects a change in paym ent. The CFPB is considering proposing changes to the time frame and content of the se current
disclosures

. 14 

### It is also consid ering proposing this disclosure as a notice separate from the periodic statement

, but may propose allowing servicers to decide thi s issue

. N ote that t he new rule would apply to servicers and assignees as well as

creditors.

 With regard to changing the time frame, Regulation Z currently requires that notice be given 25 to 120 days prior to the date on which the adjusted payment is d ue and annually, without a change in payment. T he CFPB is considering proposing that the revised notice s under Regulation Z 1026.20(c) must be provided with every interest rate adjustment two to
four months before payment at the new level is due ( remainin g annually, where there is no change in payment). 15 

### It is also considering soliciting

12 A 3/1 hybrid ARM, for example, maint ains a fixed rate of interest for the three

- year introductory period and then converts to an adjustable rate for successive one

- year periods. Hybrid ARM includes the once

- popular 2/28 and

3/27 mort gages, which often adjusts every six months after the intr oductory period.

13 ARMs, unlike hybrid ARMs , start with an adjustable rate and that rate readjusts at even intervals.

14 Authority for this may be found in DFA 1420 (periodic statement), allowing the CFPB to require periodic
disclosure of “[s]uch other inform ation as the Board may prescribed in regulations." DFA §§ 1405, 1032 and TILA §105(a) may also provide bases for authority.

15 Under this timeframe, similar to the Section 1418 notice, the servicer likely will have to provide an estimate of the

### April 9 , 2012

12 

### comments reg arding the timing of the notice itself and in relation to the timing of the Section 1418 initial reset not ice

.

 The CFPB is considering proposing content fo r the revised 1026.20(c)

notices that is identical to or that closely track s the content it is

c onsidering proposing for the Dodd

- Fr ank Act ARM initial reset notices (which , in turn, closely tracks the content of the Board ’s 2009 propose d

rule )

. The CFPB i s considering proposing that this recurring notice not include the contact information for counselors and the state housing finance authority since each periodic statement will include the counselor information. The CFPB is also considering soliciting co mments on whether to include the Section 1418 list of alternatives. Finally, t h e CFPB is considering proposing to eliminate the 1026.20(c) notice for initial

reset s of any ARM because borrowers will receive the earlier Section

1418 notice for those resets

.

• Consumer Testing : In order to assu re the effectiveness of the DFA 1418 disclosure , the CFPB is conducting three rounds of consumer testing prior to issuing its proposal. With its testing contractor, the CFPB is working to determine the optimal conte nt and format

of information in the notice

. The CFPB does not anticipate issuing a highly prescriptive

form at , but to require the content and the grouping of certain items together to maximiz e clarity

. 16 

### See n. 7 regarding dates and locations of consumer t esting.

• Potential Impacts on Small Entities

The CFPB is not yet aware of any data or reports that describe when small servicers generally provide the initial reset ARM disclosure or how much of the proposed content is already included in the disclosure

. A question to the SERs asks about current practices in providing initial reset ARM disclosures and the content of those disclosures

.

Benefits

o Servicers benefit when distressed bor rowers contact them well in advance of a possible jump in interest rate and payment; this allows them more time to work together constructively . Borrowers with correct information about loss mitigation

alternatives and the availability of housing counseling may be more likely to work quickly and constructively with their service rs.

o Better disclosures about the new rate and payment may benefit servicers by reducing the need for borrowers to c ontact the servicer.

new intere st rate and payment, rather than exact figures. The consumer will be provided with the exact figures in the first periodic statement sent out after the interest rate adjustment goes into effect.

16 See Attachment C

- 1 for the model ARM reset notice tested in Round 1 of testing. See Attachment C

- 2 for the model ARM reset notice tested in Round 2 of testing. See Attachment C

- 3 for the model ARM reset notice tested in

Round 3 of testing.

### April 9 , 2012

13 

### o The CFPB may modify the content and timing of the Regulation Z 10 26.20(c) notice, which is given prior to each interest rate adjustment that effects a change

in payment. The proposed notice would provide more information to the

borrower

. The proposed changes in time frame, from 25 to 120 days to two to
four months before payment at a new level is due, would give borrowers more time to make any necessary adjustments in household budgeting. Servicers benefit to the extent that these households are less likely to need forbearance plans or other loss mitigation work.

Costs

o The proposed initial reset ARM disclosure may requir e some servicers or their vendors to develop a new form or to reformat an existing form. These are one

time costs. The CFPB is mitigating the one

- time costs by providing servicers with a tested model form. A question to the SERS asks abou t the costs of developing a form with the required content.

o Producing the proposed initial reset ARM disclosure for a particular borrower

, which includes calculations specific to each loan , may require servicers or their vendors to acquire new or updated software, provid e training to staff, allocate

additional staff time, and incur other costs. Routine systems updates may mitigate the software costs since improved software would, in part, already be budgeted. A question to the SERs asks about the one

- time and ongoing co sts of producing the proposed form.

o Sending the proposed initial reset ARM disclosure may impose new mailing and

other costs on servicers or vendors. The CFPB may mitigate these costs by no longer requiring the Regulation Z 1026.20(c) notice for the initia l reset. A question to the SERs asks about the ongoing costs associated with sending the proposed initial reset ARM disclosure.

o The proposed modifications to the Regulation Z 10 26.20(c) notice raise similar issues to those stated above. A question to the SERs asks about the one

- time

cost s of developing a new 10 26.20(c) form and the ongoing costs of pro viding any new information in the form

.

Alternatives Considered :

The CFPB has also considered proposing limiting the initial reset notice to hybrid ARMs

-- and not requiring it for all ARMs. However, the Bureau opted for its currently considered proposal because all ARMs, not just hybrid ARMs, are subject to the same “payment shock” after the introductory period expires

, and because Congress expressly aut horized the CFPB to extend the

Section 1418 ( or other ) notice t o ARMs that are not hybrid

.

(3) Force

- Placed Insurance

### April 9 , 2012

14 

### • DFA Section 1463 amends RESPA to prohibit a servicer of a federally related mortgage from obtaining force

- placed hazard insurance unless th ere is a reasonable basis to believe the borrower has failed to comply with the loan contract’s requirements to maintain property insurance

. The CFPB is considering proposing examples to illustrate reasonable

bas e s.

• Required Process es under DFA : The st atute sets forth a mandatory process servic ers must follow before imposing any charge on a borrower for force

- p laced insurance and for terminating force

- plac ed insurance upon receipt from the borrower of evidence

confirmin g borrower

- purchased hazard insura nce coverage:

o B efor e charging a borrower for force

- place d insurance

, 17 

### a servicer must :

 Send , via first

- class mail, up to two notices to the borrower :

• If the servicer has not received from the borrower any demonstration of insurance coverage 30 days after send ing the first notice, the servicer must mail a second notice to the borrower

.

• No charge may be imposed until 15 days after the servicer has sent
the second notice.

 Ac cept any reasonable form of written confirmation from the borrower

, including the bor rower’s existing insurance policy number along with the identity of, and contact information for, the insurance company or agency

– or any other method required by the CFPB. The CFPB is considering proposing examples to illustrate what constitutes a suffi cient demonstration of coverage by the consumer.

o Termination of force

- place d insurance and refunding of costs . W ithin 15 days of a servicer’s receipt of confirmation of a borrower’s existing coverage, whenever that occurs, the servicer must terminate the force

- placed insurance and refund any premiums applicable to any period during which the b orrower had coverage. The CFPB is considering a proposal that would track the statute with regard to

termination and refunds.

• Required Content under DFA : The two n otices must contain the following information:

o A r eminder of the borrower’s contractual obligation to maintain hazard in surance on the secured property,

o A s tatement that the servicer does not hav e evidence of borrower’s existing

coverage
,

17 Note that the servicer may force place insurance during any actual or a pparent lapse in coverage; it may not charge

the borrower for this service until after the 45

- day waiting period and only for any period of actual lapse in the borrower’s hazard insurance coverage.

### April 9 , 2012

15 

### o A clear and cons picuous s tatement of how the borrower may demonstrate existing

coverage, and

o A s tatement that the servicer may obtain coverage at the borrower’s expense if the borrower fails to provide such demonstration to the servicer in a timely manner.

• Additional Cont ent : The CFPB is considering proposing the following additional

information to alert con sumers to the possible disadvantages of force

- placed insurance

and to give a general timeframe for when such policies may be imposed.

o A good faith estimate of the for ce

- placed insurance premium that the borr ower

may be charged

,

o A statement that force

- placed insurance may not provide as much coverage and may cost significantly more than a hazard insurance p olicy purchased by the borrower, and

o A statement of whether the s ervicer has placed or plans on force placing

insurance.

• Force

- Placed Insurance Notice F orm : The CFPB is conducting three rounds of consumer testing prior to issuing its proposal. W ith its testing contractor, the CFPB wil l determine the optimal content a nd presentation of information in the notices . The CFPB anticipates issuing two sets of model forms. 18 

### The first set will reflect the case where the servicer already has ob tained force

- placed insurance and the second set will reflect the case where

the se rvice r plans on force

- placing insurance.

• Charges R elated to Force

- Placed Insurance : The st atute provides that all charges

-- apart from charges subject to State regulation as t he business of insurance

-- related to force

placed insurance imposed on the c onsumer by or through the servicer must be bona fide and reasonable. Through outreach, servicers have informed the Bureau that they typically do not charge consumers additional fees other than the force

- placed insurance premium. The proposal would genera lly track the statut e and provide that charges covered by the statute

, to be bona fide and reasonable, must be for actual services rendered and not include any unearned fees to the servicer or any charges prohibited by applicable state law as rebates or in ducements.

• Borrower’s Pre

- Existing Insurance Policy : F orce

- placed insurance is expensive relative to privately

- obtained property insurance

. T he CFPB is considering clarify ing that the

term “force

- placed insurance

, ” and thus the rule

, does not apply to s ervicers who , with

express consent from the borrower

-- including express consent to any fees or charges

--

re

- purchase a borrower’s pre

- existing policy

.

• Payment of Insurance from Escrow : The CFPB is considering amending Regulation X

, Section 1024.17(k)( 1) and (2) by proposing that the servicer must make timely

18 See Attachments D

- 1 and D

- 2(a) and (b) for prototypes tes ted to date

.

### April 9 , 2012

16 

### disbursements from escrow funds to pay for a borrowe r’s insurance premium even if the borrower is delinquent, absent cancellation of the policy by the borrower or the insurance company (for any rea son other than non

- payment of premiums). The servicer’s continued payment through an escrow account for the borrower’s existing policy would

not constitute force

- placed insurance. A question to the SERs asks about the impact that

this amendment to the es crow disbursement rules would have on them.

• Amount of Coverage : The statute does not require that force

- placed insurance cover in

excess of the invest or’ s collateral in the property; t he CFPB is considering proposing that

the servicer must inform the borr ower that the force

- placed coverage may not be as comprehensive as that provided under the consumer’s own hazard insurance policy.

• Pote ntial Impacts on Small Entities

Benefits

o The proposed force

- placed insurance disclosures will make borrowers more awar e of the pending placement of force

- placed insurance so that they can better manage their obligation to maintain continuous coverage with hazard insurance

. The

disclosures may benefit servicers by reducing the frequency with which borrowers

contact servic ers to ask questions or to dispute or resolve fees and charges that

could have been avoided if the borrower were more aware of the pending placement of force

- placed insurance.

o Comprehensi ve standards for managing force

- placed insurance provide certainty

to servicers with regard to their legal obligations

.



### Costs

o Based on discussions with industry, the CFPB understands that providers of force

placed insurance may not charge servicers , including small servicers, for providing disclosures to borrowers, trackin g hazard insurance coverag e , and placing the insurance. If this is correct, then force

- placed insurance providers

may also absorb the costs associated with the proposed disclosure s and they will not impose any one

- time or ongoing costs on small servicers

. Questions to the

SERs ask about vendor charges associated with force

- placed insurance and the

new costs they expect to incur to ensure that a force placed insurance disclosure with all of the proposed information is provided to borrowers.

o The CFPB unders tands that prov iders of force

- placed insurance generally refund

force

- placed insurance premiums paid by the borrower during peri ods in which the borrower’s insurance coverage and the force

- placed insurance coverage are

both in effect. If this is correct, then the proposed provision requiring these refunds will not impose any one

- time or ongoing costs on servicers. I f this is not correct, then servicers may incur costs from the proposed provision, although the costs may be mitigated by the proposed disclos ures notify ing borrowers that the servicer needs written confirmation that coverage is in place. A question to the SERs asks about current practices for refunding force

- placed insurance premiums

.

### April 9 , 2012

17 

### o The amendment to the escrow disbursement rules, while poten tially limiting the frequency with which servicers force place insurance, would require servicers to advance funds for maintaining pre

- existing insurance for longer than the 30 days currently required by Regulation X. A question to the SERs asks about the impact that this change would have on them.

B. P ROMPT 

### C REDITING AND 

### R EQUESTS FOR 

### P AYOFF 

### A MOUNTS



### • Under DF A Section 1464, servicer s must credit consumer payment s as of the date of receipt in connection with a consumer credit transaction secured by the consum er’s principal dwelling, except if the delay does not result in any charge to the consumer or in the reporting of negative information to a consumer reporting agency. The servicer may, however, specify in writing requirements that the consumer must follow to make conforming payments. If non

- conforming payments are accepted, the s ervice must credit the payment five days after receipt.

• The prompt crediting provision generally codifies the current Regulation Z. The proposal would provide examples of the t ypes of conforming payment requirements that are

reasonable.

• Partial Payment s : For payments received from borrowers that fall short of a complete payment, the CFPB is considering proposing retention of the current rule in Regulation Z requiring partial payments be treated in accordance with the legal obligation as determined by applicable state or other law. As such, s ervicers generally would be allowed to hold partial payments in a non

- interest bearing suspense account until an amount equal to a full payment is received

, in accordance with the contract or applicable

state law. Servicers also would have the option of returning the non

- conforming payment

to the borrower

. Additionally, t he CFPB is considering proposing a new requirement that

a s soon as the amount in the suspense account equals a full contractual payment

, the servicer must credit that payment to th e earliest delinquent payment. A full contractual payment includes principal, interest, taxes, and insurance. The CFPB would seek

comment on whether it should include other amounts, such as late fees and other

servicer

- imposed fees, in the full contractual payment. This pr oposal under consideration

would have the effect of rolling forward the borrower’s date of delinquency by 30 days

.

• Payof f Request : The statute requires a creditor or servicer of a home loan to send an accurate payoff balance within a reasonable time, but no more than seven business days, after receipt of a written request for such balance from or on behalf of the borrower. Regulation Z currently addresses payoff amount requests, but creates a five business day

safe harbor. The proposal generally would follow the statute and require an accurate payoff balanc e to be provided no later than seven days (excluding holidays and weekends) after receipt of a written request from the borrower. The CFPB is considering proposing that the term “home loan” be construed bro ad ly but that it exclude reverse mortgages. The exclusion for reverse mortgages would be based on CFPB ’s belief th at

### April 9 , 2012

18 

### the unique features of reverse mortgages should be addressed together in a comprehensive rule focused exclusively on that product.

• Potential Impact on Small Entities

Costs

o The requirements to credit a payment once the suspense account contains the required amount and to apply the funds to the first delinquency may impose a cost on servicers who have different crediting practices. These servicers may lose

some fee income and some float income, and they may need new or updated

software to meet the ne w requirements. A question to the SERs asks about the extent to which servicers currently comply with the prompt crediting proposal and the cost of coming into compliance for servicers with different crediting practices.

Alternatives Considered:

The CF PB also has considered proposing an alternative approach that would require creditors and servicers to credit all partial payments, or those partial payments above a certain minimum threshold, to a borrower’s account as they are received or else return the partial payment to the

borrower. The CFPB identified certain possible drawbacks to this alternative approach including increased accounting costs for the servicer and, f o r the consumer, prolonging the length of delinquency and increasing the amount of th e periodic payment.

C. E RROR 

### R ESOLUTION AND 

### R ESPONSE TO 

### I NQUIRIES



### • Current Error Resolution Procedures : Section 6 of RESPA and Regulation X contain procedures for handling alleged errors and inquiries. Section 6 of RESPA provides that

when a servicer of a federally related mortgage loan receives a “qualified written request” from a borrower for information relating to the servicing of the borrower’s loan, the

servicer m ust respond within certain time frames. Regulation X limits application of the qualified written request provisions to “mortgage servicing loans,” which includes only

first

- lien, closed

- end mortgages.

• DFA Amendments to Error Resolution and Inquiry Procedures:

o Statutory Prohibitions : DFA Section 1463 amends Section 6 of RESPA by adopting a nu mber of servicer prohibitions with respect to handling alleged errors and inquiries

, including revising the time frame to respond to qualified written

requests . Among other things, DFA Section 1463 prohibits a servicer of a federally related mortgage from:

 C harging fees for responding to valid qualified written reque sts, as defined by the CFPB ;

 F ailing to respond within ten business days to a borrower’s request for the identity and contact information for th e owner or assignee of the loan; and

### April 9 , 2012

19 

###  F ailing t o take timely action to respond to a borrower’s request to correct errors relating to

• allocation of payments,

• final balances for purposes of paying off the loan,

• avoiding foreclosure, or

• oth er standard servicer’s duties.

o Other Requirements : Section 14 63 contains a provision that allows the CFPB to require servicers to comply with any other obligation it finds appropriate to carry

out the consumer protection purposes of RESPA.

• Tracking St atutory L anguage : T he CFP B is considering proposing tracking th e statutory language with regard to:

o Applying the err or resolution and inquiry response procedures to “ federally related mortgages

, ” not just “mortgage servicing loans

, ” as currently provided in Regulation X with regard to qualified written requests. Thu s
, residential mortgage loans, including first and second liens, would be subject to this rule.

o P rohibitin g servicer s from charging fees for responding to valid qualified written

requests.

o Requiring s ervicer s to respond within ten days (excluding week ends and holidays) 19 

### to a borrower’s request for the identity and contact information for the owner or assignee of the loan. The CFPB is also considering proposing that contact information include an address and a telephone number.

• Defining “Error”:

o The CFPB is considering proposing a comprehensive set of requirements for investigating and correcting errors and for responding to borrower inquiries. This approach would incorporate , but not be limited to, RES PA’s use of the qualified written request to add ress “servicing” issues, as defined by RESPA. Specifically, servicers would be required to correct errors relating to allocation of payments, final balances for purposes of paying off the loan, avoiding foreclosures, or other

standard servicer’s duties

. Servicers also would be required to respond to inquiries about these topics.

o In order to cover each of the areas for which servicers must correct errors, the CFPB is considering proposing to define “errors” with the following exclusive

list :

19 H ereinafter, “business days” means excluding weekend and holidays.

### April 9 , 2012

20 

###  Computatio n errors (including with respect to calculating the interest rate and escrow account balance)

,

 An incorrect allocation of payme nts,

 The failure to cre dit payments in a timely manner,

 The failure to make timely payments of taxes and i nsurance from an

escrow account,

 The refusal to accept a conforming payment,

 The failure to provide an accurate final payoff amount,

 The failure to provide ac curate disclosures to borrowers,

 The failure to provide accurate information to borrowers about home

retention or loss mi tigation opti ons and the foreclosure process,

 The failure to suspend foreclosure proceedings while the borrower is performing as agreed under a loss mitigation option or other alternative to

foreclosure or otherwise meeting the borrower’s obligations

, and

 The failure to provide the borrower with relevant document in response to an inquiry or following an investigation of an alleged error.

o The CFPB is considering seeking comments on whether additional or different

conduct should be treated as errors. It is also considering seeking comments on whether it should propose a catch

- all category for errors related to the four areas described in the statute but that may not be captured by the list included in the proposed rule.

• Error Resolution and Responding to In quirie s : The CFPB is considering proposing a

time frame for error resolution and responding to inquiries that generally tracks the

timeframe for qualified written requests, as amended by the DFA

, subject to certain explicit exceptions. See Attachment E for a detailed description of these procedures. Briefly, under the error resolution procedures the CFPB is considering proposing (inquiry procedures are similar):

o The borrower

 can assert an error in writing (including electronically if the servicer provides a web site or similar means of submission specifically for handling complaints ) or orally (by telephone); and

### April 9 , 2012

21 

###  must provide information that enables servicers to identify the name and account, type of error the borrower beli eves has occurred, and when the

servicer believes that error occurred.

o The servicer

 within five business days, must acknowledge receipt of the complaint in writing, whether a quali fied written request or not

-- unless resolved

earlier and the servicer already sent written notification o f resolution ;

 within 30 business days after a reasonable investigation, must provide the borrower with written notification of (1) correction of that or another error or (2) the servicer ’s conclusion that no error occurred;

 must respond within shorter t ime frames for errors relating to providing an

accurate fin al payoff statement and errors related to suspending foreclosure proceedings while the borrower is performing under a trial or

permanent mo dification;

 may request supporting documentation from the borr ower, but must investigate the error with or without such documentation;

 w ithin the 30 business days

, may extend the investigation time period by

15 business days

-- with notification and explanation to the borrower; and

 w ithin 15 business days of a borrow er’s request after the conclusion of an error investigation, must provide without charge the relevant docum ents used in that investigation.

• Exemptions :

o HELOCs : The CFPB is consider ing proposing to exclude open

- end lines of credit, such as HELOCs, from t he error resolution and qualified written request provisions because these products are subject to distinct error resolution procedures under TILA and Regulation Z.

o Routine Inquiries : The CFPB is considering proposing to exclude routine inquir i es about the borrower’s account, request for information for tax es or other

record keeping purposes, and request s for duplicate copies of documents from the

term “error

. ”

• Potential Impact on Small Entitie s

Benefits

o The rule the CFPB is considering clarifies servicer d uties for handling alleged errors and inquiries relating to the defined topics

.

### April 9 , 2012

22 

### o By providing an exclusive list of errors that trigger the error resolution requirements, servicers can more effectively control the costs of investigating alleged errors and be tter allocate firm resources.

Costs

o The proposed error resolution a nd inquiry provisions require servicers to respond (a) to inquiries and requests that are not “qualified written requests,” (b) regarding issues beyond those defined as “servicing” by RESP A, and (c) for loans that are

not first

- lien, closed

- end mortgages. Small servicers may already comply with the proposed provisions, perhaps as part of good customer service . Servicers that are not in compliance may need new or updated software and hardwa re and they may need to devote additional staff time to error resolution and provide additional training to staff.

T he CFPB does not know the extent t o which small servicers are already in compliance with the proposed provisions or the cost of coming in to compliance.

A q uestion for the SERs ask s about how servicers currently address the listed

errors and whether the response depends on how the borrower communicates with the servicer and the type of loan the borrower has. Another question for the SERs

a sks about the actions required to address the listed errors within the proposed

time frames and the one

- time and ongoing costs of those actions.

Alternatives Considered:

The CFPB also has considered proposing an open

- ended enumeration of errors related t o the four areas identified in the statute, as opposed to creating an exclusive list of what constitutes an

error . However, this alternative had several drawbacks . Without a clear definition of what constitutes an error, uncertain compliance standards m a y lead servicers to treat all claims they receive as errors, thereby limiting the time and attention spent investigating errors the CFPB has identified as key. Clear and definitive compliance standards reduce the costs and burdens for all servicers, but e specially small servicers

.

D. R EASONABLE 

### I NFORMATION 

### M ANAGEMENT 

### P OLICIES AND 

### P ROCEDURES



### .

DFA Section 1 463 requires servicers to comply with any obligation the CFPB finds appropriate to carry out the consumer protection purposes of the Act . T he CFPB is c onsidering proposing a

rule to address wide

- spread problems reported across the mortgage servicing industry with regard to management of borrower documents and information

. 20 

### Reasonable policies and procedures for managing borrower documents and informatio n would facilitate development of systems and operational processes for tracking and storing borrower documents and information with respect to borrower communications, error resolution, information requests, loss mitigation (including, without limitation, loan modification actions), foreclosure, and other servicer operations. Further, such reasonable policies and procedures would assure that servicers have access to records noting key actions taken with respect to borrower communications, error

20 See pp. 1

- 2 above.

### April 9 , 2012

23 

### resolution , information requests, loss mitigation (including, without limitation, loan modification actions), foreclosure, borrower bankruptcy actions, and other relevant actions with respect to a

borrower’s account.

Under DFA Section 1463, the CFPB is considering proposing that servicers e stablish reasonable policies and procedur es that :

• Pr ovid e accurate and timely disclosures and other information t o borrowers ;

• Minimiz e errors and facilitating prompt error correction ;

• Maintain re cords of borrower contact , with a possible exception for some small servicers ;

• Facilitat e loss mitigation by

o acceptin g, organizing, and managing documents and information submitted by or about borrowers in connection with loss mitigation requests

,

o ensuring reasonable and timely access to such documents and information by all appropriate loss mitigation p ersonnel, and

o i dentifying additional documents and information the borrower must provide to be considered for loss mitigation options and notifying the borrower promptly of

such defi cienci es.

The CFPB further envisions a servicing industry capable of achieving mortgage loan servicing transfers without negatively impacting loss mitigation communications with borrowers. Through reasonable policies and procedures, servicers should be capable of transferring all relevant and

accurate documents and information to (1) a subsequent servicer when servicing rights are transferred in a form and manner that enables the subsequent servicer to comply with the requirements of this subpart and (2) a forum addressing foreclosure

. Such documents and information would include, among other things, documents and information that reflect communications with borrowers, documents and information memorializing actions to correct account errors, documents and infor mation that were received from borrowers with respect to

consideration for loss mitigation options, and documents and information that set forth trial or permanent modification agreements.

The CFPB is considering proposing that the reasonableness of a serv icer’s information

management policies and procedures would depend upon the size of the servicer and the nature and scope of its activities. Additionally, t he CFPB is considering proposing to explain that a violat ion would occur if a servicer: (a) fails t o establish reasonable information man agement policies and procedures or (b) demonstrates a pattern or practice of failing to comply with its procedures. However, an occasional failure to follow established policies and procedures would

not constitute a v iolation of this part of the regulation. Note: potential civil liability arises from violation of the regulation.

### April 9 , 2012

24 

### • Potential Impacts on Small Entities

Benefits

o The proposed information management policies and procedures focus on desired

outcomes and av oid prescription. A servicer’s policies and procedures are reasonable if they facilitate important servicer duties like error correction and loss mitigation.

o The proposed r easonable information management policies and procedures may benefit borrowers and s ervicers by clarifying the obligations on servicers for managing borrower information. Clear er obligations may protect servicers from legal liability

.

o In themselves, improved information managem ent policies and procedures may reduce servicer time spent ma naging consumer information and documents and responding to consumer in formation requests and queries; enhance consumers’ ability to understand and manage their mortgages ; and reduce preventable delinquency and foreclosure.

Costs

o S ervicers that maintain re asonable information management policies and procedures may incur a cost to review and document their policies and procedures, obtain legal advice, train their staff to follow the policies and procedures, and monitor staff adherence to the policies and pro cedures.

o The proposal mitigates all of these costs for small servicers through the provision that the “reasonableness” of a servicer’s policies and procedures would depend upon the size of the servicer and the nature and scope of its activities.

o Depository institutions already are subject to interagency guidelines relating to safeguarding the institution’s safety and soundness. 21 

### These guidelines provide that depository institutions should establish and maintain loan documentation practices that, among othe r things, ensure that any claim against a borrower is legally enforceable and that demonstrate appropriate administration and monitoring of a loan. These existing practices focus on desired outcomes t hat are related to those that the proposal specifies fo r mortgage servicing, and so these existing practices may facilitate reasonable information management for purposes of mor tgage servicing. T he proposed policies and procedures may therefore not impose a significant additional burden on depository institut ions that are also

small servicers.

o A question to the SERs asks them to consider whether the way they currently manage information allows them to meet the duties stated i n the policies and procedures. Another question asks about the costs of changing how they manage

information in order meet those duties.

21 See Inter agency Guidelines Establishing Standards for Safety and Soundness, 60 Fed. Reg. 35674 (July 10, 1995).

### April 9 , 2012

25 

### Alternatives Considered:

The CFPB also has consider ed proposing to prescribe specific ally how servicers should manage borrower information . The CFPB believes, however, that articulating the objective s and allowing the servicer to choose the policies and procedures that meet the objective ma y better

serve consumers.

E. E ARLY 

### I NTERVENTION FOR 

### T ROUBLED OR 

### D ELINQUENT 

### B ORROWERS



### .

U nder DFA Section 1463

, t he CFPB is consider ing proposing early int ervention proc edures for troubled and delinquent borrowers to address mortgage servicing problems experienced by such

borrowers

. 22 

### For this purpose , the CFPB is considering proposing a rule requiring servicer s to make good faith e fforts to contact delinquent borrowers n o later than 45 days after the onset of delinquency and to respond promptly to troubled borrowers who contact their servicers

. 23



### The proposal the CFPB is considering would require servicers to provide delinquent borrowers

with written information

, no lat er than 45 days after the date of delinquency, about (1) options to help avoid foreclosures

, such as loss mitigation programs available to them and ho w to access a housing counselor, and (2) the f oreclosure process, including:

• A brief description of any loss mitigation programs available to the borrower;

• A brief outline of the requirements for qualifying for any available loss mitigation

programs , includin g documents and other information the bor rower must provide, and any time lines that apply;

• A brief e xplanation of the foreclosure process and possible foreclosure timelines; and

• Contact information for housing counselors who may be able to assist the borrower

.

The Bureau is also considering proposing to require that servicers provide this written

inform ation to any borrower who contacts the servicer about having or expecting to have

dif ficulty making payments within five days of the borrower making such contact.

The CFPB is considering proposing an exemption from the written disclosure requirements f or small servicers for loans they hold in portfolio if they make good faith efforts to contact borrowers no later than 45 days after they first become delinquent.

• Potential Impacts on Small Entities

Benefits

o The proposed early intervention procedure may benefit servicers who do not

22 See pp. 1

- 2 above.

23 The CFPB is consider ing permitting servicers, at their option, to initiate contact by telephone, mail, or other means generally used by the servicer to communicate with borrowers.

### April 9 , 2012

26 

### already perform the specified activities by improving the information they have about troubled borrowers, reducing servicer costs associated with loss mitigation,

and reducing servicer costs associated with preventable foreclos ure.

Costs

o Servicers generally make good faith efforts to conta ct delinquent borrowers, but

s ervicers that do so by telephone may incur one

- time and ongoing costs associated

with providing written information to such borrowers. Q uestion s to the SERs ask

about the timing and methods of their current efforts to contact delinquent borrowers and the costs of any changes they would need to make to comply with the proposal.

F. C ONTINUITY OF 

### C ONTACT



### Also under Section 1463, t he CFPB is considering proposing to r equire se rvicers to provide delinquent and troubled borrowers with specific servicer points of contact to address wide

- spread problems reported with regard to inconsistent and faulty servicer contact with borrowers. 24 

### The proposed rule under consideration would require servicers to provide all borrowers who become

45 days delinquent or who request assistance in avoiding delinquency with direct and on

- going

access to a staff of the servicer’s customer service employees dedicated to se rving troubled or delinq uent borrowers . The proposal would require that these employees have ready access to:

• a complete record of the borrower’s payment history,

• a complete record of previous communications between the servicer and the

borrower or any authorized third parties from the earlier of the date of delinquency or the date when the borro wer first requested assistance,

• all b orrower

- submitted documentation,

• u nderwriters with the ability to evaluate the borrower for loss mitigation options and the authority to approve or recommend appr oval of loss mitigation options,

and

• i nform ation on the status of any on

- going or pending foreclosure actions.

The CFPB is considering proposing that a servicer does not violate the rule if ready access is temporarily unavailable as a result of computer syst ems issues, weather emergencies and simila r force majeure events, or if records have been received too recently to be readily accessible to the customer service employees

.

If t he CFPB finds that certain classifications of small servicers already maintain consistent

, albeit

less formal

, contact with th eir financially challenged clients , the CFPB may consider proposing adjustments to this rule for such servicers

.

24 See pp. 1

- 2 above.

### April 9 , 2012

27 

### • Potential Impact on Small Entities

Benefits

o The provision for streamlined acc ess to underwriter s for assessment for loss mitigation may reduce preventable delinquency and foreclosure and servicer costs

associated with these activi ti es.

Costs

o Servicers may incur additional information management costs associated with accessing the borrower’s payment history and communications bet ween the servicer and borrower. A question to the SERs asks about these additional information management costs.

o Servicers may need to devote additional staff time to communicating with

borrowers and provi de additional training to staff in accessing and using borrower information. A question to the SERs asks about these additional staffing and training costs.

IV. OTHER FEDERAL RULES

• The Dodd

- Frank Act codified certain requirements contained in existing re gulations and in some cases imposed new requirements that expand or vary the scope of existing regulations.

As discussed above , the CFPB is working to eliminate conflicts and to harmonize the earlier rules with the new statutory requirements.

• As discusse d above, the content of certain current Reg ulation Z ARM disclosures issued before, around the time of, or after consummation of the mortgage replicate the content of the

new DFA ARM notice provided to consumers six to seven months prior to the in itial res et of

their interest rates . The varied timing of these Regulation Z notices evidences their distinct purposes, despite any replication of content. More over, this reuse of the same content may

reduce the burden on servicers since it reduces the need for t he production of new materials

and information. Also, the content of the DFA notice provided six to seven months prior to

the initial reset of the ARM’s interest rate that the CFPB is considering proposing will be th e

same or similar to the Regulation Z 1 0 26.20(c) n otice sent closer to the date of the reset or adjustment

.

• As discussed above, Regulation Z contains a prompt crediting provision generally codified by DFA’s prompt credit ing provision

.

• Regulation Z addresses the issue of partial payments . A s discussed above , the Bureau is considering follow ing the current ru le in Regulation Z and permitting partial payments to be treated in accordance with the legal obligation as determined by applicable state or other law.

• As discussed above, Regulation Z currently addresses payoff amount requests, but creates a

safe harbor of five business days

. Additionally, the current regulation applies to loans secured by a consumer’s principal dwelling. The proposal would follow the DFA and

### April 9 , 2012

28 

### require an accurate pay off balanc e to be provided no later than seven business days (excluding weekends and holidays) after the receipt of a written request from the borrower. The proposal would also construe the term “home loan” broadly and seek comments on

w hether certain typ es of loans, such as reverse mortgages, should be excluded from coverage.

• As discussed above, R eg ulation Z rules governing open

- ended credit may provide the basis

for exemption of HELOCs from rules that the CFPB is considering proposing

. Specifically,

th e CFPB is considering exempting HELOCs from the error resolution rule, as TILA and Regulation Z provides error resolution procedures for these loan products.

• As discussed above, RESPA’s procedures for qualified written r equests overlap with DFA’s

RESPA am endment provid ing additional procedures for resolving errors and responding to inquiries

. T he CFPB is consid ering proposing broader, more consumer

- friendly procedures

that cover wider topics than the current qualified written request, which it believes wi ll have

substantial benefit to borrowers

.

• The CFPB is not aware of any other federal regulations that duplicate , overlap, or conflict

with the propos als under consideration

.

V. POTENTIAL IMPACT ON COST OF CREDIT TO SMALL ENTITIES

• S ection 603(d) of the Regulatory Flexibility Act requires the CFPB to consult with small entities regarding the potential impact of the proposals under consideration on the cost of

credit for small entities and related matters. 25



### • At this time, there is no evidence that the proposals under consideration would result in an

increase in the cost of credit for small entities. The pr oposals under consideration would apply only to mortgage loans obtained by consumers primarily for personal, family, or household purposes. They wou ld not apply to loans obtained primarily for business

purposes.

• The CFPB, however, will seek the advice and recommendations of SER participants during

the SBREFA outreach session regarding this issue.

25 See 5 U.S.C. § 603(d).

### April 9 , 2012

29 ATTACHMENT A

Dodd

- Frank Wall Street Reform and Consumer Protection Act (“DFA”) (Pub. L. 111

- 203, approved July 21, 2010)

DFA EXCERPTS ON MORT GAGE SERVICING

Truth in Lending Act (“TILA”) (15 U.S.C. 1601 et seq.) Amendments



### • 

### DFA Section 1418: ARM Notice Prior to Initial Reset

(a) Hybrid adjustable ra te mortgages defined

For purposes of this section, the term “hybrid adjustable rate mortgage” means a consumer credit

transaction secured by the consumer's principal residence with a fixed interest rate for an introductory

period that adjusts or resets to a variable interest rate after such period.

(b) Notice of reset and alternatives

During the 1

- month period that ends 6 months before the date on which the interest rate in effect during

the introductory period of a hybrid adjustable rate mortgage adjusts o r resets to a variable interest rate or,

in the case of such an adjustment or resetting that occurs within the first 6 months after consummation of

such loan, at consummation, the creditor or servicer of such loan shall provide a written notice, separate

a nd distinct from all other correspondence to the consumer, that includes the following:

(1) Any index or formula used in making adjustments to or resetting the interest rate and a source of

information about the index or formula.

(2) An explanation of how the new interest rate and payment would be determined, including an

explanation of how the index was adjusted, such as by the addition of a margin.

(3) A good faith estimate, based on accepted industry standards, of the creditor or servicer of the amount

o f the monthly payment that will apply after the date of the adjustment or reset, and the assumptions on

which this estimate is based.

(4) A list of alternatives consumers may pursue before the date of adjustment or reset, and descriptions of

the actions co nsumers must take to pursue these alternatives, including

--
(A) refinancing;

(B) renegotiation of loan terms;

(C) payment forbearances; and

(D) pre

- foreclosure sales.

(5) The names, addresses, telephone numbers, and Internet addresses of counseling agencie s or programs

reasonably available to the consumer that have been certified or approved and made publicly available by

### April 9 , 2012

30 the Secretary of Housing and Urban Development or a State housing finance authority (as defined in

section 1301 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ).

(6) The address, telephone number, and Internet address for the State housing finance authority (as so

defined) for the State in which the consumer resides.

(c) Savings clause

The Board may requ ire the notice in paragraph (b) or other notice consistent with this Act for adjustable

rate mortgage loans that are not hybrid adjustable rate mortgage loans.



### • DFA Section 1420: Periodic Statement

(f) Periodic statements for residential mortgage loans

(1) In general

The creditor, assignee, or servicer with respect to any residential mortgage loan shall transmit to the

obligor, for each billing cycle, a statement setting forth each of the following items, to the extent

applicable, in a conspicuous and pr ominent manner:

(A) The amount of the principal obligation under the mortgage.

(B) The current interest rate in effect for the loan.

(C) The date on which the interest rate may next reset or adjust.

(D) The amount of any prepayment fee to be charged, if an y.

(E) A description of any late payment fees.

(F) A telephone number and electronic mail address that may be used by the obligor to obtain information

regarding the mortgage.

(G) The names, addresses, telephone numbers, and Internet addresses of counselin g agencies or programs

reasonably available to the consumer that have been certified or approved and made publicly available by

the Secretary of Housing and Urban Development or a State housing finance authority (as defined in

section 1301 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ).

(H) Such other information as the Board may prescribe in regulations.

(2) Development and use of standard form

The Board shall develop and prescribe a standard form for the disclosure r equired under this subsection,

taking into account that the statements required may be transmitted in writing or electronically.

(3) Exception

Paragraph (1) shall not apply to any fixed rate residential mortgage loan wh ere the creditor, assignee, or

servicer provides the obligor with a coupon book that provides the obligor with substantially the same

information as required in paragraph (1).

### April 9 , 2012

31 

### • DFA Section 1464: Prompt Crediting

(a) In general

In connection with a con sumer credit transaction secured by a consumer's principal dwelling, no servicer

shall fail to credit a payment to the consumer's loan account as of the date of receipt, except when a delay

in crediting does not result in any charge to the consumer or in t he reporting of negative information to a

consumer reporting agency, except as required in subsection (b).

(b) Exception

If a servicer specifies in writing requirements for the consumer to follow in making payments, but accepts

a payment that does not conf orm to the requirements, the servicer shall credit the payment as of 5 days

after receipt.



### • DFA Section 1464: Requests for Payoff Amounts

A creditor or servicer of a home loan shall send an accurate payoff balance within a reasonable time, but

in no case more than 7 business days, after the receipt of a written request for such balance from or on

behalf of the borrower.

Real Estate Settlement Procedures Act (“RESPA”) (12 U.S.C. 2601

- 1617) Amendments



### • Section 1463: Force

- Placed Insurance Notices, Procedures for Error Resolution and Inquiries, and Catch

- All Provision.

(k) Servicer prohibitions

1) In general

A servicer of a federally related mortgage shall not

--
(A) obtain force

- placed hazard insurance unless there is a reasonable basis to believe the borrower has

failed to comply with the loan contract's req uirements to maintain property insurance;

(B) charge fees for responding to valid qualified written requests (as defined in regulations which the

Bureau of Consumer Financial Protection shall prescribe) under this section;

(C) fail to take timely action to respond to a borrower's requests to correct errors relating to allocation of

payments, final balances for purposes of paying off the loan, or avoiding foreclosure, or other standard

servicer's duties;

(D) fail to respond within 10 business days to a reque st from a borrower to provide the identity, address,

and other relevant contact information about the owner or assignee of the loan; or

### April 9 , 2012

32 (E) fail to comply with any other obligation found by the Bureau of Consumer Financ ial Protection, by

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

(2) Force

- placed insurance defined

For purposes of this subsection and subsections (l) and (m), the term “force

- placed insurance” means

hazard insur ance coverage obtained by a servicer of a federally related mortgage when the borrower has

failed to maintain or renew hazard insurance on such property as required of the borrower under the terms

of the mortgage.

(l) Requirements for force

- placed insuranc e

A servicer of a federally related mortgage shall not be construed as having a reasonable basis for

obtaining force

- placed insurance unless the requirements of this subsection have been met.

(1) Written notices to borrower

A servicer may not impose any c harge on any borrower for force

- placed insurance with respect to any

property securing a federally related mortgage unless

--
( A) the servicer has sent, by first

- class mail, a written notice to the borrower containing

-- (i) a reminder of the borrower's obli gation to maintain hazard insurance on the property securing the

federally related mortgage;

(ii) a statement that the servicer does not have evidence of insurance coverage of such property;

(iii) a clear and conspicuous statement of the procedures by whic h the borrower may demonstrate that the

borrower already has insurance coverage; and

(iv) 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 covera ge in a timely manner;

(B) the servicer has sent, by first

- class mail, a second written notice, at least 30 days after the mailing of

the notice under subparagraph (A) that contains all the information described in each clause of such

subparagraph; and

(C) the servicer has not received from the borrower any demonstration of hazard insurance coverage for

the property securing the mortgage by the end of the 15

- day period beginning on the date the notice under

subparagraph (B) was sent by the servicer.

(2) Suf ficiency of demonstration

A servicer of a federally related mortgage shall accept any reasonable form of written confirmation from a

borrower of existing insurance coverage, which shall include the existing insurance policy number along

with the identity o f, and contact information for, the insurance company or agent, or as otherwise required

by the Bureau of Consumer Financial Protection.

(3) Termination of force

- placed insurance

Within 15 days of the receipt by a servicer of confirmation of a borrower's e xisting insurance coverage,

the servicer shall

--

### April 9 , 2012

33 (A) terminate the force

- placed insurance; and

B) refund to the consumer all force

- placed insurance premiums paid by the borrower during any period

during which the borrower's insurance coverage and the force

- placed insurance coverage were each in

effect, and any related fees charged to the consumer's account with respect to the force

- placed insurance

during such period.

(4) Clarification with respect to Flood Disaster Protection Act

No provision of this secti on shall be construed as prohibiting a servicer from providing simultaneous or

concurrent notice of a lack of flood insurance pursuant to section 102(e) of the Flood Disaster Protection

Act of 1973.

(m) Limitations on force

- placed insurance charges

All cha rges, apart from charges subject to State regulation as the business of insurance, related to force

placed insurance imposed on the borrower by or through the servicer shall be bona fide and reasonable.

*************** *************************

### April 9 , 2012

34 

# ATTACHMENT B

- 1

Periodic Statement Tested in Towson, Maryland February 1

- 2, 2012

### April 9 , 2012

35

### April 9 , 2012

36

### April 9 , 2012

37 

# ATTACHMENT B

- 2

Periodic Statement Tested in Memphis, Tennessee

February 29

– March 1, 2012

### April 9 , 2012

38

### April 9 , 2012

39

### April 9 , 2012

40 

# ATTACHMENT B

- 3

Periodic Statement

– Delinquent Borrower

Tested in Los Angeles

, California April 3

- 4 , 2012

### April 9 , 2012

41

### April 9 , 2012

42

### April 9 , 2012

43 

# ATTACHMENT C

- 1

Adjustable Rate Mortgage Reset Notice Tested in Towson, Maryland February 1

- 2, 2012

### April 9 , 2012

44

### April 9 , 2012

45

### April 9 , 2012

46 

# ATTACHMENT C

- 2

Adjustable Rate Mortgage Rese t Notice Tested in Memphis, Tennessee

February 29

– March 1, 2012

### April 9 , 2012

47

### April 9 , 2012

48

### April 9 , 2012

49 

# ATTACHMENT C

- 3

Adjustable Rate Mortgage Reset Notice

– Interest

- Only Feature

Tested in Los Angeles, California April 3

- 4 , 2012

### April 9 , 2012

50

### April 9 , 2012

51

### April 9 , 2012

52 

# ATTACHMENT D

- 1

Force

- Placed Insurance Not ice

Tested in Towson, Maryland February 1

- 2, 2012

### April 9 , 2012

53

### April 9 , 2012

54 

# ATTACHMENT D

- 2 (a) and (b)

Force

- Placed Insurance Notices Tested in Memphis, Tennessee

February 29

– March 1, 2012

### April 9 , 2012

55 D

- 2(a)

### April 9 , 2012

56 D

- 2(b)

### April 9 , 2012

57 

# ATTACHMENT D

- 3

Force

- Placed Insurance Notice

- Renewal

Tested in Lo s Angeles, California April 3

- 4 , 2012

### April 9 , 2012

58

### April 9 , 2012

59 

# ATTACHMENT E

Error Resolution and Inquiry Procedures

Error Inquiry

Method of

Contact Written (or electronic if the servicer provides a website or similar means of submitting alleged errors); Oral (by telephon e) W rit ten (or electronic if the servicer provides a website or similar means of submitting inquiries); Oral (by telephone)

Borrower Must

Provide Information that enables servicer to identify the borrower’s name and account, the type of error the

borrower believes to have occurred,

and when the error occurred Information that enable servicer to identify the borrower’s name and account, and sufficient detail to

enable the servicer to understand

what information the borrower seeks

Within 5 Days (excluding

w eekends and holidays) after receipt For all assertions of error, whether qualified written request or not, the

servicer must acknowledge receipt of the complaint in writing, unless

the error or is resolved and a written explanation is provided to the

bor rower in less than five days For inquiries , whether qualified written request or not, must acknowledge receipt of the correspondence in writing, unless the requested information is provided to the borrower in less than five days

Within 30 Days (excluding

weekends and holidays) after receipt Unless the type of error is subject to a shorter designated time frame for resolution, 26 

### complete investigation;

and either:

• Correct the error and provide

the borrower with written notification of the correction,

the dat e of the correction,

and contact information for further assistance;

• If the servicer concludes that a different error occurred, provide the borrower with

written notification that

includes a statement explaining the error identified, the corrective

action taken, the date of the Un less otherwise provided in the regulation, provide to the borrower without charge either:

• The information requested;

or

• Explain why the requested

information is unavailable or cannot be obtained by the servicer; and

Contact information for further

assistan ce.

26

For errors related to providing an accurate fin al payoff statement, the CFPB is considering proposing limiting the error correction time frame to five days (excluding weekends and holidays). With respect to errors related to suspending foreclosure proceedings while the borrower is performing under a t rial or permanent modification, the error correction time frame would be the earlier of a scheduled foreclosure sale or 30 days (excluding weekends and holidays).

### April 9 , 2012

60 

### corrective action, a statement of the borrower’s right to request documents relied upon by the servicer in reaching its decision within

30 days (excluding weekends and holidays) of the date of

the written notification and

how the bor rower can request such documents, and contact

information for further assistance; or

• If the servicer concludes that no error occurred, provide

the borrower with written

notification that includes a

statement of reasons as to why the servicer believes that no error occurred, a

statement of the borrower’s right to request documents relied upon by the servicer in reaching its decision and how the borrower can request such documents, and contact

information for further

assistance such as follow up questions ; Standard for Investigation Reasonable N/A

Exceptions to Duty to Investigate Errors/Respond to Inquiries • The borrower did not provide

sufficient information to investigate the alleged error ( e.g. , if the servicer cannot

determine what error the

borrow er is alleging)

• The alleged error is substantially the same as a previously

- submitted alleged

error for which the servicer has complied with the applicable error resolution provisions unless the borrower provides new, material supporting

information. The borrower makes a frivolous or irrelevant inquiry that:

• does not pertain to the

borrower or the borrower’s

account;

• does not pertain to any standard servicer duty;

• seeks information about the servicer’s financial data, personnel, trade secrets or

other confidential information; or

• requires the servicer to review lengthy, mostly

irre levant text to find a valid inquiry

### April 9 , 2012

61 

### In t hese situations, the servicer may terminate the error resolution process by notifying the borrower in writing not later than five business days of making its determination.

Servicer Rights • Request supporting

documentation from borrower so long as it is not a condition of investigating the alleged error or concluding

no error has occurred

because the borrower failed to provide any requested

documentation

• For errors subject to the standard 30 day (excluding weekends and holidays) investigation timeframe,

e xte nd the investigation by

15 days (excluding weekends and holidays) if servicer

notifies borrower of the

extension and reasons for the

del ay b efore the end of the

30 day s (excluding weekends and holidays) period, or the end of the designated response time frame for the type of error). For inquiries subject to the standard 30 day (excluding weekends and holidays) timeframe for responding,

e xt end time period for responding to an inqui ry by an additional 15 days (excluding weekends and holidays) if the servicer notify the borrower of

the extension and the reasons for the delay be fore the end of the 30 day (excluding weekends and holidays) period (or a period provided in the regulation).

Post

- Investigation Upon borrower request, provide

relevant documents to borrower without charge within 15days (excluding weekends and holidays)

.

### A ppendix D

Panel Outreach Meeting PowerPoint Slides

[See attached]Note : This document was used in support of a live discussion. As such, it does not necessarily express the entirety of that discussion nor the relative emphasis of topics therein. 

# Mortgage Servicing Rulemaking



# SBREFA Panel Outreach

April 24, 2012

Note : This document was used in support of a live discussion. As such, it does not necessarily express the entirety of that discussion nor the relative emphasis of topics therein. 

# Mortgage Servicing Rulemaking



# SBREFA Panel Outreach

April 24, 2012

WELCOME AND INTRODUCTIONS



##  CFPB Welcome and Opening Remarks

 SBA Opening Remarks

 Introduction of SBREFA Panel

 Introduction of SERs and Agency Staff

SBREFA Panel Outreach

- Apr. 24, 2012 1 

### WELCOME AND INTRODUCTIONS



##  CFPB Welcome and Opening Remarks

 SBA Opening Remarks

 Introduction of SBREFA Panel

 Introduction of SERs and Agency Staff

SBREFA Panel Outreach

- Apr. 24, 2012 1

### OUTREACH AGENDA/SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 2 

### OUTREACH AGENDA/SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 2



### WHAT IS SBREFA?

 The Small Business Regulatory Enforcement Fairness Act (SBREFA)

of 1996 requires the CFPB to form a Small Business Review Panel to seek input directly from small financial service providers for any proposed rule that may have a significant economic impact on a

substantial number of small providers.



###  A Small Business Review Panel consists of the representatives from:

• the CFPB,

• the Chief Counsel for Advocacy of the Small Business Administration (SBA), and

• the Office of Management and Budget’s Office of Information and Regulatory Affairs (OMB).

SBREFA Panel Outreach

- Apr. 24, 2012 3 

### WHAT IS SBREFA?

 The Small Business Regulatory Enforcement Fairness Act (SBREFA)

of 1996 requires the CFPB to form a Small Business Review Panel to seek input directly from small financial service providers for any proposed rule that may have a significant economic impact on a

substantial number of small providers.



###  A Small Business Review Panel consists of the representatives from:

• the CFPB,

• the Chief Counsel for Advocacy of the Small Business Administration (SBA), and

• the Office of Management and Budget’s Office of Information and Regulatory Affairs (OMB).

SBREFA Panel Outreach

- Apr. 24, 2012 3

### YOUR ROLE IN THE SBREFA PROCESS

You have been selected as a small entity representative (SER) for the mortgage servicing rulemaking.

 A SER is a representative of a small entity that likely will be subject

to the requirements of a proposed rule under consideration by the

CFPB.

 SERs’ participation in the rulemaking process helps to ensure that

the CFPB is made aware of the concerns and issues specific to small

entities.

 The Panel (CFPB, SBA, & OMB) uses your input to prepare a report

that includes the Panel’s findings on alternatives to minimize the

burden on small entities.

 The report is made part of the rulemaking record and is considered by CFPB decisionmakers.

SBREFA Panel Outreach

- Apr. 24, 2012 4 

### YOUR ROLE IN THE SBREFA PROCESS

You have been selected as a small entity representative (SER) for the mortgage servicing rulemaking.

 A SER is a representative of a small entity that likely will be subject

to the requirements of a proposed rule under consideration by the

CFPB.

 SERs’ participation in the rulemaking process helps to ensure that

the CFPB is made aware of the concerns and issues specific to small

entities.

 The Panel (CFPB, SBA, & OMB) uses your input to prepare a report

that includes the Panel’s findings on alternatives to minimize the

burden on small entities.

 The report is made part of the rulemaking record and is considered by CFPB decisionmakers.

SBREFA Panel Outreach

- Apr. 24, 2012 4



### YOUR ROLE IN THE SBREFA PROCESS

Review CFPB

proposals

under
consideration Respond to
discussion

points Provide supporting information,
as available Suggest
alternatives Submit
written

comments by
5/01/2012 (optional)

SBREFA Panel Outreach

- Apr. 24, 2012 5 

### YOUR ROLE IN THE SBREFA PROCESS

Review CFPB

proposals

under
consideration Respond to
discussion

points Provide supporting information,
as available Suggest
alternatives Submit
written

comments by
5/01/2012 (optional)

SBREFA Panel Outreach

- Apr. 24, 2012 5

### BACKGROUND



###  The Truth in Lending Act (TILA) and the Real Estate Settlement

Procedures Act (RESPA) currently impose certain requirements on mortgage servicers.



###  As the current crisis revealed, this limited regulatory scheme proved insufficient to prevent deficient servicing practices, consumer confusion,

or consumer harm.



###  The Dodd

- Frank Act empowers the CFPB to address these problems by:

• Requiring servicers to provide new consumer disclosures, including

with respect to periodic statements, interest rate adjustments and

force

- placed insurance,

• Requiring prompt crediting of consumer payments and provision of payoff statements,

• Expanding consumer rights to dispute errors and obtain information
from servicers, and

• Authorizing the CFPB to enact other regulatory requirements appropriate for consumer protection purposes.

SBREFA Panel Outreach

- Apr. 24, 2012 6 

### BACKGROUND



###  The Truth in Lending Act (TILA) and the Real Estate Settlement

Procedures Act (RESPA) currently impose certain requirements on mortgage servicers.



###  As the current crisis revealed, this limited regulatory scheme proved insufficient to prevent deficient servicing practices, consumer confusion,

or consumer harm.



###  The Dodd

- Frank Act empowers the CFPB to address these problems by:

• Requiring servicers to provide new consumer disclosures, including

with respect to periodic statements, interest rate adjustments and

force

- placed insurance,

• Requiring prompt crediting of consumer payments and provision of payoff statements,

• Expanding consumer rights to dispute errors and obtain information
from servicers, and

• Authorizing the CFPB to enact other regulatory requirements appropriate for consumer protection purposes.

SBREFA Panel Outreach

- Apr. 24, 2012 6



### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 7 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 7

### CFPB PROPOSAL UNDER CONSIDERATION

 The Dodd

- Frank Act requires “the creditor, assignee, or servicer” of a residential mortgage loan to transmit to the borrower, for each billing cycle, a periodic statement that contains general information about their mortgages, how borrowers may obtain information regarding their mortgages, and how troubled borrowers may get help.



###  The periodic statement requirement does not apply to any fixed rate residential mortgage loan where the borrower is given a coupon book with substantially the same information as required by the periodic statement.



###  The CFPB is considering proposing that the periodic statement serve as a billing statement, as well as providing borrowers with general information about their mortgages, how borrowers may obtain information regarding their mortgages, and how trouble borrowers may get help.



###  The CFPB is considering proposing alternative ways of presenting the

information in the coupon book format, given size limitations and the ability to provide updated information for each billing cycle in that format. 

### Topic 1: Periodic Statements and Coupon Book Exception

SBREFA Panel Outreach

- Apr. 24, 2012 8 

### CFPB PROPOSAL UNDER CONSIDERATION

 The Dodd

- Frank Act requires “the creditor, assignee, or servicer” of a residential mortgage loan to transmit to the borrower, for each billing cycle, a periodic statement that contains general information about their mortgages, how borrowers may obtain information regarding their mortgages, and how troubled borrowers may get help.



###  The periodic statement requirement does not apply to any fixed rate residential mortgage loan where the borrower is given a coupon book with substantially the same information as required by the periodic statement.



###  The CFPB is considering proposing that the periodic statement serve as a billing statement, as well as providing borrowers with general information about their mortgages, how borrowers may obtain information regarding their mortgages, and how trouble borrowers may get help.



###  The CFPB is considering proposing alternative ways of presenting the

information in the coupon book format, given size limitations and the ability to provide updated information for each billing cycle in that format. 

### Topic 1: Periodic Statements and Coupon Book Exception

SBREFA Panel Outreach

- Apr. 24, 2012 8



### Topic 1: Periodic Statements and Coupon Book Exception

DISCUSSION POINTS

1. Do you provide your borrowers with periodic statements?



### • If so, how do you distribute them ( e.g. , mail

, email, Web portal, other)?



### 2. If you provide periodic statement disclosures, what information that the CFPB is considering requiring do you currently not provide?

3 . What would you need to do to develop, produce and send a periodic statement disclosure with all of the information the CFPB is considering requiring?



### • What would those actions cost?



### • Which costs would be one

- time costs and which would be ongoing?

SBREFA Panel Outreach

- Apr. 24, 2012 9 

### Topic 1: Periodic Statements and Coupon Book Exception

DISCUSSION POINTS

1. Do you provide your borrowers with periodic statements?



### • If so, how do you distribute them ( e.g. , mail

, email, Web portal, other)?



### 2. If you provide periodic statement disclosures, what information that the CFPB is considering requiring do you currently not provide?

3 . What would you need to do to develop, produce and send a periodic statement disclosure with all of the information the CFPB is considering requiring?



### • What would those actions cost?



### • Which costs would be one

- time costs and which would be ongoing?

SBREFA Panel Outreach

- Apr. 24, 2012 9

### Topic 1: Periodic Statements and Coupon Book Exception

DISCUSSION POINTS (cont’d)

4. If you already provide periodic statements, how do you store records of the statements and the information provided in them?



### • What must you do to store the statements and the information in a

machine

- readable form?



### • What would those actions this cost?

5. Do you provide borrowers with coupon books for making payments?



### • To what percentage of borrowers do you provide coupon books?

SBREFA Panel Outreach

- Apr. 24, 2012 10 

### Topic 1: Periodic Statements and Coupon Book Exception

DISCUSSION POINTS (cont’d)

4. If you already provide periodic statements, how do you store records of the statements and the information provided in them?



### • What must you do to store the statements and the information in a

machine

- readable form?



### • What would those actions this cost?

5. Do you provide borrowers with coupon books for making payments?



### • To what percentage of borrowers do you provide coupon books?

SBREFA Panel Outreach

- Apr. 24, 2012 10



### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 11 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 11

### Topic 2: Adjustable Rate Mortgage Disclosures

CFPB PROPOSAL UNDER CONSIDERATION

 The Dodd

- Frank Act requires a creditor or servicer to provide a written disclosure, separate from all other correspondence, regarding the adjustment or reset of the interest rate for certain adjustable rate mortgages (ARMs) 6 to 7 months before the interest rate in effect during the introductory period of such ARMs adjusts or resets to a variable rate. ( If the adjustment or reset occurs during the first 6 months after consummation, then the disclosure must be provided at consummation .)



###  The CFPB is considering a proposal requiring creditors or servicers to provide this written disclosure for all ARMs secured by a consumer’s principal residence.



###  Current TILA rules requires creditors to provide ARM disclosures 25 to 120 days before an ARM interest rate adjustment causing a change in payment. Similar disclosures are required annually if no rate adjustment during that timeframe caused a change in payment. The CFPB is considering a proposal to

harmonize these rules with the Dodd

- Frank requirements.

SBREFA Panel Outreach

- Apr. 24, 2012 12 

### Topic 2: Adjustable Rate Mortgage Disclosures

CFPB PROPOSAL UNDER CONSIDERATION

 The Dodd

- Frank Act requires a creditor or servicer to provide a written disclosure, separate from all other correspondence, regarding the adjustment or reset of the interest rate for certain adjustable rate mortgages (ARMs) 6 to 7 months before the interest rate in effect during the introductory period of such ARMs adjusts or resets to a variable rate. ( If the adjustment or reset occurs during the first 6 months after consummation, then the disclosure must be provided at consummation .)



###  The CFPB is considering a proposal requiring creditors or servicers to provide this written disclosure for all ARMs secured by a consumer’s principal residence.



###  Current TILA rules requires creditors to provide ARM disclosures 25 to 120 days before an ARM interest rate adjustment causing a change in payment. Similar disclosures are required annually if no rate adjustment during that timeframe caused a change in payment. The CFPB is considering a proposal to

harmonize these rules with the Dodd

- Frank requirements.

SBREFA Panel Outreach

- Apr. 24, 2012 12



### Topic 2: Adjustable Rate Mortgage Disclosures

DISCUSSION POINTS

1

. If you currently provide ARM interest rate adjustment
disclosures, how far in advance of the first adjustment do you

send the disclosure?



### • Is the timeframe different for subsequent adjustments?



### 2 . If you currently provide ARM reset notices, what information the CFPB is considering requiring do you currently not provide ?



### • What would you need to do to develop, produce and send an ARM reset notice with all of the proposed information?



### • What would those actions cost?



### • Which costs would be one

- time costs and which would be ongoing costs ?



### 3. In your experience, is the first interest rate reset generally more problematic for borrowers than subsequent resets?

Note : “ ARM reset notice” means an ARM interest rate adjustment disclosure that pertains to the

initial interest rate adjustment.

SBREFA Panel Outreach

- Apr. 24, 2012 13 

### Topic 2: Adjustable Rate Mortgage Disclosures

DISCUSSION POINTS

1

. If you currently provide ARM interest rate adjustment
disclosures, how far in advance of the first adjustment do you

send the disclosure?



### • Is the timeframe different for subsequent adjustments?



### 2 . If you currently provide ARM reset notices, what information the CFPB is considering requiring do you currently not provide ?



### • What would you need to do to develop, produce and send an ARM reset notice with all of the proposed information?



### • What would those actions cost?



### • Which costs would be one

- time costs and which would be ongoing costs ?



### 3. In your experience, is the first interest rate reset generally more problematic for borrowers than subsequent resets?

Note : “ ARM reset notice” means an ARM interest rate adjustment disclosure that pertains to the

initial interest rate adjustment.

SBREFA Panel Outreach

- Apr. 24, 2012 13

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 14 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 14



### Topic 3 : Force

- Placed Insurance

CFPB PROPOSAL UNDER CONSIDERATION

 The Dodd

- Frank Act prohibits a servicer from obtaining force

- placed insurance without a reasonable basis to believe the borrower has failed to comply with

contractual property insurance requirements.



###  The Act requires servicers to provide borrowers with two written notices over a

45

- day timeframe before charging for force

- placed insurance. Upon receiving written confirmation of coverage from a borrower

, a servicer must terminate the

force

- placed insurance and provide a refund for force

- placed premiums and related charges paid by borrower for all periods the borrower had coverage.



###  The CFPB is also considering a proposal that would amend current RESPA rules by requiring servicers to make timely disbursement from escrow to pay a borrower’s property insurance premium even if the borrower is more than 30 days past due and even if the servicer has to advance the funds, unless the borrower’s policy was canceled for reasons other than nonpayment of premiums.



###  The CFPB is considering clarifying that “force

- placed insurance,” and thus the rule, do not apply to servicers who re

- purchase a borrower’s pre

- existing policy with the borrower’s express consent.

SBREFA Panel Outreach

- Apr. 24, 2012 15 

### Topic 3 : Force

- Placed Insurance

CFPB PROPOSAL UNDER CONSIDERATION

 The Dodd

- Frank Act prohibits a servicer from obtaining force

- placed insurance without a reasonable basis to believe the borrower has failed to comply with

contractual property insurance requirements.



###  The Act requires servicers to provide borrowers with two written notices over a

45

- day timeframe before charging for force

- placed insurance. Upon receiving written confirmation of coverage from a borrower

, a servicer must terminate the

force

- placed insurance and provide a refund for force

- placed premiums and related charges paid by borrower for all periods the borrower had coverage.



###  The CFPB is also considering a proposal that would amend current RESPA rules by requiring servicers to make timely disbursement from escrow to pay a borrower’s property insurance premium even if the borrower is more than 30 days past due and even if the servicer has to advance the funds, unless the borrower’s policy was canceled for reasons other than nonpayment of premiums.



###  The CFPB is considering clarifying that “force

- placed insurance,” and thus the rule, do not apply to servicers who re

- purchase a borrower’s pre

- existing policy with the borrower’s express consent.

SBREFA Panel Outreach

- Apr. 24, 2012 15

### Topic 3: Force

- Placed Insurance

DISCUSSION POINTS

1. Do you have vendor costs associated with force

- placed

insurance? (e.g. c osts for providing disclosures to borrowers, monitoring coverage on properties in your portfolio, placing force

- placed

insurance ?)



### • If so, what are they?

2. If you or your vendor communicates with borrowers with respect

to placing coverage on the borrowers’ behalf, what information the CFPB is proposing to require do you currently not provide?



### • What actions would you need to take to ensure that a force

- placed insurance disclosure with all of the proposed information is provided to borrowers?



### • What would those actions cost you and would the costs be one

- time or ongoing costs ?

3. What costs may a proposal that amends current RESPA rules on the timely disbursements of insurance premiums out of escrow impose on you ?

SBREFA Panel Outreach

- Apr. 24, 2012 16 

### Topic 3: Force

- Placed Insurance

DISCUSSION POINTS

1. Do you have vendor costs associated with force

- placed

insurance? (e.g. c osts for providing disclosures to borrowers, monitoring coverage on properties in your portfolio, placing force

- placed

insurance ?)



### • If so, what are they?

2. If you or your vendor communicates with borrowers with respect

to placing coverage on the borrowers’ behalf, what information the CFPB is proposing to require do you currently not provide?



### • What actions would you need to take to ensure that a force

- placed insurance disclosure with all of the proposed information is provided to borrowers?



### • What would those actions cost you and would the costs be one

- time or ongoing costs ?

3. What costs may a proposal that amends current RESPA rules on the timely disbursements of insurance premiums out of escrow impose on you ?

SBREFA Panel Outreach

- Apr. 24, 2012 16



### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 17 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 17

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 18 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 18



### Topic 4: Error Resolution and Responses to Inquiries

CFPB PROPOSAL UNDER CONSIDERATION

 The Dodd

- Frank Act provides for a number of prohibitions with respect to servicers’ handling of alleged errors and borrower inquiries for information, including revising RESPA’s timeframe for responding to qualified written requests (QWRs ).



###  As set forth in the Dodd

- Frank Act, a servicer of a federally related mortgage

shall not:



### • Charge fees for responding to valid QWRs, as defined by the CFPB;



### • Fail to respond within 10 business days to a borrower’s request for the identity and contact information for the owner or assignee of the loan; or



### • Fail to take timely action to respond to a borrower’s requests to correct errors relating to:

(1) allocation of payments,

(2) final balances for purposes of paying off the loan,

( 3) avoiding foreclosure, or
(4 ) other standard servicer duties

.

SBREFA Panel Outreach

- Apr. 24, 2012 19 

### Topic 4: Error Resolution and Responses to Inquiries

CFPB PROPOSAL UNDER CONSIDERATION

 The Dodd

- Frank Act provides for a number of prohibitions with respect to servicers’ handling of alleged errors and borrower inquiries for information, including revising RESPA’s timeframe for responding to qualified written requests (QWRs ).



###  As set forth in the Dodd

- Frank Act, a servicer of a federally related mortgage

shall not:



### • Charge fees for responding to valid QWRs, as defined by the CFPB;



### • Fail to respond within 10 business days to a borrower’s request for the identity and contact information for the owner or assignee of the loan; or



### • Fail to take timely action to respond to a borrower’s requests to correct errors relating to:

(1) allocation of payments,

(2) final balances for purposes of paying off the loan,

( 3) avoiding foreclosure, or
(4 ) other standard servicer duties

.

SBREFA Panel Outreach

- Apr. 24, 2012 19

### Topic 4: Error Resolution and Responses to Inquiries

CFPB PROPOSAL UNDER CONSIDERATION (cont.)

 In order to cover each of the areas for which servicers must correct errors, the CFPB is considering proposing to define “errors” with an exclusive list

.



###  The CFPB is also considering proposing a comprehensive set of procedures and timeframes for servicers to investigate and respond to borrowers’ oral and written assertions of error and inquiries for information.



### • The procedures would incorporate, but not be limited to RESPA’s use of QWRs to address “servicing” issues, as defined by RESPA.



### • The timeframes would generally track the revised timeframes for responding to QWRs in RESPA, subject to certain explicit exceptions the CFPB is considering proposing.



###  The CFPB is considering proposing to exclude open

- end lines of credit, like HELOCs, from these provisions because they are subject to distinct error resolution procedures under TILA

.

SBREFA Panel Outreach

- Apr. 24, 2012 20 

### Topic 4: Error Resolution and Responses to Inquiries

CFPB PROPOSAL UNDER CONSIDERATION (cont.)

 In order to cover each of the areas for which servicers must correct errors, the CFPB is considering proposing to define “errors” with an exclusive list

.



###  The CFPB is also considering proposing a comprehensive set of procedures and timeframes for servicers to investigate and respond to borrowers’ oral and written assertions of error and inquiries for information.



### • The procedures would incorporate, but not be limited to RESPA’s use of QWRs to address “servicing” issues, as defined by RESPA.



### • The timeframes would generally track the revised timeframes for responding to QWRs in RESPA, subject to certain explicit exceptions the CFPB is considering proposing.



###  The CFPB is considering proposing to exclude open

- end lines of credit, like HELOCs, from these provisions because they are subject to distinct error resolution procedures under TILA

.

SBREFA Panel Outreach

- Apr. 24, 2012 20



### Topic 4: Error Resolution and Responses to Inquiries

DISCUSSION POINTS

1. The CFPB is considering proposing an exclusive list of errors. If a borrower contacts you in writing and claims that one of the errors on

the list has occurred, how do you currently respond ?



### • If a borrower contacts you orally, is your response different?



### • Does your response depend on the type of loan the borrower has?



### • What borrower issues or errors do you currently respond to that are not on

the list of errors the CFPB is considering?

2 . The CFPB is considering proposing timeframes for responding to alleged errors from borrowers. Are there alleged errors to which you do not currently respond in the timeframes the CFPB is proposing?



### • If so, what actions would you need to take in order to respond within these

timeframes ?



### • What would those actions cost?



### • Which costs would be one

- time and which would be ongoing ?

SBREFA Panel Outreach

- Apr. 24, 2012 21 

### Topic 4: Error Resolution and Responses to Inquiries

DISCUSSION POINTS

1. The CFPB is considering proposing an exclusive list of errors. If a borrower contacts you in writing and claims that one of the errors on

the list has occurred, how do you currently respond ?



### • If a borrower contacts you orally, is your response different?



### • Does your response depend on the type of loan the borrower has?



### • What borrower issues or errors do you currently respond to that are not on

the list of errors the CFPB is considering?

2 . The CFPB is considering proposing timeframes for responding to alleged errors from borrowers. Are there alleged errors to which you do not currently respond in the timeframes the CFPB is proposing?



### • If so, what actions would you need to take in order to respond within these

timeframes ?



### • What would those actions cost?



### • Which costs would be one

- time and which would be ongoing ?

SBREFA Panel Outreach

- Apr. 24, 2012 21

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 22 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 22



### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 23 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 23

### Topic 

### 5: Reasonable Information Management Policies

CFPB PROPOSAL UNDER CONSIDERATION

 The CFPB is considering requiring servicers to establish reasonable policies and procedures for managing borrower information in order to achieve certain objectives, such as:
(1) Provide accurate and timely disclosures.

(2) Minimize errors and facilitate prompt error correction.

(3) Maintain records of borrower contact (with a possible exception for some small servicers).

(4) Facilitate loss mitigation, such as ensuring reasonable and timely access to documents about the borrower or submitted by the borrower in connection with loss mitigation requests.

(5) Enable servicers to transfer all relevant and accurate information and documents about a borrower to a subsequent servicer during a mortgage loan servicing transfer or a forum addressing foreclosure.



###  The CFPB is considering proposing that the reasonableness of a servicer’s information management policies and procedures would depend upon the servicer’s size and the nature and scope of its activities

.

SBREFA Panel Outreach

- Apr. 24, 2012 24 

### Topic 

### 5: Reasonable Information Management Policies

CFPB PROPOSAL UNDER CONSIDERATION

 The CFPB is considering requiring servicers to establish reasonable policies and procedures for managing borrower information in order to achieve certain objectives, such as:
(1) Provide accurate and timely disclosures.

(2) Minimize errors and facilitate prompt error correction.

(3) Maintain records of borrower contact (with a possible exception for some small servicers).

(4) Facilitate loss mitigation, such as ensuring reasonable and timely access to documents about the borrower or submitted by the borrower in connection with loss mitigation requests.

(5) Enable servicers to transfer all relevant and accurate information and documents about a borrower to a subsequent servicer during a mortgage loan servicing transfer or a forum addressing foreclosure.



###  The CFPB is considering proposing that the reasonableness of a servicer’s information management policies and procedures would depend upon the servicer’s size and the nature and scope of its activities

.

SBREFA Panel Outreach

- Apr. 24, 2012 24



### Topic 

### 5: Reasonable Information Management Policies

CFPB PROPOSAL UNDER CONSIDERATION (cont.)

 The CFPB is considering proposing to explain a violation would occur if the

servicer:

(1) fails to establish reasonable information management policies and procedures, or

(2) demonstrates a pattern or practice of failing to comply with the information management policies and procedures it establishes.



###  An occasional failure to comply with established policies and procedures

would not constitute a violation.



###  Note: Civil liability in a private action may arise from violation of the CFPB’s proposed reasonable information management policies and procedures regulation.

SBREFA Panel Outreach

- Apr. 24, 2012 25 

### Topic 

### 5: Reasonable Information Management Policies

CFPB PROPOSAL UNDER CONSIDERATION (cont.)

 The CFPB is considering proposing to explain a violation would occur if the

servicer:

(1) fails to establish reasonable information management policies and procedures, or

(2) demonstrates a pattern or practice of failing to comply with the information management policies and procedures it establishes.



###  An occasional failure to comply with established policies and procedures

would not constitute a violation.



###  Note: Civil liability in a private action may arise from violation of the CFPB’s proposed reasonable information management policies and procedures regulation.

SBREFA Panel Outreach

- Apr. 24, 2012 25

### Topic 

### 5: Reasonable Information Management Policies

DISCUSSION POINTS

1. Do you currently manage information in a way that allows you to meet the duties the CFPB is proposing to be stated in your information management policies and procedures?

2. If there are certain duties you can’t meet due to how you currently manage information, what actions would you need to

take with respect to how you manage information to meet these

duties?



### • What would those actions cost?



### • Which costs would be one

- time and which would be ongoing?

SBREFA Panel Outreach

- Apr. 24, 2012 26 

### Topic 

### 5: Reasonable Information Management Policies

DISCUSSION POINTS

1. Do you currently manage information in a way that allows you to meet the duties the CFPB is proposing to be stated in your information management policies and procedures?

2. If there are certain duties you can’t meet due to how you currently manage information, what actions would you need to

take with respect to how you manage information to meet these

duties?



### • What would those actions cost?



### • Which costs would be one

- time and which would be ongoing?

SBREFA Panel Outreach

- Apr. 24, 2012 26



### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 27 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 27

### CFPB PROPOSAL UNDER CONSIDERATION

Early Intervention



###  The CFPB is considering proposing requiring servicers to make good faith efforts to contact delinquent borrowers no later than 45 days after the onset of delinquency and to respond promptly to borrowers who contact them about having or expecting to have trouble making payments.



###  For delinquent borrowers, the CFPB is considering requiring servicers to provide written information about options to help avoid foreclosures and information about the foreclosure process no later than 45 days after the date of delinquency.



###  For borrowers who contact their servicers about having or expecting to have trouble making payments, the CFPB is considering requiring servicers to provide the written information within 5 days of the borrower making such contact.



###  The CFPB is considering exempting small servicers from this written disclosure requirement with respect to portfolio loans if they make good faith efforts to contact borrowers no later than 45 days after the borrowers become delinquent. 

### Topic 6: Early Intervention and Continuity of Contact

SBREFA Panel Outreach

- Apr. 24, 2012 28 

### CFPB PROPOSAL UNDER CONSIDERATION

Early Intervention



###  The CFPB is considering proposing requiring servicers to make good faith efforts to contact delinquent borrowers no later than 45 days after the onset of delinquency and to respond promptly to borrowers who contact them about having or expecting to have trouble making payments.



###  For delinquent borrowers, the CFPB is considering requiring servicers to provide written information about options to help avoid foreclosures and information about the foreclosure process no later than 45 days after the date of delinquency.



###  For borrowers who contact their servicers about having or expecting to have trouble making payments, the CFPB is considering requiring servicers to provide the written information within 5 days of the borrower making such contact.



###  The CFPB is considering exempting small servicers from this written disclosure requirement with respect to portfolio loans if they make good faith efforts to contact borrowers no later than 45 days after the borrowers become delinquent. 

### Topic 6: Early Intervention and Continuity of Contact

SBREFA Panel Outreach

- Apr. 24, 2012 28



### CFPB PROPOSAL UNDER CONSIDERATION

Continuity of Contact



###  The CFPB is considering proposing requiring servicers to provide all borrowers who become 45 days delinquent or who request help in avoiding delinquency

with direct and on

- going access to employees dedicated to serving such

borrowers.



###  These employees would have ready access to:

• A complete record of the borrower’s payment history and previous communications between the servicer and the borrower or a third party acting on the borrower’s behalf from the earlier of the date of delinquency or the date when the borrower first requested assistance;

• All documentation associated with loss mitigation submitted by or on the borrower’s
behalf;

• Underwriters that may evaluate the borrower for loss mitigation; and

• Information on the status of any current or pending foreclosure action.



###  The CFPB may consider proposing adjustments to these requirements if the CFPB finds that certain small servicers already maintain consistent, but less formal, contact with their delinquent or troubled borrowers. 

### Topic 6: Early Intervention and Continuity of Contact

SBREFA Panel Outreach

- Apr. 24, 2012 29 

### CFPB PROPOSAL UNDER CONSIDERATION

Continuity of Contact



###  The CFPB is considering proposing requiring servicers to provide all borrowers who become 45 days delinquent or who request help in avoiding delinquency

with direct and on

- going access to employees dedicated to serving such

borrowers.



###  These employees would have ready access to:

• A complete record of the borrower’s payment history and previous communications between the servicer and the borrower or a third party acting on the borrower’s behalf from the earlier of the date of delinquency or the date when the borrower first requested assistance;

• All documentation associated with loss mitigation submitted by or on the borrower’s
behalf;

• Underwriters that may evaluate the borrower for loss mitigation; and

• Information on the status of any current or pending foreclosure action.



###  The CFPB may consider proposing adjustments to these requirements if the CFPB finds that certain small servicers already maintain consistent, but less formal, contact with their delinquent or troubled borrowers. 

### Topic 6: Early Intervention and Continuity of Contact

SBREFA Panel Outreach

- Apr. 24, 2012 29

### Topic 6: Early Intervention and Continuity of Contact

DISCUSSION POINTS
Early Intervention



### 1. How long after delinquency do you currently attempt to

contact borrowers?



### • Would you ever wait longer than 45 days before attempting to contact the

borrower ?



### 2. If your procedure is different from the proposed early

intervention procedures, what actions would you need to take in order to comply with them?



### • What would those actions cost?



### • Which costs would be one

- time and which would be ongoing?



### • Would the costs be substantially mitigated if you did not have provide

written information a delinquent borrower for portfolio loans?



### 3. Would the costs of complying be substantially mitigated if you did not have to contact a delinquent borrower in writing if you originated the delinquent loan and held it in portfolio?

SBREFA Panel Outreach

- Apr. 24, 2012 30 

### Topic 6: Early Intervention and Continuity of Contact

DISCUSSION POINTS
Early Intervention



### 1. How long after delinquency do you currently attempt to

contact borrowers?



### • Would you ever wait longer than 45 days before attempting to contact the

borrower ?



### 2. If your procedure is different from the proposed early

intervention procedures, what actions would you need to take in order to comply with them?



### • What would those actions cost?



### • Which costs would be one

- time and which would be ongoing?



### • Would the costs be substantially mitigated if you did not have provide

written information a delinquent borrower for portfolio loans?



### 3. Would the costs of complying be substantially mitigated if you did not have to contact a delinquent borrower in writing if you originated the delinquent loan and held it in portfolio?

SBREFA Panel Outreach

- Apr. 24, 2012 30



### Topic 6: Early Intervention and Continuity of Contact

DISCUSSION POINTS (cont’d)

Continuity of Contact



### 1. How much staff do you currently have to work with troubled

borrowers?



### • How do you provide access to this staff?



### 2. If you currently do not provide troubled borrowers with direct and ongoing access to staff ( e.g. , a dedicated phone number that is staffed during business hours), what actions would you have to take to do so?



### • What would those actions cost ?



### 3. Does the staff that works with troubled borrowers currently

have ready access to the information described in the proposal?



### • If not, what information is not readily available?



### • What actions would you need to take in order to make sure that staff has

access to this information?



### • How much would those actions cost?

SBREFA Panel Outreach

- Apr. 24, 2012 31 

### Topic 6: Early Intervention and Continuity of Contact

DISCUSSION POINTS (cont’d)

Continuity of Contact



### 1. How much staff do you currently have to work with troubled

borrowers?



### • How do you provide access to this staff?



### 2. If you currently do not provide troubled borrowers with direct and ongoing access to staff ( e.g. , a dedicated phone number that is staffed during business hours), what actions would you have to take to do so?



### • What would those actions cost ?



### 3. Does the staff that works with troubled borrowers currently

have ready access to the information described in the proposal?



### • If not, what information is not readily available?



### • What actions would you need to take in order to make sure that staff has

access to this information?



### • How much would those actions cost?

SBREFA Panel Outreach

- Apr. 24, 2012 31

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 32 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 32



### Topic 

### 7: Prompt Crediting and Payoff Amounts

CFPB PROPOSAL UNDER CONSIDERATION

Prompt Crediting



###  The Dodd

- Frank Act requires servicers to credit payments on a consumer’s principal dwelling as of the date of receipt, except if the delay does not result in a charge or the reporting of negative information to a consumer reporting

agency.



###  The servicer may, however, specify in writing requirements that the consumer must follow to make conforming payments. If non

- conforming payments are accepted, servicers must credit payments 5 days after receipt.



###  The CFPB is considering proposing retaining the current TILA rule requiring partial payments be treated in accordance with legal obligations as determined by applicable state or other law.



###  The CFPB is also considering proposing to require that as soon as the amount in a suspense account equals a full contractual payment, the servicer must credit the payment to the earliest delinquent payment.

SBREFA Panel Outreach

- Apr. 24, 2012 33 

### Topic 

### 7: Prompt Crediting and Payoff Amounts

CFPB PROPOSAL UNDER CONSIDERATION

Prompt Crediting



###  The Dodd

- Frank Act requires servicers to credit payments on a consumer’s principal dwelling as of the date of receipt, except if the delay does not result in a charge or the reporting of negative information to a consumer reporting

agency.



###  The servicer may, however, specify in writing requirements that the consumer must follow to make conforming payments. If non

- conforming payments are accepted, servicers must credit payments 5 days after receipt.



###  The CFPB is considering proposing retaining the current TILA rule requiring partial payments be treated in accordance with legal obligations as determined by applicable state or other law.



###  The CFPB is also considering proposing to require that as soon as the amount in a suspense account equals a full contractual payment, the servicer must credit the payment to the earliest delinquent payment.

SBREFA Panel Outreach

- Apr. 24, 2012 33

### Topic 

### 7: Prompt Crediting and Payoff Amounts

CFPB PROPOSAL UNDER CONSIDERATION

Payoff Amounts



###  The Dodd

- Frank Act requires the creditor or servicer of a “home loan” to send an accurate payoff balance within a reasonable time, but no more than 7 business days, after the receipt of a written request for the payoff balance from

or on behalf of the borrower.



###  Current TILA rules address payoff amount requests for certain high cost mortgages, but create a 5 business day safe harbor.



###  The CFPB is considering proposing a rule that would generally follow the

Dodd

- Frank Act and require an accurate payoff balance to be provided no later than 7 days (excluding holidays and weekends) after the receipt of a written request from the borrower.



###  The CFPB is considering proposing the term “home loan” be construed broadly

but that it exclude reverse mortgages

.

SBREFA Panel Outreach

- Apr. 24, 2012 34 

### Topic 

### 7: Prompt Crediting and Payoff Amounts

CFPB PROPOSAL UNDER CONSIDERATION

Payoff Amounts



###  The Dodd

- Frank Act requires the creditor or servicer of a “home loan” to send an accurate payoff balance within a reasonable time, but no more than 7 business days, after the receipt of a written request for the payoff balance from

or on behalf of the borrower.



###  Current TILA rules address payoff amount requests for certain high cost mortgages, but create a 5 business day safe harbor.



###  The CFPB is considering proposing a rule that would generally follow the

Dodd

- Frank Act and require an accurate payoff balance to be provided no later than 7 days (excluding holidays and weekends) after the receipt of a written request from the borrower.



###  The CFPB is considering proposing the term “home loan” be construed broadly

but that it exclude reverse mortgages

.

SBREFA Panel Outreach

- Apr. 24, 2012 34



### DISCUSSION POINTS

Prompt Crediting and Payoff Amounts



### 1. How do you currently handle partial payments from

borrowers?

2

. If you currently place partial payments in suspense accounts, when do you credit the borrower with a payment?

3. If you do not credit the borrower with a full payment once a full payment is in the suspense account, what actions would you

need to take in order to do so?



### • What would those actions cost?



### • Which costs would be one

- time and which would be ongoing? 

### Topic 

### 7: Prompt Crediting and Payoff Amounts

SBREFA Panel Outreach

- Apr. 24, 2012 35 

### DISCUSSION POINTS

Prompt Crediting and Payoff Amounts



### 1. How do you currently handle partial payments from

borrowers?

2

. If you currently place partial payments in suspense accounts, when do you credit the borrower with a payment?

3. If you do not credit the borrower with a full payment once a full payment is in the suspense account, what actions would you

need to take in order to do so?



### • What would those actions cost?



### • Which costs would be one

- time and which would be ongoing? 

### Topic 

### 7: Prompt Crediting and Payoff Amounts

SBREFA Panel Outreach

- Apr. 24, 2012 35

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 36 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 36



### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 37 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 37

### Topic 8: Impact on the Cost of Business Credit

CFPB PROPOSAL UNDER CONSIDERATION



###  The Regulatory Flexibility Act requires the CFPB to consult with small entities regarding any potential increase in the cost of credit for small entities that would result from the proposals under consideration, and on alternatives that minimize any such increase.



###  At this time, the CFPB has no evidence that the proposals under

consideration would result in an increase in the cost of credit for small

entities.

• The proposals under consideration would apply only to mortgage loans obtained by consumers primarily for personal, family, or household

purposes

.

• The proposals would not apply to loans obtained primarily for business

purposes

. 

###  The CFPB is seeking the advice and recommendations of the SERs regarding this issue.

SBREFA Panel Outreach

- Apr. 24, 2012 38 

### Topic 8: Impact on the Cost of Business Credit

CFPB PROPOSAL UNDER CONSIDERATION



###  The Regulatory Flexibility Act requires the CFPB to consult with small entities regarding any potential increase in the cost of credit for small entities that would result from the proposals under consideration, and on alternatives that minimize any such increase.



###  At this time, the CFPB has no evidence that the proposals under

consideration would result in an increase in the cost of credit for small

entities.

• The proposals under consideration would apply only to mortgage loans obtained by consumers primarily for personal, family, or household

purposes

.

• The proposals would not apply to loans obtained primarily for business

purposes

. 

###  The CFPB is seeking the advice and recommendations of the SERs regarding this issue.

SBREFA Panel Outreach

- Apr. 24, 2012 38



### Topic 8: Impact on the Cost of Business Credit

DISCUSSION POINTS

1. Which of the proposals under consideration, if any, do you believe may impact the cost of credit for small entities?

• Why might this occur?

• Are there significant alternatives to any of the proposals that may minimize the impact on the cost of credit for small entities while accomplishing the statutory objectives addressed by that proposal ?

2 . Do you extend consumer mortgage loans that are used secondarily to

finance a small business?

• If so, what percentage of all of your consumer mortgage loans are these loans?

• What is the average amount of the credit extended on these loans?

• What percentage of the credit extended is actually used for a business purpose?

• Would the proposals under consideration cause you to increase the rates or fees you charge for these loans? (If yes, please describe the increase that you anticipate, your basis for anticipating that increase, and any feasible alternatives to the proposals under consideration you would recommend to minimize that increase .)

• Do you believe these borrowers could instead obtain home

- secured business loans ( i.e.

, a home

- secured loan used primarily for business purposes) from you or another lender?

SBREFA Panel Outreach

- Apr. 24, 2012 39 

### Topic 8: Impact on the Cost of Business Credit

DISCUSSION POINTS

1. Which of the proposals under consideration, if any, do you believe may impact the cost of credit for small entities?

• Why might this occur?

• Are there significant alternatives to any of the proposals that may minimize the impact on the cost of credit for small entities while accomplishing the statutory objectives addressed by that proposal ?

2 . Do you extend consumer mortgage loans that are used secondarily to

finance a small business?

• If so, what percentage of all of your consumer mortgage loans are these loans?

• What is the average amount of the credit extended on these loans?

• What percentage of the credit extended is actually used for a business purpose?

• Would the proposals under consideration cause you to increase the rates or fees you charge for these loans? (If yes, please describe the increase that you anticipate, your basis for anticipating that increase, and any feasible alternatives to the proposals under consideration you would recommend to minimize that increase .)

• Do you believe these borrowers could instead obtain home

- secured business loans ( i.e.

, a home

- secured loan used primarily for business purposes) from you or another lender?

SBREFA Panel Outreach

- Apr. 24, 2012 39

### Topic 8: Impact on the Cost of Business Credit

DISCUSSION POINTS (cont.)

3

. In the past year, have you, as a small entity, taken out a consumer mortgage loan that you also used secondarily to finance your small

business?

• If so, in the past year, what percentage of your business costs did you fund through

such credit?

• Do you believe that the proposals under consideration would cause you to pay higher

rates or fees for such loans?

• If yes, why might this occur?

• If yes, please describe any feasible alternatives to the proposals under consideration you would recommend to minimize the increase.

• As an alternative to this type of credit, could you obtain a home

- secured business loan ( i.e. , a home

- secured loan used primarily for business purposes)?

SBREFA Panel Outreach

- Apr. 24, 2012 40 

### Topic 8: Impact on the Cost of Business Credit

DISCUSSION POINTS (cont.)

3

. In the past year, have you, as a small entity, taken out a consumer mortgage loan that you also used secondarily to finance your small

business?

• If so, in the past year, what percentage of your business costs did you fund through

such credit?

• Do you believe that the proposals under consideration would cause you to pay higher

rates or fees for such loans?

• If yes, why might this occur?

• If yes, please describe any feasible alternatives to the proposals under consideration you would recommend to minimize the increase.

• As an alternative to this type of credit, could you obtain a home

- secured business loan ( i.e. , a home

- secured loan used primarily for business purposes)?

SBREFA Panel Outreach

- Apr. 24, 2012 40



### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 41 

### SCHEDULE

Item Time (min)

Welcome and Introductions 8:00

– 8:15

General Overview: What is SBREFA?

Your Role in the SBREFA Process Background on Servicing Regulation 8:15

– 8:30

Topic 1: Periodic Statements and Coupon Book Exception 8:30

– 9:15

Topic 2: Adjustable Rate Mortgage Disclosures 9:15

– 10:00

Topic 3: Force

- Placed Insurance 10:00

- 10:45

Morning Break 10:45

– 11:00

Topic 4: Error Resolution and Responses to Inquiries 11:00

– 12:00

Lunch Break 12:00

– 1:00

Topic 5: Reasonable Information Management Policies 1:00

– 1:30

Topic 6: Early Intervention and Continuity of Contact 1:30

– 2:30

Topic 7: Prompt Crediting and Payoff Amounts 2:30

– 3:00

Afternoon Break 3:00

– 3:15

Topic 8: Impact on the Cost of Business Credit 3:15

– 3:45

Additional Feedback/Wrap

- Up 3:45

– 5:00

SBREFA Panel Outreach

- Apr. 24, 2012 41

### ADDITIONAL FEEDBACK

DISCUSSION POINTS



###  Are there any feasible alternatives to the proposals under consideration that would minimize any significant economic impact on your business while accomplishing the CFPB’s statutory mandate and objectives?



### • The CFPB is particularly interested in learning whether adjustments may be

called for in the case of small servicers that originate loans for their

customers and self

- service those loans either while held in portfolio or after selling the loans (servicing retained) to Government

- Sponsored Enterprises (“GSEs”) or other investors

.



### • The CFPB seeks to understand how consumers would be protected in those cases where adjustments are suggested.



###  Are there any other federal rules that you believe may duplicate, overlap or conflict with the proposals under consideration?

SBREFA Panel Outreach

- Apr. 24, 2012 42 

### ADDITIONAL FEEDBACK

DISCUSSION POINTS



###  Are there any feasible alternatives to the proposals under consideration that would minimize any significant economic impact on your business while accomplishing the CFPB’s statutory mandate and objectives?



### • The CFPB is particularly interested in learning whether adjustments may be

called for in the case of small servicers that originate loans for their

customers and self

- service those loans either while held in portfolio or after selling the loans (servicing retained) to Government

- Sponsored Enterprises (“GSEs”) or other investors

.



### • The CFPB seeks to understand how consumers would be protected in those cases where adjustments are suggested.



###  Are there any other federal rules that you believe may duplicate, overlap or conflict with the proposals under consideration?

SBREFA Panel Outreach

- Apr. 24, 2012 42



### WRAP

- UP

CLOSING REMARKS: DAN SOKOLOV, CFPB

 W ritten comments are due no later than May 1, 2012.

 Please email comments to Rachel Ross, Rachel.Ross@cfpb.gov

SBREFA Panel Outreach

- Apr. 24, 2012 43 

### WRAP

- UP

CLOSING REMARKS: DAN SOKOLOV, CFPB

 W ritten comments are due no later than May 1, 2012.

 Please email comments to Rachel Ross, Rachel.Ross@cfpb.gov

SBREFA Panel Outreach

- Apr. 24, 2012 43