Vol. 77 Monday, 

No. 180 September 17, 2012 

Part II 

Bureau of Consumer Financial Protection 

12 CFR Part 1024 

2012 Real Estate Settlement Procedures Act (Regulation X) Mortgage 

Servicing Proposal; Proposed Rule 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57200 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

1Federal Reserve System, Office of the 

Comptroller of the Currency, & Office of Thrift 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1024 

[Docket No. CFPB–2012–0034] 

RIN 3170–AA14 

2012 Real Estate Settlement 

Procedures Act (Regulation X) 

Mortgage Servicing Proposal 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Proposed rule with request for 

public comment. 

SUMMARY: The Bureau of Consumer 

Financial Protection (the Bureau) is 

proposing to amend Regulation X, 

which implements the Real Estate 

Settlement Procedures Act of 1974 

(RESPA) and the official interpretation 

of the regulation. The proposed 

amendments implement the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act) 

provisions regarding mortgage loan 

servicing. Specifically, this proposal 

requests comment regarding proposed 

additions to Regulation X to address 

seven servicer obligations: To correct 

errors asserted by mortgage loan 

borrowers; to provide information 

requested by mortgage loan borrowers; 

to ensure that a reasonable basis exists 

to obtain force-placed insurance; to 

establish reasonable information 

management policies and procedures; to 

provide information about mortgage loss 

mitigation options to delinquent 

borrowers; to provide delinquent 

borrowers access to servicer personnel 

with continuity of contact about the 

borrower’s mortgage loan account; and 

to evaluate borrowers’ applications for 

available loss mitigation options. 

This proposal would also modify and 

streamline certain existing servicingrelated provisions of Regulation X. For 

instance, the proposal would revise 

provisions relating to a mortgage 

servicer’s obligation to provide 

disclosures to borrowers in connection 

with a transfer of mortgage servicing, 

and a mortgage servicer’s obligation to 

manage escrow accounts, including the 

obligation to advance funds to an 

escrow account to maintain insurance 

coverage and to return amounts in an 

escrow account to a borrower upon 

payment in full of a mortgage loan. 

Published elsewhere in today’s 

Federal Register, the Bureau proposes 

companion regulations implementing 

amendments to the Truth In Lending 

Act (TILA) in Regulation Z (the 2012 

TILA Servicing Proposal). 

DATES: Comments must be received on 

or before October 9, 2012, except that 

comments on the Paperwork Reduction 

Act analysis in part IX of this Federal 

Register notice must be received on or 

before November 16, 2012. 

ADDRESSES: You may submit comments, 

identified by Docket No. CFPB–2012– 

0034 or RIN 3170–AA14, by any of the 

following methods: 

• Electronic: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail/Hand Delivery/Courier: 

Monica Jackson, Office of the Executive 

Secretary, Consumer Financial 

Protection Bureau, 1700 G Street NW., 

Washington, DC 20552. 

Instructions: All submissions must 

include the agency name and docket 

number or Regulatory Information 

Number (RIN) for this rulemaking. In 

general, all comments received will be 

posted without change to http:// 

www.regulations.gov. In addition, 

comments will be available for public 

inspection and copying at 1700 G Street 

NW., Washington, DC 20552, on official 

business days between the hours of 10 

a.m. and 5 p.m. Eastern Time. You can 

make an appointment to inspect the 

documents by telephoning (202) 435– 

7275. 

All comments, including attachments 

and other supporting materials, will 

become part of the public record and 

subject to public disclosure. Sensitive 

personal information, such as account 

numbers or Social Security numbers, 

should not be included. Comments will 

not be edited to remove any identifying 

or contact information. 

e-Rulemaking Initiative 

The Bureau is working with the 

Cornell e-Rulemaking Initiative (CeRI) 

on a pilot project, Regulation Room, to 

use different web technologies and 

approaches to enhance public 

understanding and participation in 

Bureau rulemakings and to evaluate the 

advantages and disadvantages of these 

techniques. The TILA and RESPA 

proposed rulemakings on mortgage 

servicing are the subject of the project. 

The Bureau has undertaken this project 

to increase effective public involvement 

in the rulemaking process and strongly 

encourages all parties interested in this 

rulemaking to visit the Regulation Room 

Web site, http:// 

www.regulationroom.org, to learn about 

the Bureau’s proposed mortgage 

servicing rules and the rulemaking 

process, to discuss the issues in the 

rules with other persons and groups, 

and to participate in drafting a summary 

of that discussion that CeRI will submit 

to the Bureau. 

Note that Regulation Room is 

sponsored by CeRI, and is not an official 

United States Government Web site. 

Participating in the discussion on that 

site will not result in individual formal 

comments that will be included in the 

Bureau’s rulemaking record. If you 

would like to add a formal comment, 

please do so through the means 

identified above. The Bureau anticipates 

that CeRI will submit to the Bureau’s 

rulemaking docket a summary of the 

discussion that occurs on the Regulation 

Room site and that participants will 

have a chance to review a draft and 

suggest changes before the summary is 

submitted. For questions about this 

project, please contact Whitney Patross, 

Attorney, Office of Regulations, at (202) 

435–7700. 

FOR FURTHER INFORMATION CONTACT: 

Regulation X (RESPA): Jane Gao, 

Mitchell E. Hochberg, and Michael 

Scherzer, Counsels at (202) 435–7700; 

Office of Regulations, Division of 

Research, Markets, and Regulations, 

Bureau of Consumer Financial 

Protection; 1700 G Street NW., 

Washington, DC 20552. 

Regulation Z (TILA): Whitney Patross, 

Attorney and Marta Tanenhaus, Senior 

Counsel at (202) 435–7700; Office of 

Regulations, Division of Research, 

Markets, and Regulations, Bureau of 

Consumer Financial Protection; 1700 G 

Street NW., Washington, DC 20552. 

SUPPLEMENTARY INFORMATION: 

I. Overview 

A. Background 

The recent financial crisis exposed 

pervasive consumer protection 

problems across major segments of the 

mortgage servicing industry. As millions 

of borrowers fell behind on their loans, 

many servicers failed to provide the 

level of service necessary to serve the 

needs of those borrowers. Many 

servicers simply had not made the 

investments in resources and 

infrastructure necessary to service large 

numbers of delinquent loans. Existing 

weaknesses in servicer practices, 

including inadequate recordkeeping and 

document management and lack of 

oversight of service providers, made it 

harder to sort out borrower problems to 

achieve optimal results. In addition, 

many servicers took short cuts that 

made things even worse. As one review 

of fourteen major servicers found, 

companies ‘‘emphasize[d] speed and 

cost efficiency over quality and 

accuracy’’ in their foreclosure 

processes.1


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57201 

Supervision, Interagency Review of Foreclosure 

Policies and Practices, at 5 (Apr. 2011) (Interagency 

Foreclosure Report), available at http:// 

www.occ.gov/news-issuances/news-releases/2011/ 

nr-occ-2011-47a.pdf. 

2See Dodd-Frank Act sections 1418, 1420, 1463, 

and 1464. 

3Note that TILA and RESPA differ in their 

terminology. Consumers and creditors are the 

defined terms used in Regulation Z. Borrowers and 

lenders are the defined terms used in Regulation X. 

The Dodd-Frank Act (Pub. L. 111– 

203, July 21, 2010) adopts several new 

servicing protections.2 The Bureau has 

the authority to promulgate regulations 

to implement the new servicing 

protections. These changes will 

significantly improve disclosures to 

make it easier for consumers to monitor 

their mortgage loans and servicers’ 

activities. The changes also address 

critical servicer practices, including 

error resolution, prompt crediting of 

payments, and ‘‘force-placing’’ 

insurance where borrowers have 

allowed their hazard insurance policies 

to lapse. 

The Dodd-Frank Act also gives the 

Bureau discretionary authority to 

develop additional servicing rules. The 

Bureau proposes to use this authority to 

adopt requirements relating to 

reasonable information management 

policies and procedures, early 

intervention with delinquent borrowers, 

continuity of contact, and procedures 

for evaluating and responding to loss 

mitigation applications when the 

servicer makes loss mitigation options 

available in the ordinary course of 

business. These proposals address 

fundamental problems that underlie 

many consumer complaints and recent 

regulatory and enforcement actions. The 

Bureau believes these changes will 

reduce avoidable foreclosures and 

improve general customer service. The 

proposals cover nine major topics, as 

summarized below. 

The Bureau’s proposal is split into 

two parts because Congress imposed 

some requirements under TILA and 

some under RESPA.3 This proposed rule 

would amend Regulation X, which 

implements RESPA, to implement 

section 1463 of the Dodd-Frank Act 

concerning error resolution and forceplaced insurance and to impose 

additional requirements concerning 

reasonable information management 

policies and procedures, early 

intervention with delinquent borrowers, 

continuity of contact, and procedures 

for evaluating and responding to loss 

mitigation applications. 

B. Scope of Coverage 

The proposed rules generally apply to 

closed-end mortgage loans, with certain 

exceptions. Under the proposed 

amendments to Regulation X, open-end 

lines of credit and certain other loans, 

such as construction loans and 

business-purpose loans, are excluded. 

Under the proposed amendments to 

Regulation Z, the periodic statement 

and adjustable-rate mortgage (ARM), 

disclosure provisions apply only to 

closed-end mortgage loans, but the 

prompt crediting and payoff statement 

provisions apply both to open-end and 

closed-end mortgage loans. In addition, 

reverse mortgages and timeshares are 

excluded from the periodic statement 

requirement, and certain construction 

loans are excluded from the ARM 

disclosure requirements. As discussed 

below, the Bureau is seeking comment 

on whether to exempt small servicers 

from certain requirements or modify 

certain requirements for small servicers. 

C. Summary 

The proposals cover nine major 

topics, summarized below. More details 

can be found in the proposed rules, 

which are split into two notices issued 

under the Truth in Lending Act (TILA) 

and Real Estate Settlement Procedures 

Act (RESPA), respectively. 

1. Periodic billing statements. The 

Dodd-Frank Act generally mandates that 

servicers of closed-end residential 

mortgage loans (other than reverse 

mortgages) must send a periodic 

statement for each billing cycle. These 

statements must meet the timing, form, 

and content requirements provided for 

in the rule. The proposal contains 

sample forms that servicers could use. 

The periodic statement requirement 

generally would not apply for fixed-rate 

loans if the servicer provides a coupon 

book, so long as the coupon book 

contains certain information specified 

in the rule and certain other information 

is made available to the consumer. The 

proposal also includes an exception for 

small servicers that service 1000 or 

fewer mortgage loans and service only 

mortgage loans that they originated or 

own. 

2. Adjustable-rate mortgage interestrate adjustment notices. Servicers 

would have to provide a consumer 

whose mortgage has an adjustable rate 

with a notice 60 to 120 days before an 

adjustment which causes the payment 

to change. The servicer would also have 

to provide an earlier notice 210 to 240 

days prior to the first rate adjustment. 

This first notice may contain an 

estimate of the rate and payment 

change. Other than this initial notice, 

servicers would no longer be required to 

provide an annual notice if a rate 

adjustment does not result in an 

increase in the monthly payment. The 

proposal contains model and sample 

forms that servicers could use. 

3. Prompt payment crediting and 

payoff payments. As required by the 

Dodd-Frank Act, servicers must 

promptly credit payments from 

borrowers, generally on the day of 

receipt. If a servicer receives a payment 

that is less than a full contractual 

payment, the payment may be held in 

a suspense account. When the amount 

in the suspense account covers a full 

installment of principal, interest, and 

escrow (if applicable), the proposal 

would require the servicer to apply the 

funds to the oldest outstanding payment 

owed. A servicer also would be required 

to send an accurate payoff balance to a 

consumer no later than seven business 

days after receipt of a written request 

from the borrower for such information. 

4. Force-placed insurance. As 

required by the Dodd-Frank Act, 

servicers would not be permitted to 

charge a borrower for force-placed 

insurance coverage unless the servicer 

has a reasonable basis to believe the 

borrower has failed to maintain hazard 

insurance and has provided required 

notices. One notice to the borrower 

would be required at least 45 days 

before charging for forced-place 

insurance coverage, and a second notice 

would be required no earlier than 30 

days after the first notice. The proposal 

contains model forms that servicers 

could use. If a borrower provides proof 

of hazard insurance coverage, then the 

servicer would be required to cancel any 

force-placed insurance policy and 

refund any premiums paid for periods 

in which the borrower’s policy was in 

place. In addition, if a servicer makes 

payments for hazard insurance from a 

borrower’s escrow account, a servicer 

would be required to continue those 

payments rather than force-placing a 

separate policy, even if there is 

insufficient money in the escrow 

account. The rule would also provide 

that charges related to forced place 

insurance (other than those subject to 

State regulation as the business of 

insurance or authorized by Federal law 

for flood insurance) must relate to a 

service that was actually performed. 

Additionally, such charges would have 

to bear a reasonable relationship to the 

servicer’s cost of providing the service. 

5. Error resolution and information 

requests. Pursuant to the Dodd-Frank 

Act, servicers would be required to meet 

certain procedural requirements for 

responding to information requests or 

complaints of errors. The proposal 

defines specific types of claims which 

constitute an error, such as a claim that 

the servicer misapplied a payment or 

assessed an improper fee. A borrower 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57202 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

4 Inside Mortgage Finance, Outstanding 1–4 

Family Mortgage Securities, Mortgage Market 

Statistical Annual (2012). For general background 

on the market and the recent mortgage crisis, see 

the 2012 TILA–RESPA Proposal available at: 

http://www.consumerfinance.gov/ 

knowbeforeyouowe/. 

5As of the end of 2011, approximately 33% of 

outstanding mortgage loans were held in portfolio, 

57% of mortgage loans were owned through 

mortgage-backed securities issued by government 

sponsored enterprises (GSEs), and 11% of loans 

were owned through private label mortgage-backed 

securities. Inside Mortgage Finance, Issue 2012:13, 

at 11 (March 30, 2012). A securitization results in 

the economic separation of the legal title to the 

mortgage loan and a beneficial interest in the 

could assert an error either orally or in 

writing. Servicers could designate a 

specific phone number and address for 

borrowers to use. Servicers would be 

required to acknowledge the request or 

complaint within five days. Servicers 

would have to correct or respond to the 

borrower with the results of the 

investigation, generally within 30 to 45 

days. Further, servicers generally would 

be required to acknowledge borrower 

requests for information and either 

provide the information or explain why 

the information is not available within 

a similar amount of time. A servicer 

would not be required to delay a 

scheduled foreclosure sale to consider a 

notice of error unless the error relates to 

the servicer’s improperly proceeding 

with a foreclosure sale during a 

borrower’s evaluation for alternatives to 

foreclosure. 

6. Information management policies 

and procedure. Servicers would be 

required to establish reasonable 

information management policies and 

procedures. The reasonableness of a 

servicer’s policies and procedures 

would take into account the servicer’s 

size, scope, and nature of its operations. 

A servicer’s policies and procedures 

would satisfy the rule if the servicer 

regularly achieves the document 

retention and servicing file 

requirements, as well as certain 

objectives specified in the rule. 

Examples of such objectives include 

providing accurate and timely 

information to borrowers and the courts 

or enabling servicer personnel to have 

prompt access to documents and 

information submitted in connection 

with loss mitigation applications. In 

addition, a servicer must retain records 

relating to each mortgage until one year 

after the mortgage is discharged or 

servicing is transferred and must create 

a mortgage servicing file for each loan 

containing certain specified documents 

and information. 

7. Early intervention with delinquent 

borrowers. Servicers would be required 

to make good faith efforts to notify 

delinquent borrowers of loss mitigation 

options. If a borrower is 30 days late, the 

proposal would require servicers to 

make a good faith effort to notify the 

borrower orally and to let the borrower 

know that loss mitigations options may 

be available. If the borrower is 40 days 

late, the servicer would be required to 

provide the borrower with a written 

notice with certain specific information, 

including examples of loss mitigation 

options available, if applicable, and 

information on how to obtain more 

information about loss mitigation 

options. The notice would also provide 

information to the borrower about the 

foreclosure process. The rule contains 

model language servicers could use for 

these notices. 

8. Continuity of contact with 

delinquent borrowers. Servicers would 

be required to provide delinquent 

borrowers with access to personnel to 

assist them with loss mitigation options 

where applicable. The proposal would 

require servicers to assign dedicated 

contact personnel for a borrower no 

later than five days after providing the 

early intervention notice. Servicers 

would be required to establish 

reasonable policies and procedures 

designed to ensure that the servicer 

personnel perform certain specified 

functions where applicable, such as 

access the borrower’s records and 

provide the borrower with information 

about how and when to apply for a loss 

mitigation option and about the status of 

the application. 

9. Loss mitigation procedures. 

Servicers that offer loss mitigation 

options to borrowers would be required 

to implement procedures to ensure that 

complete loss mitigation applications 

are reasonably evaluated before 

proceeding with a scheduled foreclosure 

sale. The proposal would require 

servicers to exercise reasonable 

diligence to secure information or 

documents required to make an 

incomplete loss mitigation application 

complete. In certain circumstances, this 

could include notifying the borrower 

within five days of receiving an 

incomplete application. Within 30 days 

of receiving a borrower’s complete 

application, the servicer would be 

required to evaluate the borrower for all 

available options, and, if the denial 

pertains to a requested loan 

modification, notify the borrower of the 

reasons for the servicer’s decision, and 

provide the borrower with at least a 14- 

day period within which to appeal the 

decision. The proposal would require 

that appeals be decided within 30 days 

by different personnel than those 

responsible for the initial decision. A 

servicer that receives a complete 

application for a loss mitigation option 

could not proceed with a foreclosure 

sale unless (i) the servicer had denied 

the borrower’s application and the time 

for any appeal had expired; (ii) the 

servicer had offered a loss mitigation 

option which the borrower declined or 

failed to accept within 14 days of the 

offer; or (iii) the borrower failed to 

comply with the terms of a loss 

mitigation agreement. The proposal 

would require that deadlines for 

submitting an application for a loss 

mitigation option be no earlier than 90 

days before a scheduled foreclosure 

sale. 

D. Small Servicers 

As discussed below, the Bureau 

convened a Small Business Regulatory 

Enforcement Fairness Act (SBREFA) 

panel to assess the impact of the 

possible rules on small servicers and to 

help the Bureau determine to what 

extent it may be appropriate to consider 

adjusting these standards for small 

servicers, to the extent permitted by 

law. Informed by this process, the 2012 

TILA Servicing Proposal contains an 

exemption from the periodic statement 

requirement for certain small servicers. 

The Bureau seeks comment on whether 

other exemptions might be appropriate 

for small servicers. 

E. Effective Date 

As discussed below, the Bureau is 

seeking comment on when this final 

rule should be effective. Because the 

final rule will provide important 

benefits to consumers, the Bureau seeks 

to make it effective as soon as possible. 

However, the Bureau understands that 

the final rules will require servicers to 

make revisions to their software and to 

retrain their staff. In addition, some 

entities will be required to implement 

other Dodd-Frank Act provisions, which 

are subject to separate rulemaking 

deadlines under the statue and will 

have separate effective dates. Therefore, 

the Bureau is seeking comment on how 

much time industry needs to make these 

changes. 

II. Background 

A. Overview of the Mortgage Servicing 

Market and Market Failures 

The mortgage market is the single 

largest market for consumer financial 

products and services in the United 

States, with approximately $10.3 trillion 

in loans outstanding.4 Mortgage 

servicers play a vital role within the 

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

on behalf of lenders who hold the loans 

in their portfolios or (where a loan has 

been securitized) investors who are 

entitled to the loan proceeds.5 Over 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57203 

mortgage loan obligation. In a securitization 

transaction, a securitization trust is the owner or 

assignee of a mortgage loan. An investor is a 

creditor of the trust and is entitled to cash flows 

that are derived from the proceeds of the mortgage 

loans. In general, certain investors (or an insurer 

entitled to act on behalf of the investors) may direct 

the trust to take action as the owner or assignee of 

the mortgage loans for the benefit of the investors 

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

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

(Levitin & Twomey). 

6See, e.g., Levitin & Twomey at 11 (‘‘All 

securitizations involved third-party servicers * * * 

[m]ortgage servicers provide the critical link 

between mortgage borrowers and the SPV and 

RMBS investors, and servicing arrangements are an 

indispensable part of securitization.’’). 

7See, e.g., Diane E. Thompson, Foreclosing 

Modifications: How Servicer Incentives Discourage 

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

(2011) (Thompson), available at http:// 

digital.law.washington.edu/dspace-law/bitstream/ 

handle/1773.1/1074/86WLR755.pdf. 

8See, e.g, Inside Mortgage Finance, Issue 2012:13, 

at 12 (Mar. 30, 2012). As of the end of the fourth 

quarter of 2011, the top five largest servicers 

serviced $5.66 trillion of mortgage loans. See id. at 

12. 

9See, e.g., Fitch Ratings, U.S. Residential and 

Small Balance Commercial Mortgage Servicer 

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

at http://www.fitchratings.com. 

10At securitization, the cash flow that was part 

of interest income is bifurcated between the loan 

and the mortgage servicing right (MSR). The MSR 

represents the present value of all the cash flows, 

both positive and negative, related to servicing a 

mortgage. Prime MSRs are largely created by the 

GSE minimum servicing fee rate, which is 

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

servicing fee rate is typically paid to the servicer 

monthly and the monthly amount owed is 

calculated by multiplying the pro rata portion of the 

servicing fee rate by the stated principal balance of 

the mortgage loan at the payment due date. 

Accounting rules require that a capitalized asset be 

created if the ‘‘compensation’’ for servicing 

(including float/ancillary) exceeds ‘‘adequate 

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

no bifurcation of the interest income from the loan. 

The owner of the loan simply negotiates pricing, 

terms, and standards with the servicer, which, at 

larger institutions, is typically a separate affiliate or 

subsidiary of the owner of the loans. Keefe, Bruyette 

& Woods, Mortgage Servicing Primer, at 3 (Apr. 17, 

2012). 

11See, e.g., Thompson, 86 Wash. L. Rev. 755, 767. 

12National Consumer Law Center, Why Servicers 

Foreclose When They Should Modify and Other 

Puzzles of Servicer Behavior, at v (Oct. 2009) 

(‘‘Servicers, unlike investors or homeowners, do not 

generally lose money on foreclosure. Servicers may 

even make money on a foreclosure.’’); see also, The 

Need for National Mortgage Servicing Standards: 

Hearing Before the Subcomm. on Housing, 

Transportation, and Community Affairs of the 

Senate Comm. on Banking, Housing and Urban 

Affairs, S. Hrg. 112–139, 112th Cong. 126 (2011) 

(statement of Diane E. Thompson, National 

Consumer Law Center), at 15 (‘‘...modification will 

also likely reduce future income, cost more in the 

present in staffing, and delay recovery of expenses. 

Moreover, the foreclosure process itself generates 

significant income for servicers.’’), available at 

http://www.nclc.org/images/pdf/pr-reports/reportservicers-modify.pdf. 

13See Problems in Mortgage Servicing From 

Modification to Foreclosure: Hearings Before the 

Comm. on Banking, Housing and Urban Affairs, S. 

Hrg. 111–987, 111th Cong. 53–54 (2010) (statement 

of Thomas J. Miller, Iowa Attorney General) (Miller 

Testimony). See also, Kurt Eggert, Limiting Abuse 

and Opportunism by Mortgage Servicers 15:3 

Housing Policy Debate (2004), available at http:// 

ssrn.com/abstract=992095 

14See Kurt Eggert, Limiting Abuse and 

Opportunism by Mortgage Servicers 15:3 Housing 

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

abstract=992095 (collecting cases). 

60% of mortgage loans are serviced by 

mortgage servicers for investors. 

Servicers’ duties typically include 

billing borrowers for amounts due, 

collecting and allocating payments, 

maintaining and disbursing funds from 

escrow accounts, reporting to creditors 

or investors, and pursuing collection 

and loss mitigation activities (including 

foreclosures and loan modifications) 

with respect to delinquent borrowers. 

Indeed, without dedicated companies to 

perform these activities, it is 

questionable whether a secondary 

market for mortgage-backed securities 

would exist in this country.6

Several aspects of the mortgage 

servicing business make it uniquely 

challenging for consumer protection 

purposes. Given the nature of their 

activities, servicers can have a direct 

and profound impact on borrowers. 

However, industry compensation 

practices and the structure of the 

mortgage servicing industry create wide 

variations in servicers’ incentives to 

provide effective customer service to 

borrowers. Also, because borrowers 

cannot choose their own servicers, it is 

particularly difficult for them to protect 

themselves from shoddy service or 

harmful practices. 

Mortgage servicing is performed by 

banks, thrifts, credit unions, and nonbank servicers under a variety of 

business models. In some cases, 

creditors service mortgage loans that 

they originate or purchase and hold in 

portfolio. Other creditors sell the 

ownership of the underlying mortgage 

loan, but retain the mortgage servicing 

rights in order to retain the relationship 

with the borrower, as well as the 

servicing fee and other ancillary 

income. In still other cases, servicers 

have no role at all in origination or loan 

ownership, but rather purchase 

mortgage servicing rights on securitized 

loans or are hired to service a portfolio 

lender’s loans.7

These different servicing structures 

can create difficulties for borrowers if a 

servicer makes mistakes, fails to invest 

sufficient resources in its servicing 

operations, or does not properly service 

the borrower’s loan. Although the 

mortgage servicing industry has 

numerous participants, the industry is 

highly concentrated, with the five 

largest servicers servicing 

approximately 55 percent of outstanding 

mortgage loans in this country.8 Small 

servicers generally operate in discrete 

segments of the market, for example, by 

specializing in servicing delinquent 

loans, or by servicing loans that they 

originate.9

Contracts between the servicer and 

the mortgage loan owner specify the 

rights and responsibilities of each party. 

In the context of securitized loans, the 

contracts may require the servicer to 

balance the competing interests of 

different classes of investors when 

borrowers become delinquent. Certain 

provisions in servicing contracts may 

limit the servicer’s ability to offer 

certain types of loan modifications to 

borrowers. Such contracts also may 

limit the circumstances under which 

investors can transfer servicing rights to 

a different servicer. 

Compensation structures vary 

somewhat for loans held in portfolio 

and securitized loans,10 but have tended 

to make pure mortgage servicing (where 

the servicer has no role in origination) 

a high-volume, low-margin business in 

which servicers have little incentive to 

invest in customer service. A servicer 

will expect to recoup its investment in 

purchasing mortgage servicing rights 

and earn a profit through a net servicing 

fee (which is expressed as a constant 

rate assessed on unpaid mortgage 

balances),11 fees assessed on borrowers, 

interest float on payment accounts 

between receipt and disbursement, and 

cross-marketing other products and 

services to borrowers. Under this 

business model, servicers act primarily 

as payment collectors and processors, 

and provide minimal customer service 

to ensure profitability. Servicers also 

have an incentive to look for 

opportunities to impose fees on 

borrowers to enhance revenues and are 

generally not subject to market 

discipline because consumers have no 

opportunity to switch providers. 

Additionally, servicers may have 

financial incentives to foreclose rather 

than engage in loss mitigation.12

These attributes of the servicing 

market created problems for certain 

borrowers even prior to the national 

mortgage crisis. For example, borrowers 

experienced problems with mortgage 

servicers even during regional mortgage 

market downturns that preceded the 

mortgage crisis.13 Borrowers were 

subjected to improper fees that servicers 

had no reasonable basis to impose on 

borrowers, improper force-placed 

insurance practices, and improper 

foreclosure and bankruptcy practices.14

When the mortgage crisis erupted, 

many servicers were ill-equipped to 

handle the high volumes of delinquent 

mortgages, loan modification requests, 


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15OCC Press Release, OCC Takes Enforcement 

Action Against Eight Servicers for Unsafe and 

Unsound Foreclosure Practices (April 13, 2011), 

available at: http://www.occ.treas.gov/newsissuances/news-releases/2011/nr-occ-2011-47.html, 

and Federal Reserve Board Press Release, Federal 

Reserve Issues Enforcement Actions Related to 

Deficient Practices in Residential Mortgage Loan 

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

www.federalreserve.gov/newsevents/press/ 

enforcement/20110413a.htm, and accompanying 

documents. In addition to enforcement actions 

against major servicers, Federal agencies have also 

undertaken formal enforcement actions against 

major service providers to mortgage servicers. See 

id. 

16See id. None of the servicers admitted or 

denied the OCC’s or Federal Reserve Board’s 

findings. 

17See, e.g., Problems in Mortgage Servicing From 

Modification to Foreclosure: Hearings Before the 

Comm. on Banking, Housing and Urban Affairs, S. 

Hrg. 111–987, 111th Cong. 53–54 (2010) (statement 

of Diane E. Thompson, NCLC) (Thompson 

Testimony). 

18See U.S. Government Accountability Office, 

Troubled Asset Relief Program: Further Actions 

Needed to Fully and Equitably Implement 

Foreclosure Mitigation Actions, at 14–16 (Jun, 

2010); Miller Testimony at 54. 

19Sumit Agarwal et al., Second Liens and the 

Holdup Problem in First Mortgage Renegotiation 

(Dec, 2011), available at http://ssrn.com/ 

abstract=2022501. 

20 Id. 

21See Final Report of the Small Business Review 

Panel on CFPB’s Proposals Under Consideration for 

Mortgage Servicing Rulemaking (Small Business 

Review Panel Report) (Jun, 11, 2012). A copy of the 

report is available at: http:// 

www.consumerfinance.gov. 

22See 12 U.S.C. 2605(a)–(e). 

23See 12 U.S.C. 2605(e) and 2609. 

24See 12 CFR 1026.36(c). 

25See 50 U.S.C. App. 501 et seq. 

and foreclosures they were required to 

process. These servicers lacked the 

infrastructure, trained staff, controls, 

and procedures needed to manage 

effectively the flood of delinquent 

mortgages they were forced to handle. 

Consumer harm has manifested in many 

different areas, and major servicers have 

entered into significant settlement 

agreements with Federal and State 

governmental authorities. For example, 

in April 2011, the Office of the 

Comptroller of the Currency and the 

Federal Reserve Board undertook formal 

enforcement actions against several 

major servicers for unsafe and unsound 

residential mortgage loan servicing 

practices.15 These enforcement actions 

generally focused on practices relating 

to (1) filing of foreclosure documents 

without, for example, proper affidavits 

or notarizations; (2) failing to always 

ensure that loan documents were 

properly endorsed or assigned and, if 

necessary, in the possession of the 

appropriate party at the appropriate 

time; (3) failing to devote sufficient 

financial, staffing, and managerial 

resources to ensure proper 

administration of foreclosures 

processes; (4) failing to devote adequate 

oversight, internal controls, policies and 

procedures, compliance risk 

management, internal audit, third party 

management, and training, to 

foreclosure processes; and (5) failing to 

sufficiently oversee outside counsel and 

other third-party providers handling 

foreclosure-related services.16 Congress 

has held significant detailed hearings on 

the issue of servicer ‘‘robo-signing’’ of 

foreclosure related documentation.17

Servicers have also misled, or failed 

to communicate with, borrowers, lost or 

mishandled borrower-provided 

documents supporting loan 

modification requests, and generally 

provided inadequate service to 

delinquent borrowers. These problems 

became pervasive in broad segments of 

the mortgage servicing industry and had 

profound impacts on borrowers, 

particularly delinquent borrowers.18

The Bureau further understands from 

mortgage investors that there is a 

pervasive belief that servicers are 

making discretionary decisions based on 

the best interests of the servicer rather 

than to achieve results that will benefit 

owners or assignees of mortgages loans. 

When servicers hold a second lien that 

is behind a first lien owned by a 

different owner or assignee, one study 

has found a lower likelihood of 

liquidation and modification, and a 

higher likelihood of inaction by a 

servicer.19 Specifically, ‘‘liquidation 

and modification of securitized first 

mortgages are 60% [to] 70% less likely 

respectively and no action is 13% more 

likely when the servicer of that 

securitized first mortgage holds on its 

portfolio the second lien attached to the 

first mortgage.’’ 20 These failures to take 

actions that may benefit both consumers 

and owners or assignees of first lien 

mortgage loans harm consumers. 

The mortgage servicing industry, 

however, is not monolithic. Some 

servicers provide high levels of 

customer service. Some of these 

servicers may be compensated by 

investors in a way that incentivizes 

them to provide high levels of customer 

service in order to optimize investor 

outcomes. Other servicers provide high 

levels of customer service because they 

rely on providing other products and 

services to consumers and thus have an 

interest in preserving their reputations 

and relationships with their consumers. 

For example, as discussed further 

below, small servicers that the Bureau 

consulted as part of a process required 

under SBREFA described their 

businesses as requiring a ‘‘high touch’’ 

model of customer service both to 

ensure loan performance and maintain a 

strong reputation in their local 

communities.21

B. Mortgage Servicing Consumer 

Protection Regulation Before the Recent 

Crisis 

Prior to the adoption of the DoddFrank Act, the mortgage servicing 

industry was subject to limited Federal 

consumer financial protection 

regulation. RESPA set forth basic 

protections with respect to mortgage 

servicing that were implemented by the 

U.S. Department of Housing and Urban 

Development (HUD). These included 

required disclosures at application 

concerning whether the lender intended 

to service the mortgage loan and 

disclosures upon an actual transfer of 

servicing rights.22 RESPA further 

imposed substantive and disclosure 

requirements for escrow account 

management and required servicers to 

respond to ‘‘qualified written 

requests’’—written error resolution or 

information requests relating to a 

restricted definition of the ‘‘servicing’’ 

of the borrower’s mortgage loan.23

TILA set forth requirements on 

creditors that were implemented by 

servicers, including disclosures 

regarding interest rate adjustments on 

adjustable rate mortgage loans. 

Regulation Z, which implements TILA, 

was amended by the Board of Governors 

of the Federal Reserve System (the 

Board) to include certain limited 

requirements directly on servicers, such 

as requirements to timely credit 

payments, provide payoff balances and 

prohibit pyramiding of late fees.24

Servicers also had some obligations 

under other Federal laws, including, for 

example, the Servicemembers Civil 

Relief Act.25

Although TILA and RESPA did not 

impose many requirements on servicers, 

servicers were still required to navigate 

overlapping requirements governing 

their servicing responsibilities. In 

addition to Federal law, servicers were 

required to consider the impact of State 

and even local regulation on mortgage 

servicing. Servicers also had to comply 

with investor requirements to the extent 

they serviced loans owned or 

guaranteed by various types of entities. 

These include (1) servicing guidelines 

required by Federal National Mortgage 

Association (Fannie Mae) and the 

Federal Home Loan Mortgage 

Corporation (Freddie Mac), together 

known as the government-sponsored 

enterprises (GSEs), as well as servicing 

guidelines required by the Government 

National Mortgage Association (Ginnie 

Mae); (2) government insured program 


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26Oklahoma elected not to join the settlement. 

27The National Mortgage Settlement is available 

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

The five servicers subject to the settlement are Bank 

of America, JP Morgan Chase, Wells Fargo, 

CitiMortgage, and Ally/GMAC. 

28See http:// 

www.nationalmortgagesettlement.com/. 

29Office of the Comptroller of the Currency, 

Bulletin 2011–29 (Jun. 30, 2011), available at: 

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

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

DeMarco, Acting Director of FHFA, to Hon. Elijah 

E. Cummings, Ranking Member, Committee on 

Oversight and Government Reform, U.S. House of 

Representatives (Jan. 20, 2012), available at: 

http://www.fhfa.gov/webfiles/23056/ 

PrincipalForgivenessltr12312.pdf; Guidance, Home 

Affordable Modification Program, available at: 

https://www.hmpadmin.com/portal/programs/ 

guidance.jsp. FHFA, Frequently Asked Questions— 

Servicing Alignment Initiative, available at: http:// 

www.fhfa.gov/webfiles/21191/FAQs42811Final.pdf. 

30See Interagency Foreclosure Report, a joint 

review of foreclosure processing of 14 federally 

regulated mortgage servicers during the fourth 

quarter of 2010 by the Federal Reserve System, 

Office of the Comptroller of the Currency, and 

Office of Thrift Supervision. 

31See Interagency Foreclosure Report at 5; 

Federal Reserve Board, Press Release (May 24, 

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

newsevents/press/enforcement/20120524a.htm; 

Federal Reserve Board, Press Release (Feb. 27, 

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

newsevents/press/enforcement/20120227a.htm; 

Office of the Comptroller of the Currency, News 

Release 2011–47 (Apr. 13, 2011), available at: 

http://www.occ.gov/news-issuances/news-releases/ 

2011/nr-occ-2011-47.html. 

32 See, e.g., Larry Cordell et al., The Incentives 

of Mortgage Servicers: Myths and Realities, at 9 

(Federal Reserve Board, Working Paper No. 2008– 

46, Sept. 2008). 

guidelines issued by the Federal 

Housing Administration (FHA), 

Department of Veterans Affairs (VA), 

and the Rural Housing Service; (3) 

contractual agreements with investors 

(such as pooling and servicing 

agreements and subservicing contracts); 

and (4) bank or institution policies. All 

those requirements remain in effect 

today and going forward. 

C. The National Mortgage Settlement 

and Other Regulatory Actions 

In response to the unprecedented 

mortgage crisis and pervasive problems 

in mortgage servicing, including the 

systemic violation of State foreclosure 

laws by many of the largest servicers, 

State and Federal regulators have 

engaged in a number of individual 

servicing related enforcement and 

regulatory actions over the last few 

years and have begun discussions about 

comprehensive national standards. 

For example, 49 State attorneys 

general,26 joined by numerous Federal 

agencies including the Bureau, entered 

into a National Mortgage Settlement 

(National Mortgage Settlement) with the 

nation’s five largest servicers in 

February 2012.27 The National Mortgage 

Settlement applies to loans held in 

portfolio and serviced by the five largest 

servicers. Loans owned by GSEs, private 

investors, or smaller servicers are not 

covered by the settlement. 

Exhibit A to each of the settlements is 

a Settlement Term Sheet, which sets 

forth standards that each of the five 

largest servicers must follow to comply 

with the terms of the settlement.28 The 

settlement standards contained in the 

Settlement Term Sheet are sub-divided 

into the following eight categories: (1) 

Foreclosure and bankruptcy information 

and documentation; (2) third-party 

provider oversight; (3) bankruptcy; (4) 

loss mitigation; (5) protections for 

military personnel; (6) restrictions on 

servicing fees; (7) force-placed 

insurance; and (8) general servicer 

duties and prohibitions. 

In addition to the settlement, other 

Federal regulatory agencies have issued 

guidance on mortgage servicing and 

loan modifications,29 conducted 

coordinated reviews of the nation’s 

largest servicers,30 and taken 

enforcement actions against individual 

companies.31 The Bureau and other 

Federal agencies have also engaged 

since spring 2011 in informal 

discussions about the potential 

development of national mortgage 

servicing standards through regulations 

and guidance. 

The Bureau’s proposed rules under 

Regulation Z and X represent another 

important step towards establishing 

uniform minimum national standards. 

When adopted in final form, the 

Bureau’s rules will apply to all mortgage 

servicers, whether depository 

institutions or non-depository 

institutions, and to all segments of the 

mortgage market, regardless of the 

ownership of the loan. The proposals 

focus both on implementing the specific 

mortgage servicing requirements of the 

Dodd-Frank Act and on addressing 

broader systemic problems that the 

Bureau believes are critical to ensure 

that the mortgage servicing market 

functions to serve consumer needs. To 

that end, the proposed TILA and RESPA 

mortgage servicing rules incorporate 

elements from four categories of the 

National Mortgage Settlement—(1) 

foreclosure and bankruptcy information 

and documentation, (4) loss mitigation, 

(6) restrictions on servicing fees, and (7) 

force-placed insurance. In addition, the 

proposed requirement to maintain 

reasonable information management 

policies and procedures addresses 

oversight of service providers, which 

impacts category (2) of the settlement. 

The Bureau continues to consider 

whether to incorporate other settlement 

standards into rules or guidance, either 

alone or in conjunction with other 

Federal regulatory agencies; certain 

requests for comment in this proposal 

reflect these considerations. The Bureau 

is also continuing ongoing discussions 

with other regulators to ensure 

appropriate coordination of rulemaking 

and other initiatives relating to mortgage 

servicing issues. 

D. The Statutory Requirements and 

Additional Proposals 

The Dodd-Frank Act mandates several 

protections for homeowners in the 

servicing of their loans. The Act 

requires new disclosures, specifically 

periodic statements (unless coupon 

books are provided in certain 

circumstances), notices prior to the reset 

of adjustable-rate mortgages, and forceplaced insurance notices. These 

disclosures are designed to provide 

consumers with comprehensive and 

comprehensible information when they 

need it and in a form they can use, so 

they can better manage their obligations 

and avoid unnecessary problems. 

The Dodd-Frank Act also imposes 

new requirements on servicers to 

respond in a timely way to borrowers 

who assert that their servicer made an 

error. The statute also requires servicers 

to respond in a timely way to borrower 

requests for information. 

The Dodd-Frank Act contains 

requirements relating to the prompt 

crediting of payments, so that 

consumers are not wrongly penalized 

with late fees or other fees because 

servicers did not credit their payments 

quickly. The statute also requires 

servicers to provide timely responses to 

consumer requests for payoff amounts, 

so consumers can get this information 

when they need it, such as when 

refinancing. 

The Bureau is proposing additional 

standards to improve the way servicers 

treat all borrowers, including delinquent 

borrowers. Some servicers have made it 

very difficult for delinquent borrowers 

to explore and take advantage of 

potential alternatives to foreclosure. For 

example, servicers have frequently 

neglected to reach out or respond to 

such borrowers to discuss alternatives to 

foreclosure, lost or misplaced the 

documents of borrowers who have 

sought modifications or other relief, 

failed to keep track of borrower 

communications, and forced borrowers 

who have invested substantial time 

communicating with an employee of the 

servicer to repeat the process with a 

different employee.32

To address these concerns, the Bureau 

is proposing new servicing standards in 


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57206 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

33Other changes in section 1463 of the DoddFrank Act relate to increases in penalties for 

violations. These provisions are not addressed in 

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

four areas. First, servicers would have to 

establish and maintain information 

management policies and procedures 

that would have to be reasonably 

designed to achieve certain objectives 

and address certain obligations, 

including accessing and providing 

accurate information, evaluating 

borrowers for loss mitigation options, 

facilitating oversight of, and compliance 

by, service providers, and facilitating 

servicing transfers. Second, servicers 

would have to intervene early with 

delinquent borrowers to provide them 

with information about, and encourage 

them to explore, available alternatives to 

foreclosure. Third, servicers would have 

to provide delinquent borrowers with a 

point of contact on the servicer’s staff 

that provides continuity in the 

borrowers’ dealings with the servicer. At 

such point of contact, staff must have 

access to complete records about that 

borrower, including records of prior 

communications with the borrower, and 

be able to assist the borrower in 

pursuing loss mitigation options. 

Fourth, servicers that offer loss 

mitigation options in the ordinary 

course of business would be required to 

follow certain procedures to ensure that 

borrowers’ completed loss mitigation 

applications are evaluated in a timely 

manner, that borrowers are notified of 

the results, and that borrowers have a 

right to appeal the denial of a loan 

modification option. Servicers would 

also be required to provide borrowers 

who submit incomplete loss mitigation 

applications with timely notice about 

the additional documents or 

information needed to make a loss 

mitigation application complete. 

The Bureau recognizes that a one-sizefits-all approach may not be optimal 

with regard to either the mandated or 

additional requirements. As discussed 

below, the Bureau seeks comment on to 

what extent it may be appropriate to 

adjust these standards for small 

servicers. 

III. Summary of Statute and 

Rulemaking Process 

A. Overview of the Statute 

The Dodd-Frank Act imposes certain 

new requirements related to mortgage 

servicing. Some of these new 

requirements are amendments to RESPA 

addressed in this proposal and others 

are amendments to TILA. 

RESPA amendments. Section 1463 of 

the Dodd-Frank Act imposes a number 

of new servicing related requirements 

under RESPA that broadly relate to 

force-placed insurance and error 

resolution/responses to requests for 

information. First, the statute prohibits 

a servicer from obtaining force-placed 

hazard insurance, unless there is a 

reasonable basis to believe the borrower 

has failed to comply with the loan 

contract’s requirement to maintain 

property insurance. A servicer may not 

impose any charge on any borrower for 

force-placed insurance with respect to 

any property secured by a federally 

related mortgage, unless the servicer 

sends, by first-class mail, two written 

notices to the borrower, at least 30 days 

apart. The notices must remind 

borrowers of their obligation to maintain 

hazard insurance on the property, alert 

borrowers to the servicer’s lack of 

evidence of insurance coverage, tell 

borrowers what they must do to 

demonstrate that they have coverage, 

and state that the servicer may obtain 

coverage at the borrower’s expense if the 

borrower fails to provide evidence of 

coverage. Servicers must terminate 

force-placed insurance coverage and 

refund to borrowers any premiums 

charged during any period when the 

borrower had private insurance 

coverage. The statute also provides that 

all charges imposed on the borrower 

related to force-placed insurance, apart 

from charges subject to State regulation 

as the business of insurance, must be 

bona fide and reasonable. 

Second, the statute prohibits certain 

acts and practices by servicers of 

federally related mortgages with regard 

to resolving errors and responding to 

requests for information. Specifically, 

the statute prohibits servicers of 

federally related mortgages from 

charging fees for responding to valid 

qualified written requests. The statute 

also provides that a servicer of a 

federally related mortgage must not fail 

to take timely action to respond to a 

borrower’s requests to correct errors 

relating to: Allocation of payments, final 

balances for purposes of paying off the 

loan, avoiding foreclosure, or other 

standard servicer duties. 

Finally, the statue requires a servicer 

of a federally related mortgage to 

respond within ten business days to a 

request from a borrower to provide the 

identity, address, and other relevant 

contact information about the owner or 

assignee of the loan. The statue also 

reduces the amount of time that 

servicers of federally related mortgages 

have to correct errors and respond to 

inquiries generally, as well as refund 

escrow accounts upon payoff.33

In addition, the statute provides that 

a servicer of a federally related mortgage 

must ‘‘comply with any other obligation 

found by the Consumer Financial 

Protection Bureau, by regulation, to be 

appropriate to carry out the consumer 

protection purposes of this Act.’’ 34 This 

provision gives the Bureau broad 

authority to adopt additional regulations 

to govern the conduct of servicers of 

federally related mortgage loans. In light 

of the systemic problems in the 

mortgage servicing industry, the Bureau 

is proposing to exercise this authority to 

require servicers of federally related 

mortgages to: Establish reasonable 

information management policies and 

procedures; undertake early 

intervention with delinquent borrowers; 

provide delinquent borrowers with 

continuity of contact with staff 

equipped to assist them; and require 

servicers that offer loss mitigation 

options in the ordinary course of 

business to follow certain procedures 

when evaluating loss mitigation 

applications. 

TILA amendments. There are three 

new mortgage servicing requirements 

under TILA. First, for closed-end credit 

transactions secured by a consumer’s 

principal residence, section 1418 of the 

Dodd-Frank Act adds a new section 

128A to TILA. TILA section 128A states 

that, for hybrid ARMs with a fixed 

interest rate for an introductory period 

that adjusts or resets to a variable 

interest rate at the end of such period, 

a notice must be provided six months 

prior to the initial adjustment of the 

interest rate for closed-end credit 

transactions secured by a consumer’s 

principal residence. Section 1418 of the 

Dodd-Frank Act permits the Bureau to 

extend this requirement to ARMs that 

are not hybrid ARMs. 

Second, section 1420 of the DoddFrank Act, which adds section 128(f) to 

TILA, requires the creditor, assignee, or 

servicer of any residential mortgage loan 

to transmit to the borrower, for each 

billing cycle, a periodic statement that 

sets forth certain specified information 

in a conspicuous and prominent 

manner. The statute also gives the 

Bureau the authority to require 

additional content to be included in the 

periodic statement. The statute provides 

an exception to the periodic statement 

requirement for fixed-rate loans where 

the borrower is given a coupon book 

containing substantially the same 

information as the statement. 

Third, section 1464 of the Dodd-Frank 

Act adds sections 129F and 129G to 

TILA, which generally codify existing 

Regulation Z requirements for the 

prompt crediting of mortgage payments 

received by servicers in connection with 


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35The Small Business Regulatory Enforcement 

Fairness Act of 1996 (SBREFA) requires the Bureau 

to convene a Small Business Review Panel before 

proposing a rule that may have a significant 

economic impact on a substantial number of small 

entities. See Public Law 104–121, tit. II, 110 Stat. 

847, 857 (1996) (as amended by Public Law 110– 

28, sec. 8302 (2007)). 

36See Small Business Review Panel Report (Jun. 

11, 2012). A copy of the report is available at: 

http://www.consumerfinance.gov. 

37A copy of the Macro report on consumer testing 

is available at: http://www.consumerfinance.gov/ 

notice-and-comment/. 

38Available at: http://www.consumerfinance.gov/ 

notice-and-comment/. 

39 Id. 

consumer credit transactions secured by 

a consumer’s dwelling. The statute also 

requires a creditor or servicer to send 

accurate and timely responses to 

borrower requests for payoff amounts 

for home loans. 

The statutory provisions with 

enumerated mortgage servicing 

requirements become effective on 

January 21, 2013, unless final rules are 

issued on or before that date. 

B. Outreach and Consumer Testing 

The Bureau has conducted extensive 

outreach in developing the mortgage 

servicing proposals. Bureau staff met 

with mortgage servicers, force-placed 

insurance carriers, industry trade 

associations, consumer advocates, other 

Federal regulatory agencies, and other 

interested parties to discuss various 

aspects of the statute and the servicing 

industry. 

In preparing this proposed rule, the 

Bureau solicited input from small 

servicers through a Small Business 

Review Panel (Small Business Review 

Panel) with the Chief Counsel for 

Advocacy of the Small Business 

Administration (SBA) and the 

Administrator of the Office of 

Information and Regulatory Affairs 

within the Office of Management and 

Budget (OMB).35 The Small Business 

Review Panel’s findings and 

recommendations are contained in the 

Final Report of the Small Business 

Review Panel on CFPB’s Proposals 

Under Consideration for Mortgage 

Servicing Rulemaking (Small Business 

Review Panel Report).36

The Bureau also engaged in other 

meetings and roundtables with a variety 

of other stakeholders to gather factual 

information about the servicing industry 

and to discuss various elements of the 

Bureau’s proposals as they were being 

developed. As discussed above and in 

connection with section 1022 of the 

Dodd-Frank Act below, the Bureau has 

also consulted with relevant Federal 

regulators both regarding the Bureau’s 

specific proposals and the need for and 

potential contents of national mortgage 

servicing standards in general. As it 

considers public comment and works to 

develop final rules on mortgage 

servicing, the Bureau will continue to 

seek input from all interested parties. 

In addition, the Bureau engaged ICF 

Macro (Macro), a research and 

consulting firm that specializes in 

designing disclosures and consumer 

testing, to conduct one-on-one cognitive 

interviews regarding disclosures 

connected with mortgage servicing. 

During the first quarter of 2012, the 

Bureau and Macro worked closely to 

develop and test disclosures that would 

satisfy the requirements of the DoddFrank Act and provide information to 

consumers in a manner that would be 

understandable and useful. These 

disclosures related to the ARM notices, 

the force-placed insurance notices, and 

the periodic statements. Macro 

conducted three rounds of one-on-one 

cognitive interviews with a total of 31 

participants in the Baltimore, Maryland 

metro area (Towson, Maryland), 

Memphis, Tennessee, and Los Angeles, 

California. Participants were all 

consumers who held a mortgage loan 

and represented a range of ages and 

education levels. Efforts were made to 

recruit a significant number of 

participants who had trouble making 

mortgage payments in the last two years. 

During the interviews, participants were 

shown disclosure forms for periodic 

statements, ARM interest rate 

adjustment notices for the new 

disclosures required by Dodd-Frank Act 

section 1418, and force-placed 

insurance notices. Participants were 

asked specific questions to test their 

understanding of the information 

presented in each of the disclosures, 

how easily they could find various 

pieces of information presented in each 

of the disclosures, as well as to learn 

about how they would use the 

information presented in each of the 

disclosures. The disclosures were 

revised after each round of testing. 

Specific findings from the consumer 

testing are discussed in detail 

throughout the SUPPLEMENTARY

INFORMATION where relevant.37

C. Other Dodd-Frank Act MortgageRelated Rulemakings 

Including this proposal, the Bureau 

currently is engaged in seven 

rulemakings relating to mortgage credit 

to implement requirements of the DoddFrank Act: 

• TILA–RESPA Integration: On July 9, 

2012, the Bureau released proposed 

rules and forms combining the TILA 

mortgage loan disclosures with the 

Good Faith Estimate (GFE) and 

settlement statement required under 

RESPA, pursuant to Dodd-Frank Act 

section 1032(f) as well as sections 4(a) 

of RESPA and 105(b) of TILA, as 

amended by Dodd-Frank Act sections 

1098 and 1100A, respectively. 12 U.S.C. 

2603(a); 15 U.S.C. 1604(b) (the 2012 

TILA–RESPA Proposal).38

• HOEPA: On July 9, 2012, the 

Bureau released proposed rules to 

implement Dodd-Frank Act 

requirements expanding protections for 

‘‘high-cost’’ mortgage loans under 

HOEPA, pursuant to TILA sections 

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

15 U.S.C. 1602(bb) and 1639.39 Such 

loans have requirements on servicers of 

‘‘high-cost’’ mortgage loans related to 

payoff statements, late fees, prepayment 

penalties, and fees for loan 

modifications or deferrals. 

• Loan Originator Compensation: The 

Bureau is in the process of developing 

a proposal to implement provisions of 

the Dodd-Frank Act requiring certain 

creditors and mortgage loan originators 

to meet duty of care qualifications and 

prohibiting mortgage loan originators, 

creditors, and the affiliates of both from 

receiving compensation in various 

forms (including based on the terms of 

the transaction) and from sources other 

than the consumer, with specified 

exceptions, pursuant to TILA section 

129B as established by Dodd-Frank Act 

sections 1402 through 1405. 15 U.S.C. 

1639b. 

• Appraisals: The Bureau, jointly 

with Federal prudential regulators and 

other Federal agencies, is in the process 

of developing a proposal to implement 

Dodd-Frank Act requirements 

concerning appraisals for higher-risk 

mortgages, appraisal management 

companies, and automated valuation 

models, pursuant to TILA section 129H 

as established by Dodd-Frank Act 

section 1471, 15 U.S.C. 1639h, and 

sections 1124 and 1125 of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA) as 

established by Dodd-Frank Act sections 

1473(f), 12 U.S.C. 3353, and 1473(q), 12 

U.S.C. 3354, respectively. In addition, 

the Bureau is developing rules to 

implement section 701(e) of the Equal 

Credit Opportunity Act (ECOA), as 

amended by Dodd-Frank Act section 

1474, to require that creditors provide 

applicants with a free copy of written 

appraisals and valuations developed in 

connection with applications for loans 

secured by a first lien on a dwelling 

(collectively, Appraisals Rulemaking). 

15 U.S.C. 1691(e). 


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57208 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

40Small Business Review Panel Report at 16, 21. 

41 Id. at 16–19, 21, and 23–24. 

42Public Law 111–203, 124 Stat. 1376, section 

1400(c) (2010). 

• Ability to Repay: The Bureau is in 

the process of finalizing a proposal 

issued by the Board to implement 

provisions of the Dodd-Frank Act 

requiring creditors to determine that a 

consumer can repay a mortgage loan 

and establishing standards for 

compliance, such as by making a 

‘‘qualified mortgage,’’ pursuant to TILA 

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

Rulemaking). 15 U.S.C. 1639c. 

• Escrows: The Bureau is in the 

process of finalizing a proposal issued 

by the Board to implement provisions of 

the Dodd-Frank Act requiring certain 

escrow account disclosures and 

exempting from the higher-priced 

mortgage loan escrow requirement loans 

made by certain small creditors, among 

other provisions, pursuant to TILA 

section 129D as established by DoddFrank Act sections 1461 and 1462 

(Escrows Rulemaking). 15 U.S.C. 1639d. 

With the exception of the 

requirements being implemented in the 

2012 TILA–RESPA Proposal, the DoddFrank Act requirements referenced 

above generally will take effect on 

January 21, 2013, unless final rules 

implementing those requirements are 

issued on or before that date and 

provide for a different effective date. To 

provide an orderly, coordinated, and 

efficient comment process, the Bureau is 

generally setting the deadlines for 

comments on this and other proposed 

mortgage rules based on the date the 

proposal is issued, instead of the date 

this notice is published in the Federal 

Register. Therefore, the Bureau is 

providing 60 days for comment on those 

proposals, which will ensure that the 

Bureau receives comments with 

sufficient time remaining to issue final 

rules by January 21, 2013. Because the 

precise date this notice will be 

published cannot be predicted in 

advance, setting the deadlines based on 

the date of issuance will allow 

interested parties that intend to 

comment on multiple proposals to plan 

accordingly. 

The Bureau regards the foregoing 

rulemakings as components of a larger 

undertaking; many of them intersect 

with one or more of the others. 

Accordingly, the Bureau is coordinating 

carefully the development of the 

proposals and final rules identified 

above. Each rulemaking will adopt new 

regulatory provisions to implement the 

various Dodd-Frank Act mandates 

described above. In addition, each of 

them may include other provisions the 

Bureau considers necessary or 

appropriate to ensure that the overall 

undertaking is accomplished efficiently 

and that it ultimately yields a regulatory 

scheme for mortgage credit that achieves 

the statutory purposes set forth by 

Congress, while avoiding unnecessary 

burdens on industry. 

Thus, many of the rulemakings listed 

above involve issues that extend across 

two or more rulemakings. In this 

context, each rulemaking may raise 

concerns that might appear unaddressed 

if that rulemaking were viewed in 

isolation. For efficiency’s sake, however, 

the Bureau is publishing and soliciting 

comment on a proposed approach to 

certain issues raised by two or more of 

its mortgage rulemakings in whichever 

rulemaking is most appropriate, in the 

Bureau’s judgment, for addressing each 

specific issue. Accordingly, the Bureau 

urges the public to review this and the 

other mortgage proposals identified 

above, including those previously 

published by the Board, together. Such 

a review will ensure a more complete 

understanding of the Bureau’s overall 

approach and will foster more 

comprehensive and informed public 

comment on the Bureau’s several 

proposals, including provisions that 

may have some relation to more than 

one rulemaking but are being proposed 

for comment in only one of them. 

D. Small Servicers 

The small entity representatives 

(SERs) who provided feedback to the 

SBREFA panel generally emphasized 

that their business models required a 

‘‘high touch’’ approach to customer 

service and that they did not engage in 

many of the practices that contributed to 

the mortgage market process. The SERs 

indicated that they take a proactive 

approach to providing consumer 

information, resolving errors and 

working with delinquent borrowers to 

find alternatives to foreclosure. 

Nevertheless, they indicated that some 

elements of the proposals under 

consideration were not consistent with 

their current business practices and 

expressed concern about the need to 

begin providing extensive 

documentation to prove compliance 

with the proposed standards. The SERs 

urged the Bureau to adopt standards 

that would allow small servicers to stay 

in the market and provide choices to 

consumers.40 The SERs were 

particularly concerned about the costs 

and burdens of complying with the 

periodic statement requirements, as well 

as certain aspects of the process for 

resolving errors and responding to 

inquiries.41

Informed by this process, the Bureau 

is proposing in the 2012 TILA Servicing 

Proposal to exempt certain small 

servicers from the periodic statement 

requirement. The Bureau is also 

proposing that certain requirements, 

such as the requirement to maintain 

reasonable information management 

policies and procedures under 

Regulation X, should be applied in light 

of the scale of the servicer’s operations 

as well as other contextual factors. The 

Bureau does not believe that these 

provisions, described more fully in the 

section-by-section analysis of the 

applicable proposal, would impair 

consumer protection. The Bureau is also 

seeking comment more broadly on 

whether other exemptions or 

adjustments for small servicers would 

be warranted to reduce regulatory 

burden while appropriately balancing 

consumer protections. 

E. Request for Comment on Effective 

Date 

The Bureau specifically requests 

comment on the appropriate effective 

date for each of the servicing-related 

rules contained in this proposal and the 

2012 TILA Servicing Proposed Rule. As 

discussed above, the Dodd-Frank Act 

servicing requirements take effect 

automatically on January 21, 2013, 

unless final rules are issued on or before 

that date.42 Where rules are required to 

be issued, the Dodd-Frank Act permits 

the Bureau to provide up to 12 months 

for implementation. For all other rules, 

the implementation period is left to the 

discretion of the Bureau. 

Given the significant consumer 

benefits offered by the proposals and the 

challenges faced by delinquent 

borrowers in dealing with their 

servicers, the Bureau generally believes 

that the final rules should be made 

effective as soon as possible. However, 

the Bureau understands that various 

elements of the final rules would 

require servicers to adopt or revise 

existing software to generate compliant 

disclosures, retrain staff, assess and 

revise policies and procedures, and/or 

take other implementation measures. 

The Bureau therefore seeks detailed 

comment on the nature and length of 

implementation process for each 

individual servicing rule and in light of 

interactions between the rules. The 

Bureau is particularly interested in 

analyzing the impacts on both 

consumers and servicers of a staggered 

implementation sequence as compared 

to imposing a single date by which all 

rules must be implemented. 

The Bureau also notes that some 

companies may also need to implement 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57209 

43RESPA sets forth a ‘‘qualified written request’’ 

mechanism through which a borrower can assert an 

error to a servicer or request information from a 

servicer. Section 6(k)(1)(C) and 6(k)(1)(D) of RESPA 

set forth separate obligations for servicers to correct 

certain types of errors or to provide information 

regarding an owner or assignee of a mortgage loan 

without reference to the ‘‘qualified written request’’ 

process. The Bureau’s proposal would integrate all 

error resolution and information request processes, 

including requirements applicable to ‘‘qualified 

written requests.’’ Although a borrower would still 

be able to submit a ‘‘qualified written request,’’ 

under the proposed rule, a ‘‘qualified written 

request’’ would be subject to the same error 

resolution or information request requirements 

applicable to any other type written error notice or 

information request to a servicer and a servicer’s 

liability for failure to respond to a qualified written 

request would be the same as for any other written 

error or information request notice. 

other new requirements under other 

parts of the Dodd-Frank Act, as 

described above. The Bureau believes 

based on conversations and analysis to 

date that there is more overlap and 

interaction among the various proposals 

relating to mortgage origination than 

there is between the servicing proposals 

and the origination proposals. However, 

the Bureau seeks comment specifically 

on this issue and on whether the general 

cumulative burden on entities that are 

subject to both sets of rules will 

complicate implementation. 

Finally, the Bureau seeks comment on 

any particular implementation 

challenges faced by small servicers, and 

on whether an extended 

implementation period would be 

appropriate or useful. For instance, to 

the extent that small servicers rely 

heavily on outside software vendors, the 

Bureau seeks comment on whether a 

delayed effective date would provide 

significant relief if the vendors will have 

to develop software solutions for larger 

servicers on a shorter timeline anyway. 

The Bureau also seeks comment on the 

impacts of delayed implementation on 

consumers and on other market 

participants. 

IV. Summary of Proposed Rule 

The proposal contains a number of 

significant revisions to Regulation X. As 

a preliminary matter, the Bureau 

proposes to reorganize Regulation X to 

include three distinct subparts. Subpart 

A (General) would include general 

provisions of Regulation X, including 

provisions that apply to both subpart B 

and subpart C. Subpart B (Mortgage 

settlement and escrow accounts) would 

include provisions relating to settlement 

services and escrow accounts, including 

disclosures provided to borrowers 

relating to settlement services. Subpart 

C (Mortgage servicing) would include 

provisions relating to obligations of 

mortgage servicers. The Bureau also 

proposes to set forth a commentary that 

includes official Bureau interpretations 

of Regulation X. 

With respect to mortgage servicingrelated provisions, the proposed rule 

would amend existing provisions 

currently published in 12 CFR 1024.21, 

which relate to disclosures of mortgage 

servicing transfers and servicer 

obligations to borrowers. The Bureau is 

proposing to include these provisions 

within the proposed subpart C as 

proposed §§ 1024.33–1024.34. The 

Bureau also proposes to move certain 

clarifications in these provisions that 

were previously published in 12 CFR 

1024.21 to the commentary to conform 

the organization of these provisions 

with the proposed additions to 

Regulation X. 

The proposed rule would establish 

procedures for investigating and 

resolving alleged errors and responding 

to requests for information. The 

requirements would be set forth in 

proposed §§ 1024.35–1024.36. As 

proposed, these sections would require 

servicers to respond to errors and 

information requests from borrowers, 

which would include qualified written 

requests. The Bureau’s goal is to 

conform and consolidate the preexisting procedures applicable to 

qualified written requests with the new 

requirements imposed by the DoddFrank Act to respond to errors and 

information requests under section 

6(k)(1)(C) and 6(k)(1)(D) of RESPA. The 

Bureau proposes to create a unified 

requirement for servicers to respond to 

errors and information requests 

provided by borrowers, without regard 

to whether the request constitutes a 

qualified written request.43 To that end, 

the proposed rule would implement the 

Dodd-Frank Act amendments to RESPA 

section 6(e) by adjusting the timeframes 

applicable to respond to qualified 

written requests, as well as errors and 

information requests generally, to 

conform to the new requirements. 

The proposed rule would implement 

limitations on servicers obtaining forceplaced insurance in § 1024.37. The 

proposed rule would require servicers to 

provide notices to borrowers at certain 

timeframes before a servicer could 

impose a charge on a borrower. See 

proposed § 1024.37. Further, the 

proposed rule would require that 

charges related to force-placed 

insurance, other than charges subject to 

State regulation as the business of 

insurance or authorized by Federal 

flood laws must be bona fide and 

reasonable. Finally, and as set forth in 

more detail below, the proposed rule 

would also reduce the instances in 

which force-placed insurance would be 

needed by amending current § 1024.17 

to require that where a borrower has 

escrowed for hazard insurance, servicers 

must generally advance funds to 

maintain the borrowers’ own hazard 

insurance policies even if the loan is 

delinquent. 

The proposed rule would also 

implement the Dodd-Frank Act 

amendment to RESPA section 6(g) in 

proposed § 1024.34(b) by proposing 

requirements on servicers for the refund 

or transfer of funds in an escrow 

account when a mortgage loan is paid in 

full. 

The proposed rule would also impose 

obligations on servicers in four 

additional areas not specifically 

required by the Dodd-Frank Act: 

Reasonable information management 

policies and procedures, early 

intervention for delinquent borrowers, 

continuity of contact, and loss 

mitigation procedures. See proposed 

§§ 1024.38–1024.41. The Bureau is 

proposing rules in these areas to address 

significant problems in the mortgage 

servicing industry and the difficulties 

that borrowers, particularly delinquent 

borrowers, have encountered when 

dealing with servicers. The early 

intervention for delinquent borrower 

provisions would require servicers to 

contact borrowers at an early stage of 

delinquency and provide information to 

borrowers about available loss 

mitigation options and the foreclosure 

process. The continuity of contact 

provisions would require servicers to 

make available to borrowers direct 

phone access to personnel who could 

assist borrowers in pursuing loss 

mitigation options. The reasonable 

information management policies and 

procedures would require servicers to 

implement policies and procedures to 

manage documents and information to 

achieve defined objectives that ensure 

borrowers are not harmed by servicers’ 

information management operations. 

These objectives include providing 

accurate information to borrowers, 

correcting errors on borrower accounts, 

providing oversight of service providers, 

protecting borrowers from lost 

information during servicing transfers, 

and ensuring that servicers have access 

to all information necessary to evaluate 

loss mitigation options, as appropriate. 

The information management policies 

and procedures would also have to 

include standard requirements. Policies 

and procedures would satisfy the 

requirements if they do not result in a 

pattern or practice of failing to comply 

with the standard requirements or 

achieving the objectives. The loss 

mitigation procedures would require 

servicers that offer loss mitigation 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57210 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

44Throughout the SUPPLEMENTARY INFORMATION, 

the Bureau is citing its authority under RESPA 

sections 6(j)(3), 6(k), and 19(a) for purposes of 

simplicity. The Bureau notes, however, that with 

respect to some of the provisions referenced in the 

text, use of only one of the authorities may be 

sufficient. 

45The Bureau recognizes that the proposed 

supplement, which sets forth interpretations that 

relate to the proposed mortgage servicing 

rulemakings, is not inclusive of all interpretations 

of RESPA, including interpretations previously 

issued by the HUD. The Bureau does not intend that 

the publication of the supplement would withdraw 

or otherwise affect the status of any prior 

interpretations of RESPA not set forth in the 

supplement. 

options to borrowers to evaluate 

complete and timely applications for 

loss mitigation options. Servicers would 

be required to permit borrowers to 

appeal denials of loss mitigation 

applications for loan modification 

programs. A servicer that receives a 

complete application for a loss 

mitigation option may not proceed with 

a foreclosure sale unless (i) the servicer 

has denied the borrower’s application 

and the time for any appeal has expired; 

(ii) the servicer has offered a loss 

mitigation option which the borrower 

has declined or failed to accept within 

14 days of the offer; or (iii) the borrower 

fails to comply with the terms of a loss 

mitigation agreement. 

The proposed new protections would 

significantly improve the transparency 

of mortgage servicing operations, 

provide substantive protections, 

enhance borrowers’ ability to obtain 

information from and assert errors to 

servicers, and provide borrowers, 

particularly delinquent borrowers, with 

information and options necessary to 

undertake informed actions with respect 

to mortgage loan obligations. 

V. Legal Authority 

Section 1463 of the Dodd-Frank Act 

creates statutory mandates under new 

sections 6(k), 6(l) and 6(m) of RESPA. 

Section 1463 of the Dodd-Frank Act also 

amends certain consumer protection 

provisions set forth in sections 6(e), 6(f) 

and 6(g) of RESPA. 

Regarding the statutory mandates, 

section 6(k) of RESPA contains 

prohibitions on servicers for servicing of 

federally related mortgage loans. 

Pursuant to section 6(k) of RESPA, 

servicers are prohibited from: (i) 

Obtaining force-placed insurance unless 

there is a reasonable basis to believe the 

borrower has failed to comply with the 

loan contract’s requirements to maintain 

property insurance; (ii) charging fees for 

responding to valid qualified written 

requests; (iii) failing to take timely 

action to respond to correct certain 

types of errors; (iv) failing to respond 

within ten business days to a request 

from a borrower to provide certain 

information about the owner or assignee 

of a mortgage loan; or (v) failing to 

comply with any other obligation found 

by the Bureau to be appropriate to carry 

out the consumer protection purposes of 

RESPA. See RESPA section 6(k). 

Section 6(l) of RESPA sets forth 

specific requirements for determining if 

a servicer has a reasonable basis to 

obtain force-placed insurance coverage. 

Section 6(l) of RESPA requires servicers 

to provide written notices to a borrower 

before a charge for a force-placed 

insurance policy may be imposed on the 

borrower. Section 6(l) of RESPA also 

requires a servicer to accept any 

reasonable form of written confirmation 

from a borrower of existing insurance 

coverage. Section 6(l) of RESPA further 

requires a servicer, within 15 days of the 

receipt of such confirmation, to 

terminate force-placed insurance and 

refund any premiums and fees paid 

during the period of overlapping 

coverage. See RESPA section 6(l). 

Section 6(m) of RESPA requires that 

charges related to force-placed 

insurance, other than charges subject to 

State regulation as the business of 

insurance, must be bona fide and 

reasonable. See RESPA section 6(m). 

The Dodd-Frank Act also amends 

sections 6(e), 6(f), and 6(g) of RESPA. 

Section 6(e) is amended by decreasing 

the response times currently applicable 

to a servicer’s obligation to respond to 

a qualified written request. Section 6(f) 

is amended to increase the penalty 

amounts servicers may incur for 

violations of section 6 of RESPA. 

Further, section 6(g) is amended to 

protect borrowers by obligating servicers 

to refund escrow balances to borrowers 

when a mortgage loan is paid in full or 

to transfer the escrow balance in certain 

refinancing related situations. 

In addition to the statutory mandates 

and amendments, RESPA section 6(k) 

authorizes the Bureau to prescribe 

regulations that are appropriate to carry 

out the consumer protection purposes of 

the title. RESPA is a remedial consumer 

protection statute and imposes 

obligations upon servicers for servicing 

federally related mortgage loans that are 

intended to protect borrowers. RESPA 

has established a consumer protection 

paradigm of requiring disclosures to 

consumers, and establishing servicer 

obligations, all of which are intended to 

protect consumers regarding servicer 

actions. The disclosures include, for 

example, disclosures regarding escrow 

account balances and disbursements, 

transfers of mortgage servicing among 

mortgage servicers, and force-placed 

insurance. Obligations limiting servicer 

actions include obligations for servicers 

to respond to qualified written requests 

from borrowers and obligations with 

respect to escrow account payments. 

Servicers incur liability for failure to 

comply with such requirements. 

Considered as a whole, RESPA, as 

amended by the Dodd-Frank Act, 

reflects at least two significant 

consumer protection purposes: (1) To 

establish requirements that ensure that 

servicers have a reasonable basis for 

undertaking actions that may harm 

borrowers and (2) to establish servicers’ 

duties to borrowers with respect to the 

servicing of federally related mortgage 

loans. Each of the provisions proposed 

in this rulemaking address these 

purposes. RESPA section 19(a) 

authorizes the Bureau to prescribe such 

rules and regulations, to make such 

interpretations, and to grant such 

reasonable exemptions for classes of 

transactions, as may be necessary to 

achieve the purposes of RESPA, which 

includes the consumer protection 

purposes laid out above. In addition, 

RESPA section 6(j)(3) authorizes the 

Bureau to establish any requirements 

necessary to carry out the purposes of 

section 6 of RESPA. 

The Bureau uses the specific statutory 

authorities set forth above, as well as the 

broader authorities set forth in sections 

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

issuing this proposal. As described in 

more detail elsewhere in the 

SUPPLEMENTARY INFORMATION, the 

provisions proposed in part or in whole 

pursuant to the Bureau’s authority in 

RESPA sections 6(j)(3), 6(k) and 19(a) 

include: §§ 1024.17(k)(5), 1024.30— 

1024.41.44

The Bureau’s proposal also includes 

official Bureau interpretations in a 

supplement to Regulation X. RESPA 

section 19(a) authorizes the Bureau to 

make such reasonable interpretations of 

RESPA as may be necessary to achieve 

the consumer protection purposes of 

RESPA. Good faith compliance with the 

interpretations would afford servicers 

protection from liability under section 

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

practice of setting forth official Bureau 

interpretations in the supplement 

substitutes for the prior practice of the 

HUD of publishing Statements of Policy 

with respect to interpretations of 

RESPA.45

Dodd-Frank Act Section 1032(a) 

As discussed in the section-by-section 

analysis for proposed § 1024.37, the 

Bureau is proposing disclosures and 

model forms for force-placed insurance 

notices pursuant to its authority under 

RESPA sections 6(k), 6(j)(3), 19(a), as 

well as its authority under Dodd-Frank 

Act section 1032. Section 1032(a) of the 


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46See 75 FR 20718. 

Dodd-Frank Act provides that the 

Bureau ‘‘may prescribe rules to ensure 

that the features of any consumer 

financial product or service, both 

initially and over the term of the 

product or service, are fully, accurately, 

and effectively disclosed to consumers 

in a manner that permits consumers to 

understand the costs, benefits, and risks 

associated with the product or service, 

in light of the facts and circumstances.’’ 

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

to the Bureau in section 1032(a) is 

broad, and empowers the Bureau to 

prescribe rules regarding the disclosure 

of the ‘‘features’’ of consumer financial 

products and services generally. 

Accordingly, the Bureau may prescribe 

rules containing disclosure 

requirements even if other Federal 

consumer financial laws do not 

specifically require disclosure of such 

features. 

Dodd-Frank Act section 1032(c) 

provides that, in prescribing rules 

pursuant to section 1032, the Bureau 

‘‘shall consider available evidence about 

consumer awareness, understanding of, 

and responses to disclosures or 

communications about the risks, costs, 

and benefits of consumer financial 

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

In developing proposed rules under 

Dodd-Frank Act section 1032(a) for this 

proposal, the Bureau has considered 

available studies, reports, and other 

evidence about consumer awareness, 

understanding of, and responses to 

disclosures or communications about 

the risks, costs, and benefits of 

consumer financial products or services. 

The Bureau has considered the evidence 

developed through its consumer testing 

of the force-placed insurance notices. 

In addition, Dodd-Frank Act section 

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

prescribed by the Bureau under this 

[section 1032] requiring disclosures may 

include a model form that may be used 

at the option of the covered person for 

provision of the required disclosures.’’ 

12 U.S.C. 5532(b)(1). Any model form 

issued pursuant to that authority shall 

contain a clear and conspicuous 

disclosure that, at a minimum, uses 

plain language that is comprehensible to 

consumers, using a clear format and 

design, such as readable type font, and 

succinctly explains the information that 

must be communicated to the consumer. 

Dodd-Frank Act 1032(b)(2); 12 U.S.C. 

5532(b)(2). As discussed in the sectionby-section analysis for proposed 

§ 1024.37, the Bureau is proposing 

model forms for force-placed insurance 

notices. As discussed in this notice, the 

Bureau is proposing these model forms 

pursuant to its authority under DoddFrank Act section 1032(b)(1). 

VI. Section-by-Section Analysis 

Subpart A—General 

The Bureau proposes to create three 

distinct subparts within Regulation X. 

Subpart A titled ‘‘General’’ would 

include general provisions as well as 

provisions that are applicable to both 

subpart B and subpart C of Regulation 

X. Subpart B titled ‘‘Mortgage settlement 

and escrow accounts’’ would include 

provisions relating to settlement 

services and escrow accounts, including 

disclosures required to be provided to 

borrowers with respect to settlement 

service providers. Subpart C titled 

‘‘Mortgage servicing’’ would include 

provisions relating to mortgage servicing 

and would include most of the 

provisions in this proposal. 

In order to organize the general 

provisions of Regulation X, as well as 

the provisions that would be applicable 

to both subpart B and subpart C, the 

Bureau proposes placing §§ 1024.1 

through 1024.5 in subpart A. 

Current § 1024.1 sets forth the 

designation and applicability of 

Regulation X and would be republished 

without change. Current § 1024.2 sets 

forth definitions that are applicable to 

transactions covered by this regulation, 

including the definition of federally 

related mortgage loan that is referenced 

in the proposed definition of the term 

‘‘mortgage loan’’ in subpart C. See 

proposed § 1024.31. Current § 1024.2 

would generally be republished without 

changed, except for a deletion from the 

definitions of ‘‘Federally related 

mortgage loan’’ and ‘‘Mortgage broker’’ 

and additions to the definitions of 

‘‘Public Guidance Documents’’ and 

‘‘Servicer.’’ 

The deletion to the definition of 

‘‘Federally related mortgage loan’’ 

eliminates the use of the short term 

‘‘mortgage loan’’ as a substitute for 

‘‘Federally related mortgage loan’’ in 

light of the definition of the term 

‘‘mortgage loan’’ in proposed § 1024.31. 

Conforming edits have also been 

proposed for the definitions of 

‘‘Origination service,’’ ‘‘Servicer,’’ and 

‘‘Servicing.’’ Conforming edits have also 

been proposed for current 

§§ 1024.7(f)(3), 1024.17(c)(8), 

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

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

The deletion to the definition of 

‘‘Mortgage broker’’ removes a reference 

to loan correspondents that are 

approved under 24 CFR 202.8. HUD 

amended 24 CFR 202.8 on April 20, 

2010 to eliminate the FHA approval 

process for loan correspondents and 

determined that loan correspondents 

would no longer be approved 

participants in FHA programs.46 The 

deletion of the reference to FHA 

approved loan correspondents in the 

definition of ‘‘Mortgage broker’’ removes 

the now obsolete reference. 

The addition to the definition of 

‘‘Public Guidance Documents’’ provides 

that such documents are available from 

the Bureau upon request and provides 

an address that could be used to request 

the ‘‘Public Guidance Documents.’’ 

The addition to the definition of 

‘‘Servicer’’ is intended to clarify the 

treatment of the National Credit Union 

Administration (NCUA) as conservator 

or liquidating agent of a servicer or in 

its role of providing special assistance to 

an insured credit union. The definition 

of ‘‘Servicer’’ currently provides that the 

Federal Deposit Insurance Corporation 

(FDIC) is not a servicer (1) with respect 

to assets acquired, assigned, sold, or 

transferred pursuant to section 13(c) of 

the Federal Deposit Insurance Act or as 

receiver or conservator of an insured 

depository institution or (2) in any case 

in which the assignment, sale, or 

transfer of the servicing of the mortgage 

loan is preceded by commencement of 

proceedings by the FDIC for 

conservatorship or receivership of a 

servicer (or an entity by which the 

servicer is owned or controlled). The 

addition to the definition of ‘‘servicer’’ 

clarifies similarly that the NCUA is not 

a servicer (1) with respect to assets 

acquired, assigned, sold, or transferred, 

pursuant to section 208 of the Federal 

Credit Union Act or as conservator or 

liquidating agent of an insured credit 

union or (2) in any case in which the 

assignment, sale, or transfer of the 

servicing of the mortgage loan is 

preceded by commencement of 

proceedings by the NCUA for 

appointment of a conservator or 

liquidating agent of a servicer (or an 

entity by which the servicer is owned or 

controlled). The definition of ‘‘servicer’’ 

also has been edited to clarify that it 

relates to servicers of federally related 

mortgage loans. 

With respect to the additions to the 

definition of ‘‘Servicer,’’ the Bureau 

relies on its authority in section 19(a) of 

RESPA to make such interpretations and 

to grant such reasonable exemptions for 

classes of transactions as may be 

necessary to achieve the consumer 

protection purposes of the Act. The 

Bureau does not believe there is a basis 

to impose on the NCUA, when it is 

providing assistance to an insured credit 

union or in its role as conservator or 

liquidating agent of an insured credit 

union, the obligations of a servicer in 

light of the fact that Congress has 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57212 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

47See Regan v. Time, 468 U.S. 641, 653 (1984) 

(stating that the presumption regarding the review 

of statutes is always in favor of severability); 

Community for Creative Non-Violence v. Turner, 

893 F.2d 1387, 1394 (D.C. Cir. 1990) (applying 

presumption against severability in Regan to 

administrative regulations); Stupak-Thrall v. United 

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

specifically stated that the FDIC, when 

it is providing assistance to an insured 

depository institution or in its role as 

conservator or receiver of an insured 

deposition institution, should not be 

considered a servicer. 

Current § 1024.3 would be removed 

and the substance of § 1024.23 would be 

moved to proposed § 1024.3. Current 

§ 1024.3 sets forth the process for the 

public to submit questions or 

suggestions regarding RESPA or to 

receive copies of Public Guidance 

Documents. Although the Bureau 

welcomes questions and suggestions 

from the public regarding Regulation X, 

the Bureau does not believe a provision 

of Regulation X must be specifically 

designated for that purpose. The public 

may contact the Bureau to request 

documents, suggest changes to 

Regulation X, or submit questions, 

including questions concerning the 

interpretation of RESPA by mail to the 

Associate Director, Research, Markets, 

and Regulations, Bureau of Consumer 

Financial Protection, 1700 G St. NW., 

Washington, DC 20552 or by email to 

CFPB_RESPAInquiries@cfpb.gov. 

Further, the Bureau has proposed 

including contact information to request 

copies of Public Guidance Documents in 

the definition of Public Guidance 

Documents in proposed § 1024.2 as 

discussed above. 

Current § 1024.23 states that 

provisions of the Electronic Signatures 

in Global and National Commerce Act 

(E-Sign Act), which permits electronic 

disclosures to consumers if certain 

conditions are met, apply to Regulation 

X. The Bureau believes that the E-Sign 

Act provisions are applicable to all 

provisions in the regulation, and, 

therefore, should be moved to subpart 

A. The Bureau has made technical edits 

to the language of the provision to 

conform to the language of other similar 

Bureau regulations. 

Current § 1024.4 sets forth provisions 

relating to reliance upon rules, 

regulations, or interpretations by the 

Bureau. The Bureau proposes to remove 

current § 1024.4(b) and redesignate 

current § 1024.4(c) as proposed 

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

that the Bureau may, in its discretion, 

provide unofficial staff interpretations 

but that such interpretations do not 

provide protection under section 19(b) 

of RESPA and that staff will not 

ordinarily provide such interpretations 

on matters adequately covered by 

Regulation X, official interpretations or 

commentaries. The Bureau’s policy is to 

assist the public in understanding the 

Bureau’s regulations, including, but not 

limited to, Regulation X. The Bureau 

believes that this provision, which 

states Bureau policy, is more 

appropriate for the commentary and, 

accordingly, proposes to include the 

substance of this provision in the 

introduction to the commentary. 

Current § 1024.5 sets forth exemptions 

with respect to the applicability of 

Regulation X. The Bureau proposes to 

make a technical correction to current 

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

servicing related provisions of 

Regulation X will be included in the 

new subpart C and will no longer be 

placed in current § 1024.21. 

The Bureau further proposes to 

remove current § 1024.22. Current 

§ 1024.22 states that if any particular 

provision of Regulation X, or its 

application to any particular person or 

circumstance is held invalid, the 

remainder of Regulation X or the 

application of such provision to any 

other person or circumstance shall not 

be affected. The Bureau is proposing 

removing current § 1024.22 because the 

section is unnecessary and the inclusion 

of the current section in Regulation X is 

inconsistent with the drafting of other 

Bureau regulations. A court reviewing 

Regulation X should presume that 

provisions of Regulation X are severable 

in the absence of an indication that the 

Bureau intended the provisions to be 

non-severable.47 The Bureau intends 

that the provisions of Regulation X are 

severable and believes that if any 

particular provision of Regulation X, or 

its application to any particular person 

or circumstance is held invalid, the 

remainder of Regulation X or the 

application of such provision to any 

other provision or circumstance should 

not be affected. The Bureau’s proposal 

to remove current § 1024.22 should not 

be construed to indicate a contrary 

position. 

Subpart B—Mortgage Settlement and 

Escrow Accounts 

The Bureau proposes to establish the 

provisions of Regulation X relating to 

settlement services and escrow accounts 

within subpart B of Regulation X. These 

provisions include §§ 1024.6 through 

1024.21. 

Section 1024.17 Escrow Accounts 

17(k) Timely Payments 

The Bureau proposes to modify 

§ 1024.17(k), which, pursuant to 

proposed § 1024.34(a) discussed below, 

sets forth requirements a servicer must 

follow when making payments from a 

borrower’s escrow account. The Bureau 

proposes to add a new § 1024.17(k)(5) to 

Regulation X to address circumstances 

in which servicers are required to make 

payments from a borrower’s escrow 

account to continue a borrower’s hazard 

insurance policy. The Bureau has 

reviewed a number of issues concerning 

force-placed insurance in order to 

implement the new Dodd-Frank Act 

requirements on force-placed insurance 

discussed below. During that process, 

for reasons set forth below, the Bureau 

concluded that if a borrower has 

escrowed for hazard insurance (i.e. 

established an escrow account for the 

payment of hazard insurance 

premiums), it would be appropriate to 

require servicers to continue paying for 

the borrower’s existing hazard insurance 

when practicable. The Bureau 

understands that it is practicable for a 

servicer to pay the hazard insurance 

premium of such borrower unless the 

borrower’s hazard insurance has been 

canceled or not renewed for reasons 

other than nonpayment of premium 

charges. Under proposed 

§ 1024.37(a)(2)(ii) discussed below, the 

Bureau is proposing that hazard 

insurance obtained by a borrower but 

renewed by the borrower’s servicer as 

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

(k)(5) is not considered to be forceplaced insurance under § 1024.37. 

Current § 1024.17(k)(1) and (k)(2) 

require servicers to make timely 

disbursements from a borrower’s escrow 

account, and to advance funds if 

necessary, as long as the borrower’s 

mortgage payment is not more than 30 

days past due. Proposed § 1024.17(k)(5) 

would amend the requirements of 

§ 1024.17(k)(1) and (k)(2) with respect to 

the timely payment of hazard insurance 

premiums. Proposed § 1024.17(k)(5) 

provides that notwithstanding 

§ 1024.17(k)(1) and (k)(2), a servicer 

must make payments from a borrower’s 

escrow account in a timely manner to 

pay the premium charge on a borrower’s 

hazard insurance, as defined in 

§ 1024.31, unless the servicer has a 

reasonable basis to believe that such 

insurance has been canceled or not 

renewed for reasons other than 

nonpayment of premium charges. The 

proposal would require the servicer to 

advance funds to pay the premium 

charge if the borrower’s escrow account 

does not contain sufficient funds. 

Proposed comment 17(k)(5)–1 

clarifies that the receipt by a servicer of 

a notice of cancellation or non-renewal 

from the borrower’s insurance company 

before the insurance premium is due 

provides a servicer with a reasonable 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57213 

48See e.g., Force-Placed Insurance Hearings: 

Testimony of Justin Crowley on Behalf of Select 

Portfolio Servicing, Inc., et al. Before the New York 

State Department of Financial Services, at 3 (May 

2012), available at: http://www.dfs.ny.gov/ 

insurance/hearing/fp_052012_testimony.htm. 49One mortgage analyst has suggested that 

incentives to obtain force-placed insurance are such 

that it would be ‘‘unrealistic to expect a servicer to 

make an unbiased decision on when to buy [forceplaced insurance],’’ and hence, national servicing 

standards should be established to require servicers 

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

as possible.’’ The Need for National Mortgage 

Servicing Standards: Hearing Before the Subcomm. 

on Housing, Transportation, and Community 

Affairs of the Senate Comm. on Banking, Housing 

and Urban Affairs, S. Hrg. 112–139, 112th Cong. 

126 (2011) (statement of Laurie Goodman). 

50National Consumer Law Center, Why Servicers 

Foreclose When They Should Modify, at 25. 51See Small Business Review Panel Report at 22. 

basis to believe that the borrower’s 

hazard insurance has been canceled or 

not renewed for reasons other than 

nonpayment of premium charges. 

Proposed comment 17(k)(5)–2 

contains three examples of a borrower’s 

hazard insurance being canceled or not 

renewed for reasons other than the 

nonpayment of premium charges, to the 

extent permitted by State or other 

applicable law. Proposed comment 

17(k)(5)–2.i describes a situation in 

which the borrower cancels the hazard 

insurance before its expiration date or 

chooses to not renew the insurance. 

Proposed comment 17(k)(5)–2.ii 

describes a situation in which the 

insurance company cancels the hazard 

insurance before its expiration date or 

chooses not to renew the insurance 

because it decides to stop writing 

insurance for all properties in the 

community where the borrower’s 

property is located. Proposed comment 

17(k)(5)–2.iii describes a situation in 

which the insurance company cancels 

or chooses not to renew the borrower’s 

hazard insurance based on its 

underwriting criteria, which may 

include, for example, a borrower’s claim 

history, a change in the occupancy 

status of the property, or a change in the 

probability of the property being 

exposed to loss caused by certain 

hazards (e.g., a change in the property’s 

exposure to loss caused by wind). 

Proposed comment 17(k)(5)–3 

clarifies that a servicer that advances the 

premium payment as required by 

§ 1024.17(k)(5) may advance the 

payment on a month-to-month basis, if 

permitted by State or other applicable 

law and accepted by the borrower’s 

hazard insurance company. 

As discussed above, the Bureau’s 

review of issues concerning force-placed 

insurance has led the Bureau to 

conclude that it would be appropriate to 

require servicers to continue paying for 

a borrower’s existing hazard insurance 

when practicable if the borrower has an 

escrow account established to pay for 

hazard insurance. As discussed in 

greater detail in the discussion of the 

Bureau’s proposed definition of ‘‘forceplaced insurance’’ in proposed 

§ 1024.37(a)(1), a servicer is already 

contractually required to obtain 

alternative hazard insurance to protect 

the interest that the owner or assignee 

of a mortgage loan has in the property 

securing such loan if the servicer is 

unable to obtain evidence of acceptable 

borrower-purchased hazard insurance 

for such property. Additionally, a 

servicer typically makes payments for 

force-placed insurance with its own 

funds.48 Because the servicer would 

have to obtain some type of hazard 

insurance to protect the interest of the 

mortgage loan owner or assignee (and to 

advance payment with its own funds, if 

necessary), requiring servicers to 

continue paying for an escrowed 

borrower’s existing hazard insurance 

when practicable would provide 

borrowers with greater protection than a 

servicer obtaining force-placed 

insurance. For reasons discussed in 

greater detail in the Bureau’s proposed 

definition of force-placed insurance, 

servicer’s purchase of force-placed 

insurance under certain circumstances 

could harm borrowers. The Bureau also 

believes that the approach the Bureau is 

proposing would be generally more 

cost-effective for the owner or assignee 

of the mortgage loan.49 As discussed 

above, when servicers obtain forceplaced insurance, they typically 

advance the force-placed insurance 

premium charges, which are then added 

to the amount of the loan. If a borrower 

cannot reimburse a servicer for the 

advancement of force-placed insurance 

charges, then when a loan is liquidated, 

the servicer will mostly likely be paid 

for the unreimbursed force-placed 

insurance charges before the owner or 

assignee of the mortgage loan gets 

paid.50

Additionally, the Bureau understands 

that servicers currently advance hazard 

insurance premiums for a borrower with 

an escrow account established to pay for 

hazard insurance even if they are not 

required by Regulation X to do so. The 

Bureau notes that when it solicited 

input from small servicers through the 

Small Business Review Panel, most 

SERs did not raise specific concerns 

with the Bureau’s proposal to require 

servicers to advance funds to pay a 

borrower’s hazard insurance. There 

were two SERs who expressed concern 

about advancing funds to renew a 

borrower’s hazard insurance because the 

borrower could cancel the hazard 

insurance and keep the refund.51 The 

Small Business Review Panel 

recommended that the Bureau reduce 

the incentives for borrowers to take such 

action by allowing servicers to advance 

premium payment in 30-day 

installments. Proposed comment 

17(k)(5)–3, discussed above, reflects the 

panel’s recommendation. The Bureau 

also notes that to the extent that the 

servicer is permitted by applicable law 

to seek reimbursement for advancing a 

borrower’s hazard insurance premium 

payment, the Bureau’s proposal would 

not prohibit a servicer from seeking 

such reimbursement. 

The Bureau, however, invites 

comment on an alternative to the 

requirement in proposed § 1024.17(k)(5) 

that servicers must advance funds to 

pay a borrower’s hazard insurance 

premium. The alternative approach 

would be in § 1024.37 and would 

simply make it a condition of charging 

a borrower who has an escrow account 

established to pay hazard insurance, 

that the force-placed insurance be less 

expensive to the borrower than the 

servicer advancing funds to continue 

the borrower’s hazard insurance policy. 

The Bureau further requests whether the 

condition should be adjusted to require 

that the force-placed insurance policy 

protect the borrower’s interest. 

Borrower’s insurance canceled for 

reasons other than nonpayment of 

premiums. As discussed above, the 

Bureau understands that for a borrower 

who has escrowed for hazard insurance, 

it is practicable for a servicer to pay 

such borrower’s hazard insurance 

premium unless the borrower’s hazard 

insurance has been canceled or not 

renewed for reasons other than 

nonpayment of premium charges. In 

other words, the Bureau recognizes that 

there could be situations where it would 

not be practicable for a servicer to 

continue paying for a borrower’s 

existing hazard insurance even though 

the borrower has escrowed for hazard 

insurance because the borrower’s hazard 

insurance has been canceled or not 

renewed for reasons other than 

nonpayment of premium charges. 

Accordingly, as discussed above, 

proposed § 1024.17(k)(5) clarifies that a 

servicer’s obligation to make payments 

from a borrower’s escrow account in a 

timely manner to pay the premium 

charge on a borrower’s hazard insurance 

rests on whether the servicer has a 

reasonable basis to believe that a 

borrower’s hazard insurance has been 

canceled or not renewed for reasons 

other than nonpayment of premium 

charges. If the servicer has such basis, 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57214 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

52See The National Consumer Law Center and 

the Center for Economic Justice, The Consumer 

Financial Protection Bureau Should Rein in 

Mortgage Servicers’ Use of Force-Placed Insurance, 

at 4 (May 2012), available at: http://www.nclc.org/ 

images/pdf/regulatory_reform/ib-force-placedinsurance.pdf. 

53See supra note 42, at 2–3. 

54See, e.g., United States of America et al. v. 

Bank of America Corp. et al (National Mortgage 

Settlement)., at A–38, available at: http:// 

nationalmortgagesettlement.com. 

55Fannie Mae, Servicing Guide Announcement 

SVC–2012–04 (Fannie Mae March 2012 Servicing 

then the servicer would not be required 

to make such payments. The Bureau 

notes that for such servicer, the servicer 

is subject to proposed § 1024.37’s 

consumer protections with respect to 

servicer’s purchase of force-placed 

insurance. The Bureau believes that 

‘‘reasonable basis’’ rather than actual 

knowledge should be the standard for 

determining whether the servicer is 

required to make timely payments. The 

Bureau understands that notices of 

cancellation or non-renewal vary in the 

level of detail. Hence a servicer may not 

be able to determine why a borrower’s 

hazard insurance was canceled or not 

renewed based on information provided 

in a notice of cancellation or nonrenewal. Additionally, the Bureau notes 

that the new Dodd-Frank requirements, 

discussed below, only require a servicer 

to have a ‘‘reasonable basis’’ to believe 

a borrower has failed to maintain hazard 

insurance pursuant to the terms of the 

borrower’s mortgage loan contract 

before the servicer obtains force-placed 

insurance. 

Proposed comment 17(k)(5)–1, 

discussed above, clarifies what 

constitutes a ‘‘reasonable basis’’ for the 

purposes of proposed § 1024.17(k)(5). 

The Bureau believes that providing an 

illustration of what constitutes ‘‘a 

reasonable basis’’ to believe that a 

borrower’s hazard insurance has been 

canceled or not renewed for reasons 

other than nonpayment of premium 

charges facilitates compliance. The 

Bureau invites comment on whether 

additional circumstances may provide a 

servicer with a ‘‘reasonable basis’’ to 

believe that a borrower’s hazard 

insurance has been canceled or not 

renewed for reasons other than 

nonpayment of premium charges. 

Proposed comment 17(k)(5)–2, 

discussed above, contains three 

examples of a borrower’s hazard 

insurance being canceled or not 

renewed for reasons other than the 

nonpayment of premium charges. 

Legal authority. Section 6(k)(1)(E) of 

RESPA authorizes the Bureau to 

prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA. As 

previously discussed in part V above, 

RESPA has established a consumer 

protection paradigm of establishing 

servicer obligations intended to protect 

consumers regarding servicer actions. 

As noted, servicers are contractually 

required to obtain alternative hazard 

insurance—advancing their own funds 

as necessary—if they do not have 

evidence that the borrower has hazard 

insurance in place. The Bureau has 

determined that requiring servicers to 

continue paying for escrowed 

borrowers’ existing hazard insurance, 

when practicable, is more protective of 

the borrower’s interest than providing 

servicers with the opportunity to obtain 

force-placed insurance. Accordingly, the 

Bureau proposes § 1024.17(k)(5) 

pursuant to its authority under RESPA 

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

has additional authority pursuant to 

section 6(j)(3) of RESPA to establish any 

requirements necessary to carry out 

section 6 of REPSA and has authority 

pursuant to section 19(a) of RESPA to 

prescribe such rules and regulations, 

and to make such interpretations, and to 

grant such reasonable exemptions for 

classes of transactions, as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

To the extent proposed § 1024.17(k)(5) 

would require servicers to make timely 

payments for a borrower whose 

mortgage payment is more than 30 days 

past due, but whose escrow account 

contains sufficient funds to pay the 

hazard insurance premium, the Bureau 

additionally relies on its authority 

under RESPA section 6(g). RESPA 

section 6(g) provides that when a 

borrower is required by the terms of a 

federally related mortgage loan to pay 

into an escrow account to assure 

payment of taxes, insurance premiums, 

and other charges with respect to the 

property, the borrower’s servicer must 

make timely payments out of the 

borrower’s escrow account for such 

taxes, insurance premiums, and other 

charges. As discussed above, the Bureau 

recognizes that under certain 

circumstances, it may not be practicable 

for a servicer to continue paying a 

borrower’s existing hazard insurance. 

Pursuant to its interpretive authority 

under RESPA section 19(a), discussed 

above, the Bureau believes it is 

appropriate to clarify that a servicer’s 

obligation to make timely payment from 

a borrower’s escrow account to pay for 

the borrower’s hazard insurance 

premium does not apply when a 

servicer has a reasonable basis to believe 

that the borrower’s existing hazard 

insurance has been canceled or not 

renewed for reasons other than 

nonpayment of premium charges. The 

Bureau notes that for such servicer, the 

servicer would have to comply with 

proposed § 1024.37’s consumer 

protections if the servicer obtains forceplaced insurance. Additionally, the 

Bureau notes that RESPA section 19(a) 

provides the Bureau with authority to 

grant reasonable exemptions for classes 

of transactions as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

Borrowers not escrowed for hazard 

insurance. Proposed § 1024.17(k)(5) 

would apply in situations where a 

borrower has established an escrow 

account for the payment of hazard 

insurance premiums. Where a borrower 

has not done so, whether because the 

borrower has not established an escrow 

account at all, or has established an 

escrow account to pay for other items 

but not for hazard insurance premiums, 

the Bureau is proposing to set forth that 

hazard insurance obtained by a 

borrower but renewed at the servicer’s 

discretion is not force-placed insurance 

under proposed § 1024.37 in proposed 

§ 1024.37(a)(2)(iii) discussed below. The 

Bureau notes that there is an on-going 

debate among consumer advocates, 

servicers, the GSEs, and regulators on 

whether it is practicable to require 

servicers to pay insurance premiums for 

borrowers who have not escrowed for 

hazard insurance. Consumer advocates 

have urged the Bureau to require 

servicers to advance funds to pay 

insurance premiums for such 

borrowers.52 But servicers have testified 

that requiring servicers to pay insurance 

premiums for borrowers who have not 

escrowed for hazard insurance is often 

not possible.53

The National Mortgage Settlement, 

discussed in part II.C above, requires 

servicers to ‘‘continue to advance 

payments for the homeowner’s existing 

policy [for borrowers who have 

escrowed for hazard insurance], unless 

the borrower or insurance company 

cancels the existing policy.’’54 On the 

other hand, Fannie Mae has revised its 

servicing guide to require servicers to 

pay a borrower’s hazard insurance 

premium even if the borrower has not 

escrowed for hazard insurance, stating: 

When a mortgage loan payment includes 

escrows, they must advance funds for the 

timely payment of the borrower’s property 

insurance premiums. Additionally, when the 

servicer has waived the escrow deposit 

account for a specific borrower, it remains 

responsible for the timely payment of the 

insurance premiums. Therefore, if a borrower 

fails to pay a premium, the servicer must 

advance its own funds to pay the past-due 

premium and reinstate the borrower 

insurance coverage, revoke the waiver and 

begin escrow deposit collections to pay 

further premiums.55


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57215 

Announcement) (March 14, 2012), available at 

https://www.efanniemae.com/sf/guides/ssg/annltrs/ 

pdf/2012/svc1204.pdf. Fannie Mae originally 

required that servicers implement the revised 

requirements no later than June 1, 2012. In May 

2012, however, Fannie Mae announced that it is 

postponing the implementation date. See Fannie 

Mae, Servicing Notice (May 23, 2012), available at: 

https://www.efanniemae.com/sf/guides/ssg/annltrs/ 

pdf/2012/ntce052312.pdf. 

56See Freddie Mac Single Family Seller/Servicer 

Guide, Vol. 2 § 58.9 (2007). 

57See 58 FR 64065 (December 3, 1993); 59 FR 

53890 (October 26, 1994). 

With respect to a borrower who has 

not escrowed for hazard insurance, the 

National Mortgage Settlement only 

requires a servicer to disclose in the 

notices it sends to such borrower that 

the servicer would establish an escrow 

account for the borrower to pay the 

borrower’s hazard insurance premium 

with the borrower’s consent. 

Furthermore, the Bureau notes that in 

contrast to Fannie Mae, Freddie Mac 

only requires a servicer that services 

loans for Freddie Mac to obtain 

insurance if a borrower fails to maintain 

insurance coverage required by Freddie 

Mac. Freddie Mac does not require the 

servicer to advance funds to maintain a 

borrower’s hazard insurance coverage. 

The guidelines state, ‘‘[if] the borrower 

does not or cannot obtain such coverage, 

then the servicer must do so. The 

servicer must then adjust the Borrower’s 

escrow payment accordingly or bill the 

borrower to recover the advance if the 

servicer does not maintain an escrow 

account for the borrower.’’ 56 In light of 

the existence of competing views about: 

(1) A servicer’s obligation to a borrower 

who has not escrowed for hazard 

insurance with respect to paying the 

borrower’s hazard insurance premium 

on the borrower’s behalf; and (2) the 

practicality of a servicer being able to 

pay the hazard insurance premium of 

such a borrower, the Bureau seeks 

comment on whether it should require 

servicers to pay the hazard insurance 

premiums of borrowers who have not 

escrowed for hazard insurance. The 

Bureau also seeks comment on whether 

servicers should be required to ask 

borrowers who have not escrowed for 

hazard insurance whether they would 

consent to servicers renewing the 

borrower-obtained hazard insurance, 

and then be required to pay the hazard 

insurance premiums if the borrowers 

give consent. 

17(l) System of Recordkeeping 

The Bureau proposes to remove 

current § 1024.17(l). Current § 1024.17(l) 

generally requires that a servicer 

maintain for five years records regarding 

the payment of amounts into and from 

an escrow account and escrow account 

statements provided to borrowers. 

Current § 1024.17(l) further mandates 

that the Bureau may request information 

contained in the servicer’s records for 

an escrow account and a servicer’s 

failure to provide such information may 

be deemed to be evidence of the 

servicer’s failure to comply with its 

obligations with respect to providing 

escrow account statements to borrowers. 

The Bureau believes that, in light of 

this proposal, and the substantially 

different authorities available to the 

Bureau, as opposed to HUD, the 

obligations set forth in current 

§ 1024.17(l) are no longer required. HUD 

proposed adding current § 1024.17(l) to 

Regulation X in 1993 and finalized the 

rule in 1994.57 Current § 1024.17(l) 

reflects requirements relating to HUD’s 

authority to require information from 

mortgage servicers and compel 

compliance with the requirements of 

Regulation X at the time it was 

implemented. 

Proposed § 1024.38(a) would require 

servicers to establish policies and 

procedures that include a standard 

requirement to retain records that 

document actions taken by a servicer 

with respect to a borrower’s mortgage 

loan account until one year after the 

date a mortgage loan is discharged or 

servicing of a mortgage loan is 

transferred by the servicer to a 

transferee servicer. Such documents 

include those relating to escrow 

accounts. Further, proposed §§ 1024.35– 

1024.36 provide tools available to 

borrowers to require the correction of 

misapplied escrow account payments or 

to request information regarding a 

borrower’s escrow account. Moreover, 

the Bureau has authority to supervise 

mortgage servicers and determine 

whether mortgage servicers are 

complying with their obligations under 

Regulation X with respect to escrow 

accounts. For these reasons, the Bureau 

proposes to remove current § 1024.17(l). 

The Bureau requests comment regarding 

whether current § 1024.17(l) should be 

removed from Regulation X. 

Subpart C—Mortgage Servicing 

Currently, section 6 of RESPA sets 

forth protections for borrowers with 

respect to the servicing of federally 

related mortgage loans. These 

protections include disclosures to 

borrowers about whether servicing for a 

mortgage loan may be transferred, as 

well as disclosures regarding the prior 

and new servicers in the event of a 

transfer. See RESPA section 6(a)—6(c). 

Section 6 of RESPA further provides 

protections regarding misdirected 

payments during a servicing transfer. 

See RESPA section 6(d). 

Section 6 of RESPA also currently 

requires a servicer to respond to 

qualified written requests asserting 

errors or requesting information 

regarding the servicing of a mortgage 

loan and sets forth obligations on 

servicers regarding the administration of 

escrow accounts. See RESPA sections 

6(e), 6(g). Servicers are liable to 

borrowers for violations of section 6 of 

RESPA. See RESPA section 6(f). 

Section 1463 of the Dodd-Frank Act 

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

of RESPA, which set forth new 

obligations on servicers for federally 

related mortgage loans. Section 6(k) of 

RESPA prohibits servicers from: (i) 

Obtaining force-placed insurance unless 

there is a reasonable basis to believe the 

borrower has failed to comply with the 

loan contract’s requirements to maintain 

property insurance; (ii) charging fees for 

responding to valid qualified written 

requests; (iii) failing to take timely 

action to respond to correct certain 

types of errors; (iv) failing to respond 

within ten business days to a request 

from a borrower to provide certain 

information about the owner or assignee 

of a mortgage loan; or (v) failing to 

comply with any other obligation found 

by the Bureau to be appropriate to carry 

out the consumer protection purposes of 

RESPA. See RESPA section 6(k). 

Further, section 6(l) of RESPA requires 

servicers: (i) To provide written notices 

to a borrower before a charge for a forceplaced insurance policy may be 

imposed on the borrower; (ii) to accept 

any reasonable form of written 

confirmation from a borrower of existing 

insurance coverage; and (iii) within 15 

days of the receipt of such confirmation, 

to terminate force-placed insurance and 

refund any premiums and fees paid 

during the period of overlapping 

coverage. See RESPA section 6(l). 

Section 6(m) of RESPA requires that 

charges related to force-placed 

insurance, other than charges subject to 

State regulation as the business of 

insurance, must be bona fide and 

reasonable. See RESPA section 6(m). 

Section 1463 of the Dodd-Frank Act 

also amends sections 6(e) and 6(g) of 

RESPA with respect to a servicer’s 

obligation to respond to qualified 

written requests and a servicer’s 

administration of an escrow account. 

Further, section 1463 of the Dodd-Frank 

Act amended section 6(f) of RESPA to 

increase the dollar amounts of damages 

for which a servicer may be liable for 

violations of section 6 of RESPA. See 

RESPA section 6(e)–(g); Dodd-Frank Act 

sections 1463(b)–(d). 


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57216 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

58Michael LaCour-Little et al., What Role Did 

Piggyback Lending Play in the Housing Bubble and 

Mortgage Collapse?, at 3 (Oct. 5, 2010), available at: 

http://ssrn.com/abstract=1688033. 

59 Id. at 3 (stating that ‘‘piggyback loans’’ 

accounted for 30% of home purchases in New York 

City and 37.3% of home purchases in California in 

2006). 

60See id. at 26–27. 

61See Donghoon Lee et al., A New Look at Second 

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

ssrn.com/abstract=2014570 (chapter in Housing 

and the Financial Crisis, Edward Glaeser and Todd 

Sinai, eds.) 

62See, e.g., Julapa Jagtiani and William W. Lang, 

Strategic Default on First and Second Lien 

Mortgages During The Financial Crisis, at n.5 

(Federal Reserve Bank of Philadelphia, Working 

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

http://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=1724947. 

In order to implement these 

provisions in a consistent and clear 

manner, the Bureau proposes to 

reorganize Regulation X to include 

provisions relating to mortgage servicing 

within a new subpart C. 

Section 1024.21 Mortgage Servicing 

Transfers 

To incorporate mortgage servicingrelated provisions within subpart C, the 

proposed rule would remove § 1024.21 

and would implement the provisions of 

§ 1024.21, subject to proposed changes 

as discussed below, in proposed 

§§ 1024.31–1024.34 within subpart C. 

Compare § 1024.21 with proposed 

§§ 1024.31–1024.34. 

Section 1024.30 Scope 

Proposed § 1024.30 sets forth the 

scope of proposed subpart C. Currently, 

§ 1024.21, which implements section 6 

of RESPA, applies to a ‘‘mortgage 

servicing loan’’ as that term is defined 

in current § 1024.21(a). The term 

‘‘mortgage servicing loan’’ means a 

federally related mortgage loan, as that 

term is defined in § 1024.2, subject to 

the exemptions in § 1024.5, when the 

mortgage loan is secured by a first lien. 

The term ‘‘mortgage servicing loan’’ 

does not include subordinate-lien loans 

or open-end lines of credit (home equity 

plans) covered by TILA and Regulation 

Z, including open-end lines of credit 

secured by a first lien. See § 1024.21(a) 

(defining mortgage servicing loan). 

Proposed § 1024.30 would eliminate 

the term ‘‘mortgage servicing loan’’ from 

Regulation X and would set forth the 

scope of subpart C. Subpart C would 

apply to any mortgage loan, as that term 

is defined in proposed § 1024.31. 

‘‘Mortgage loan’’ in § 1024.31 would 

mean a federally related mortgage loan, 

as that term is defined in § 1024.2, 

subject to the exemptions in § 1024.5. 

Unlike the previous term ‘‘mortgage 

servicing loan,’’ the term ‘‘mortgage 

loan’’ would include subordinate-lien 

closed-end mortgage loans. The term 

‘‘mortgage loan’’ would maintain the 

exclusion for open-end lines of credit 

(home-equity plans) covered by TILA 

and Regulation Z, including open-end 

lines of credit secured by a first lien, 

currently set forth in the definition of 

‘‘mortgage servicing loan.’’ As a result, 

the elimination of the term ‘‘mortgage 

servicing loan,’’ the proposed definition 

of ‘‘mortgage loan’’ in proposed 

§ 1024.31, and the proposed scope of 

subpart C in proposed § 1024.30 would 

create new servicer obligations with 

respect to subordinate-lien closed-end 

mortgage loans under Regulation X. 

The Bureau believes that borrowers of 

subordinate lien closed-end mortgage 

loans should be entitled to the 

protections that would be set forth in 

subpart C. 

The use of subordinate-lien closedend mortgage loans grew substantially 

during the housing boom. Subordinatelien closed-end mortgage loans were 

commonly originated as ‘‘piggyback 

loans’’—that is, a subordinate-lien 

mortgage loan originated concurrently 

with a first-lien mortgage loan to finance 

a home purchase in excess of an 80% 

loan-to-value ratio.58 By taking 

‘‘piggyback loans,’’ a borrower could 

avoid a requirement to purchase a 

mortgage insurance policy. During 2006, 

subordinate-lien closed-end mortgage 

loans were used as ‘‘piggyback loans’’ 

for 22% of one-to-four family owneroccupied home purchases, with higher 

percentages reported in high-cost 

housing areas.59 Because borrowers 

with simultaneously-originated 

subordinate-lien closed-end mortgage 

loans are more highly levered, such 

borrowers are at a greater risk of having 

negative equity when home prices 

decline and may be more susceptible to 

default (depending on the credit quality 

of the borrower).60 Further, such loans 

complicate loss mitigation processes if 

the first-lien and subordinate-lien loans 

are owned by separate entities or 

serviced by separate servicers. 

There are no unique characteristics of 

subordinate-lien closed-end mortgage 

loans that should require servicers to 

treat a borrower of such a mortgage loan 

differently than a first-lien mortgage 

loan borrower with respect to 

protections for mortgage servicing 

transfers, error resolution, information 

requests, force-placed insurance, 

reasonable information management 

policies and procedures, early 

intervention for delinquent borrowers, 

continuity of contact, or loss mitigation 

procedures. To the contrary, because of 

the difficulty of achieving loss 

mitigation options when a borrower has 

a subordinate-lien closed-end mortgage 

loan, such borrower may be more likely 

to benefit from certain protections in 

proposed subpart C. 

Accordingly, the Bureau’s proposal 

would remove the exclusion for 

subordinate-lien closed-end mortgage 

loans that was previously included in 

Regulation X but which was not 

required by RESPA. The Bureau has not 

identified any countervailing reasons 

why borrowers of subordinate-lien 

closed-end mortgage loans should not 

benefit from the protections afforded by 

the provisions of proposed subpart C. 

However, the Bureau requests comment 

regarding whether subordinate-lien 

closed-end mortgage loans should be 

included within the scope of proposed 

subpart C. 

The Bureau proposes to maintain the 

exclusion for open-end lines of credit 

(home-equity plans) covered by TILA 

and Regulation Z, including open-end 

lines of credit secured by a first lien, 

from the servicer requirements of 

Regulation X. Home equity lines of 

credit (HELOCs) tend to reflect better 

credit quality than subordinate-lien 

closed-end mortgage loans and share 

risk characteristics more similar to other 

open-end consumer financial products, 

such as credit cards, because of the 

access to additional unutilized credit 

provided by a HELOC.61 The Bureau 

understands from discussions with 

servicers and industry representatives 

that the servicing of HELOCs tends to 

differ significantly from closed-end 

mortgage loans, including with respect 

to information systems used, lender 

remedies (including restricting access to 

the line of credit), and borrower 

behavior. Further, the Bureau 

understands that although a household 

may finance a property solely with an 

open-end line of credit, the proportion 

that do so is very small.62

Open-end lines of credit have been 

historically excluded from regulations 

applicable to mortgage servicing under 

Regulation X. See current § 1024.21(a) 

(defining ‘‘mortgage servicing loan’’). 

Further, open-end lines of credit are 

already regulated under Regulation Z. 

Certain provisions of Regulation Z 

would duplicate the servicer obligations 

that would be set forth in subpart C, 

including, for example, billing error 

resolution procedures. See 12 CFR 

1026.13. 

In addition, the protections proposed 

in Regulation X may not necessarily be 

appropriate for open-end lines of credit. 

A borrower is in control of an open-end 

line of credit and can draw from that 

line as necessary to meet financial 

obligations. Many borrowers that have 


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63 Id. at 11. 

64The term is used three times elsewhere in 

RESPA, once in section 4(b) and twice in section 

8(c) of RESPA. 

become delinquent on a first lien closed 

end mortgage loan keep current on 

payments for subordinate lien open-end 

lines of credit in order to maintain their 

access to the line of credit.63

Conversely, when borrowers experience 

difficulty meeting their obligations, 

lenders have the ability to cut off access 

to unutilized draws from the open-end 

line of credit. These features of openend lines of credit may weigh against 

imposing the requirements set forth for 

early intervention with delinquent 

borrowers, continuity of contact, and 

loss mitigation procedures on servicers 

for open-end lines of credit. Further, 

open-end lines of credit tend to differ 

from closed-end mortgage loans with 

respect to servicing information systems 

utilized and servicer processes, such 

that information management policies 

and procedures may be better targeted 

toward different objectives for open-end 

lines of credit than those set forth in 

proposed § 1024.38(b) with respect to 

closed-end mortgage loans. Finally, and 

as discussed below, the Bureau has 

learned that servicers generally do not 

obtain force-placed insurance on behalf 

of open-end lines of credit because such 

lines of credit are typically secured by 

a subordinate lien. Accordingly, the 

Bureau believes that exempting openend lines of credit (home-equity plans) 

from the Bureau’s proposed force-placed 

insurance regulations is appropriate. 

Although the Bureau believes that 

maintaining the current exclusion of 

open-end lines of credit (home-equity 

plans) covered by TILA and Regulation 

Z, from the servicer requirements of 

Regulation X is consistent with 

consumer protection purposes of 

RESPA, the Bureau requests comment 

regarding whether open-end lines of 

credit (home-equity plans) should be 

excluded from any of the provisions of 

proposed subpart C. 

The Bureau proposes to interpret the 

application of the servicer obligations 

and prohibitions in section 6 of RESPA 

pursuant to its authority in section 19(a) 

of RESPA to prescribe such rules and 

regulations, to make such 

interpretations, and to grant such 

reasonable exemptions for classes of 

transactions as may be necessary to 

achieve the consumer protection 

purposes of RESPA. The Bureau further 

relies on its authority in section 6(j)(3) 

of RESPA to set forth requirements 

necessary to carry out section 6 of 

RESPA and in section 6(k)(1)(E) of 

RESPA to set forth obligations 

appropriate to carry out the consumer 

protection purposes of RESPA. 

Section 1024.31 Definitions 

Proposed § 1024.31 contains 

definitions for the following terms: 

Consumer reporting agency, day, hazard 

insurance, loss mitigation application, 

loss mitigation options, master servicer, 

mortgage loan, qualified written request, 

reverse mortgage transaction, 

subservicer, service provider, transferee 

servicer, and transferor servicer. 

Consumer reporting agency. The 

Bureau proposes to define the term 

‘‘consumer reporting agency’’ to have 

the same meaning set forth in section 

603 of the Fair Credit Reporting Act, 15 

U.S.C. 1681a. This proposed definition 

is the same as the definition of the term 

‘‘consumer reporting agency’’ set forth 

in the relevant provisions of RESPA that 

would be implemented by this proposed 

rulemaking. See RESPA section 6(e)(3). 

Day. The Bureau proposes to define 

the term ‘‘day’’ for purposes of subpart 

C to mean calendar day. ‘‘Day’’ is not 

defined by RESPA. RESPA generally 

uses the terms ‘‘day’’ and ‘‘day 

(excluding legal public holidays, 

Saturdays, and Sundays).’’ Because 

Congress excluded legal public 

holidays, Saturdays, and Sundays in 

certain circumstances, the Bureau 

believes that Congress intended the term 

‘‘day’’ by itself to include these days, 

and therefore, believes a definition of 

‘‘day’’ as a calendar day reflects 

Congress’s intent. 

The Dodd-Frank Act, however, 

amended section 6(g) and added section 

6(k)(1)(D) to RESPA and, in these 

provisions, used the term ‘‘business 

day.’’ The term ‘‘business day’’ is not 

defined by RESPA and does not 

otherwise appear in section 6 of 

RESPA.64 Rather, section 6 of RESPA 

uses the terms ‘‘day’’ and ‘‘day 

(excluding legal public holidays, 

Saturdays, and Sundays).’’ Accordingly, 

the Bureau proposes to interpret the 

term ‘‘business day’’ in sections 6(g) and 

6(k)(1)(D) of RESPA to mean ‘‘day 

(excluding legal public holidays, 

Saturdays, and Sundays)’’ consistent 

with other usage of the term ‘‘day’’ 

within section 6 of RESPA and RESPA 

generally. The Bureau believes that a 

consistent interpretation of the 

definition of the term ‘‘day’’ will 

provide certainty that benefits 

borrowers by clarifying their rights 

under subpart C and benefits servicers 

by easing compliance burden associated 

with different understandings of the 

meaning of the term ‘‘day.’’ 

The Bureau relies on its authority in 

section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out 

section 6 of RESPA and in section 19(a) 

of RESPA to make such interpretations 

necessary to achieve the consumer 

protection purposes of RESPA. 

Hazard insurance. The Bureau 

proposes to define ‘‘hazard insurance’’ 

to mean insurance on the property 

securing a mortgage loan that protects 

the property against losses caused by 

fire, wind, flood, earthquake, theft, 

falling objects, freezing, and other 

similar hazards for which the owner or 

assignee of such loan requires 

insurance. The Bureau believes that 

defining ‘‘hazard insurance’’ is 

necessary to implement the new DoddFrank requirements on force-placed 

insurance, set forth in new RESPA 

section 6(k)–(m). Accordingly, the 

Bureau proposes to define ‘‘hazard 

insurance’’ pursuant to its authority 

under section 6(j)(3) of RESPA, which 

authorizes the Bureau to establish any 

requirements necessary to carry out the 

purposes of RESPA. The Bureau 

additionally relies on its authority 

pursuant to sections 6(k)(1)(E) and 19(a) 

of RESPA. Section 6(k)(1)(E) of RESPA 

authorizes the Bureau to prescribe 

regulations that are appropriate to carry 

out the consumer protection purposes of 

RESPA, and section 19(a) of RESPA 

gives the Bureau the authority to 

prescribe such rules and regulations and 

to make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

As discussed below in the Bureau’s 

discussion of proposed § 1024.37(a)(1), 

Dodd-Frank Act section 1463 defines 

‘‘force-placed insurance’’ for the 

purposes of RESPA section 6(k)–(m) as 

a type of hazard insurance. Although 

Dodd-Frank Act section 1463 does not 

define ‘‘hazard insurance,’’ it provides 

that a servicer of a federally related 

mortgage must not obtain ‘‘force-placed 

hazard insurance unless there is a 

reasonable basis to believe the borrower 

has failed to comply with the loan 

contract’s requirements to maintain 

property insurance.’’ In other words, 

force-placed ‘‘hazard insurance’’ simply 

refers to ‘‘property insurance’’ the 

borrower has failed to maintain. Under 

the typical mortgage loan contract, 

property insurance is defined broadly to 

mean insurance that protects a 

mortgaged property against loss by ‘‘fire, 

hazards included within the term 

‘extended coverage’, and any other 

hazards including, but not limited to, 

earthquakes and floods, for which 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57218 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

65See, e.g., California Single Family Fannie Mae/ 

Freddie Mac Uniform Instrument, Form 3005, 

(Fannie Mae/Freddie Mac Note), at ¶ 5. 

66See National Association of Insurance 

Commissioners, A Consumer Quick Guide to Home 

Insurance, at 2–5 (2010), available at: 

http:\\www.naic.org/documents/ 

consumer_guide_home_quick.pdf).). 

67The Bureau acknowledges that Dodd-Frank Act 

section 1461, which added a new section 129D to 

TILA, lists ‘‘hazard insurance’’ and ‘‘flood 

insurance’’ as two separate categories of insurance. 

See TILA section 129D(i); however, the Dodd-Frank 

Act provides that the definitions in TILA section 

129D(i) apply only to TILA section 129D. The 

Bureau does not interpret the definitions to apply 

to RESPA section 6(k)–(m). The Bureau also 

acknowledges that in current Regulation X, the 

provision of settlement services involving hazard 

insurance is separate from the provision of services 

involving flood insurance pursuant to the definition 

of ‘‘settlement service’’ in § 1024.2. Further, for 

purposes of current Regulation X, the Bureau 

further acknowledges that: (1) In appendix A’s 

instructions on how to prepare a HUD–1 Settlement 

statement, the settlement agent must list 

homeowner’s insurance premiums separately from 

flood insurance premiums; and (2) appendix C’s 

instructions on how to prepare a good faith estimate 

(GFE) form treat hazard insurance separately from 

flood insurance. The Bureau’s proposed definition 

of ‘‘hazard insurance’’ would only apply to 

proposed subpart C of RESPA and § 1024.17(k)(5). 

It would not apply to § 1024.2, appendix A, or 

appendix C. 

Lender requires insurance.’’ 65

Accordingly, the proposed definition of 

‘‘hazard insurance’’ in proposed 

§ 1024.31 is equally broad. 

The Bureau’s proposed definition of 

‘‘hazard insurance’’ would include, but 

not be limited to, homeowner’s 

insurance. Virtually all borrowers are 

required to have homeowner’s 

insurance in place as a condition of 

obtaining a mortgage loan. 

Homeowner’s insurance policies 

typically insure mortgaged properties 

against loss caused by all hazards other 

than those specifically excluded by the 

policies. The Bureau understands that 

borrowers may be required by the terms 

of the mortgage loan contract to obtain 

separate insurance policies that protect 

the property against loss caused by 

hazards specifically excluded from 

coverage by homeowner’s insurance 

policies. The Bureau understands that 

losses caused by earthquake or flood 

hazards, and in many coastal areas, 

losses caused by wind, are typically 

excluded.66 Insurance written to cover 

loss caused by specifically-excluded 

hazards is typically narrowly written to 

protect a mortgaged property against 

loss caused by a single, specificallyexcluded hazard. A single hazard 

insurance policy, such as a hazard 

insurance policy to protect against flood 

loss, would also be included within the 

Bureau’s proposed definition of ‘‘hazard 

insurance.’’ 67 The Bureau recognizes 

that a servicer could be required to 

obtain force-placed hazard insurance to 

protect against flood loss by the Flood 

Disaster Protection Act of 1973 (FDPA). 

As discussed in greater detail below, the 

Bureau proposes to exempt hazard 

insurance to protect against flood loss 

obtained by a servicer as required by the 

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

§ 1024.37. The Bureau, however, invites 

comment on whether a definition of 

‘‘hazard insurance’’ that specifically 

excludes hazard insurance to protect 

against flood loss would be more 

appropriate than the Bureau’s proposed 

definition of ‘‘hazard insurance.’’ 

Loss mitigation application. The 

Bureau proposes to define a ‘‘loss 

mitigation application’’ as an 

application from a borrower requesting 

evaluation for a loss mitigation option, 

as that term is defined in proposed 

§ 1024.31, in accordance with 

procedures established by the servicer 

for the submission of such requests. The 

Bureau has set forth a separate 

definition of loss mitigation application 

to indicate that a loss mitigation 

application is separate from an 

‘‘application’’ as that term is defined in 

current § 1024.2(b). Proposed comment 

31(loss mitigation application)–1 

clarifies that a loss mitigation 

application may be submitted by a 

representative of a borrower and that a 

servicer may undertake reasonable 

procedures to determine if a purported 

representative actually represents a 

borrower. 

Loss mitigation options. As defined in 

proposed § 1024.31, ‘‘loss mitigation 

options’’ are ‘‘alternatives available from 

the servicer to the borrower to avoid 

foreclosure.’’ Proposed comment 31 

(loss mitigation options)—1 clarifies 

that loss mitigation options include 

temporary and long-term relief, and 

options that allow borrowers to remain 

in or leave their homes, such as, without 

limitation, refinancing, trial or 

permanent modification, repayment of 

the amount owed over an extended 

period of time, forbearance of future 

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

foreclosure, and loss mitigation 

programs sponsored by a State or the 

Federal Government. Proposed 

comment 31 (loss mitigation options)— 

2 clarifies that loss mitigation options 

‘‘available from the servicer’’ include 

options offered by the owner or assignee 

of the loan that are made available 

through the servicer. 

The Bureau’s proposed definition of 

‘‘loss mitigation option’’ is broad to 

account for the wide variety of options 

that may be available to a borrower. The 

Bureau believes that borrowers are best 

served when they are aware of all of 

their options. Thus, the proposed 

definition sets forth examples of loss 

mitigation options ‘‘without limitation.’’ 

The Bureau has not defined each of the 

examples of loss mitigation options to 

account for alternatives that may vary 

depending on the underlying loan 

documents, any servicer obligations to 

the lender or assignee of the loan, the 

borrower’s particular circumstances, 

and the flexibility the servicer has in 

arranging alternatives with the 

borrower. 

The Bureau recognizes that not every 

loss mitigation option will be available 

to each individual borrower. Thus, the 

Bureau has limited the proposed 

definition of ‘‘loss mitigation options’’ 

to alternatives ‘‘available to the 

borrower.’’ The Bureau invites comment 

on the appropriateness of the proposed 

definition of ‘‘loss mitigation options,’’ 

and whether revision or further 

clarification is warranted. 

Mortgage loan. As set forth in the 

discussion above on proposed 

§ 1024.30, the term ‘‘mortgage loan’’ in 

proposed § 1024.31 would generally 

mean a federally related mortgage loan, 

as that term is defined in § 1024.2, 

subject to the exemptions in § 1024.5 

and an exemption for open-end lines of 

credit (home equity plans). For the 

reasons discussed above on proposed 

§ 1024.30, the term ‘‘mortgage loan’’ 

would not exclude subordinate-lien 

closed-end mortgage loans but would 

maintain the exclusion for open-end 

lines of credit (home-equity plans) 

covered by TILA and Regulation Z, 

including open-end lines of credit 

secured by a first lien, currently set 

forth in the definition of ‘‘mortgage 

servicing loan.’’ As a result, the 

elimination of the term ‘‘mortgage 

servicing loan,’’ the proposed definition 

of ‘‘mortgage loan’’ in proposed 

§ 1024.31, and the proposed scope of 

subpart C in proposed § 1024.30 would 

create new servicer obligations with 

respect to subordinate-lien closed-end 

mortgage loans under Regulation X. 

The Bureau proposes to interpret the 

application of the servicer obligations 

and prohibitions in section 6 of RESPA 

pursuant to its authority in section 19(a) 

to prescribe such rules and regulations, 

to make such interpretations, and to 

grants such reasonable exemptions for 

classes of transactions as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

Reverse mortgage transaction. The 

Bureau proposes to add a definition for 

the term ‘‘reverse mortgage transaction.’’ 

A ‘‘reverse mortgage transaction’’ would 

have the same definition used in 

Regulation Z, which implements TILA, 

to maintain consistency with other 

Bureau definitions applicable to reverse 


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Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57219 

mortgages. See 12 CFR 1026.33(a). The 

Bureau is proposing to include a 

definition for a ‘‘reverse mortgage 

transaction’’ in Regulation X to 

implement the requirements for 

mortgage servicing disclosure 

statements in proposed § 1024.33(a). 

Proposed § 1024.33(a) sets forth the 

requirements applicable to disclosures 

to applicants about assignment, sale, or 

transfer of loan servicing that must be 

provided to applicants within three 

days (excluding legal public holidays, 

Saturdays, and Sundays). If the 2012 

TILA–RESPA Proposal, which was 

published by the Bureau on July 9, 

2012, is adopted as proposed with 

respect to the implementing of the 

disclosures required by sections 6(a) of 

RESPA, the only mortgage loans that 

would not receive the disclosure 

through the 2012 TILA–RESPA Proposal 

would be reverse mortgage transactions. 

Accordingly, the Bureau proposes to 

apply the current requirements of 

§ 1024.21(b)–(c) only to reverse 

mortgage transactions, and proposed 

§ 1024.33(a) would require the 

disclosure for reverse mortgage 

transactions. 

Service provider. The Bureau 

proposes to add a definition for the term 

‘‘service provider.’’ A service provider 

means any party retained by a servicer 

that interacts with a borrower or 

provides a service to a servicer for 

which a borrower may incur a fee. 

Proposed comment 31 (service 

provider)—1 clarifies that service 

providers may include attorneys 

retained to represent a servicer or an 

owner or assignee of a mortgage loan in 

a foreclosure proceeding, as well as 

other professionals retained to provide 

appraisals or property inspections. 

Definitions of master servicer, 

qualified written request, subservicer, 

transferee servicer, and transferor 

servicer. Currently, definitions of the 

terms ‘‘master servicer,’’ ‘‘subservicer,’’ 

‘‘transferee servicer,’’ and ‘‘transferor 

servicer,’’ are set forth in § 1024.21(a). 

The proposed rule would include the 

definitions of these terms currently set 

forth in § 1024.21(a), without change, in 

proposed § 1024.31. 

The definition of ‘‘qualified written 

request’’ would be revised to state that 

a qualified written request is a written 

correspondence from the borrower to 

the servicer that enables the servicer to 

identify the name and account of the 

borrower, and (1) states the reasons the 

borrower believes an error relating to 

the servicing of the loan has occurred, 

or (2) provides sufficient detail to the 

servicer regarding information relating 

to the servicing of the mortgage loan 

sought by the borrower. The definition 

further states that a qualified written 

request (i) must be in writing, (ii) must 

not be written on a payment coupon or 

other payment form from a servicer, and 

(iii) must be delivered less than one year 

after servicing of a mortgage loan is 

transferred or a mortgage loan is paid in 

full, whichever date is applicable. All of 

the elements of this definition are 

currently set forth in § 1024.21(e)(2) and 

the proposed definition of ‘‘qualified 

written request’’ in proposed § 1024.32 

is not intended to alter the meaning of 

the term. Proposed comment 32 

(qualified written request)—1 clarifies 

that a qualified written request may 

request information without asserting an 

error with respect to the servicing of a 

mortgage loan (and vice versa). 

A ‘‘qualified written request’’ is just 

one form that a written notice of error 

or information request may take. As set 

forth above, although RESPA sets forth 

a ‘‘qualified written request’’ 

mechanism through which a borrower 

can assert an error to a servicer or 

request information from a servicer, the 

Bureau’s proposal would integrate all 

error resolution and information request 

processes, including ‘‘qualified written 

requests.’’ A borrower may still submit 

a ‘‘qualified written request,’’ under the 

proposed rule, however a ‘‘qualified 

written request’’ would be subject to the 

same error resolution or information 

request requirements applicable to any 

other form of written notice of error or 

information request to a servicer. 

Further, a servicer’s liability for failure 

to respond to a qualified written request 

would be the same as for any other 

written notice of error or information 

request. Accordingly, there would be no 

greater benefit to a borrower, nor 

additional burden to a servicer, to 

respond to a ‘‘qualified written request’’ 

than would exist for a written notice of 

error or written information request 

pursuant to proposed §§ 1024.35– 

1024.36. 

Section 1024.32 General Disclosure 

Requirements 

Proposed § 1024.32 would set forth 

requirements applicable to disclosures 

required by subpart C. Specifically 

proposed § 1024.32(a)(1) would require 

that disclosures provided by servicers 

be clear and conspicuous, in writing, 

and in a form the consumer may keep. 

This standard is consistent with 

disclosure standards applicable in other 

regulations issued by the Bureau, 

including, for example, Regulation Z. 

See, e.g., 12 CFR 1026.17(a)(1). 

Proposed § 1024.32(a)(2) would permit 

disclosures to be provided in languages 

other than English, so long as 

disclosures are made available in 

English upon a borrower’s request. 

Further, proposed § 1024.32(b) would 

permit disclosures required under 

subpart C to be combined with 

disclosures required by applicable laws, 

including State laws, as well as 

disclosures required pursuant to the 

terms of an agreement between the 

servicer and a federal or state regulatory 

agency. 

The Bureau believes this provision is 

appropriate to enable servicers to 

integrate disclosures required by 

subpart C with requirements imposed 

by other federal regulatory agencies, 

including through the National 

Mortgage Settlement, and with 

applicable State law. The Bureau 

proposes to exercise its authority under 

sections 6(j)(3) of RESPA to set forth 

requirements necessary to carry out 

section 6 of RESPA. The Bureau further 

relies on its authority in section 19(a) of 

RESPA to make such rules and 

regulations necessary to achieve the 

consumer protection purposes of 

RESPA. 

Section 1024.33 Mortgage Servicing 

Transfers 

Proposed § 1023.33 implements the 

mortgage servicing transfer disclosure 

requirements in section 6(a)–(d) of 

RESPA. The mortgage servicing transfer 

disclosure requirements are currently in 

§ 1024.21(b)–(d) of Regulation X. 

As a preliminary matter, the Bureau 

proposes to implement certain 

provisions currently set forth in 

§ 1024.21(b)–(d) of Regulation X through 

commentary to proposed § 1024.33 

rather than as text of the regulation 

itself. This change is proposed to 

conform the organization of proposed 

§ 1024.33 with other proposed 

provisions of subpart C. 

Proposed § 1024.33(a) makes changes 

to the requirements currently set forth 

in § 1024.21(b)–(c). Proposed 

§ 1024.33(a) sets forth the requirements 

applicable to disclosures to applicants 

about assignment, sale, or transfer of 

loan servicing that must be provided to 

applicants within three days (excluding 

legal public holidays, Saturdays, and 

Sundays) of application. If the 2012 

TILA–RESPA Proposal, which was 

published by the Bureau on July 9, 

2012, is adopted as proposed with 

respect to the implementing the 

disclosures required by section 6(a) of 

RESPA, the only mortgage loans that 

currently receive mortgage servicing 

transfer disclosures that would not 

receive the disclosure through the new 

integrated TILA/RESPA disclosure form 

would be closed-end reverse mortgage 


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57220 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

68Currently, mortgage servicing transfer 

disclosures are required for ‘‘mortgage servicing 

loans.’’ See current § 1024.21(b)(1). The only 

‘‘mortgage servicing loans’’ that would not be 

covered by the 2012 TILA–RESPA Proposal 

rulemaking are closed-end reverse mortgage 

transactions. Open-end reverse mortgage 

transactions are not ‘‘mortgage servicing loans’’ as 

that term is defined in current § 1024.21(a). 

69Rodriguez v. Countrywide Homes et al., 668 F. 

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

submits, and the Court agrees, that RESPA requires 

a lender to send a Good Bye letter to the Mailing 

Address listed by the borrower in the loan 

documents. When the borrower submits an express 

change of mailing address, the lender is required to 

send the Good Bye letter to the new address.’’). 

transactions.68 Accordingly, the Bureau 

proposes to apply the current 

requirements of § 1024.21(b)–(c) only to 

reverse mortgage transactions, and 

proposed § 1024.33(a) reflects the 

limited scope of this provision. 

Further, the Bureau proposes to 

implement through commentary a 

clarification relating to providing a 

servicing disclosure statement for coapplicants. Regulation X currently 

provides that if co-applicants provide 

the same address on an application, one 

copy of the servicing disclosure 

statement delivered to that address is 

sufficient, but if different addresses are 

shown by co-applicants, a copy of the 

servicing disclosure statement should be 

provided to each of the co-applicants. 

The Bureau believes this requirement is 

unduly burdensome, especially in light 

of the reduced scope of the servicing 

disclosure statement to closed-end 

reverse mortgage transactions. The 

Bureau proposes instead to require that 

if co-applicants provide different 

addresses, a servicing disclosure 

statement need only be provided to the 

primary applicant. This requirement is 

consistent with disclosure requirements 

applicable to other Bureau regulations. 

See 12 CFR 1002.9(f). 

The Bureau does not believe this 

change will have a meaningful impact 

on consumers. The only situation that 

would be covered by this commentary is 

when multiple applicants for a closedend reverse mortgage transaction 

indicate separate addresses on an 

application. Closed-end reverse 

mortgage transactions typically require 

funds to be dispersed in a single lumpsum payment and are typically only 

available for borrower-occupied 

residences. The servicer of a closed-end 

reverse mortgage transaction is not 

responsible for making on-going 

payments to reverse mortgage 

borrowers, and borrowers of closed-end 

reverse mortgage transactions do not 

have on-going mortgage loan payment 

obligations during the life of the loan. 

The Bureau believes that removing the 

requirement that borrowers with 

different addresses receive a separate 

mortgage servicing disclosure statement 

will remove a burden for reverse 

mortgage lenders and will not remove 

any meaningful protection for 

consumers. 

Proposed § 1024.33(b)–(c) sets forth 

the requirements applicable to notices 

of transfer of mortgage loan servicing. 

The Bureau proposes to remove the 

requirement that the transferor and 

transferee servicers provide collect-call 

telephone numbers (but retain the 

requirement to provide toll-free 

telephone numbers). The Bureau 

believes the collect-call telephone 

number requirement is obsolete. The 

Bureau also proposes to remove the 

requirement currently set forth in 

§ 1024.21(d)(3)(vii) for a statement of the 

borrower’s rights in connection with 

complaint resolution. The expanded 

error resolution and information request 

requirements set forth in proposed 

§§ 1024.35–1024.36 provide tools for 

borrowers to assert errors and request 

information in connection with a 

servicing transfer. A transferee servicer 

will either identify for borrowers a 

phone number and address that must be 

used for asserting errors or requesting 

information pursuant to the 

requirements of §§ 1024.35–1024.36 

when servicing is transferred or will be 

required to respond to a notice of error 

or information request received at any 

office of the servicer. 

Further, the Bureau proposes to 

conform the requirements that extend 

the time for the disclosure to treat 

institutions for which the NCUA has 

commenced proceedings to appoint a 

conservator or liquidating agent 

similarly to those for which the FDIC 

has commenced proceedings to appoint 

a conservator or receiver. The Bureau 

does not believe that the timing for 

providing a servicing transfer disclosure 

should differ for an insured credit union 

in the process of conservatorship of 

liquidation by the NCUA as opposed to 

an insured depository institution in the 

process of conservatorship or 

receivership by the FDIC. 

The Bureau also proposes to conform 

proposed § 1024.33(c) with the 

requirements in proposed § 1024.39 by 

clarifying that a borrower’s account may 

be considered late for purposes of 

contacting the borrower for early 

intervention, but may not be considered 

late for any other purpose, including 

imposing late fees. 

The Bureau proposes to add a 

requirement in proposed § 1024.33(c)(2) 

that, in connection with a servicing 

transfer, a transferor servicer shall 

promptly either transfer a payment it 

has received incorrectly to the transferee 

servicer for application to a borrower’s 

mortgage loan account or return the 

payment to the person that made the 

payment to the transferor servicer. The 

Bureau understands that many servicers 

already transfer misdirected payments 

to the appropriate servicer in 

connection with a servicing transfer. 

The Bureau requests comment regarding 

whether servicers should be required to 

transfer funds received for a borrower’s 

mortgage loan account to the 

appropriate servicers. The Bureau also 

solicits comment on whether the Bureau 

should implement requirements on the 

timing and method by which payments 

are returned to consumers. 

The Bureau also proposes to add 

comment 33(b)(3)–2 to clarify how a 

notice of servicing transfer should be 

delivered to a borrower. Proposed 

comment 33(b)(3)–2 clarifies that a 

notice of transfer should be delivered to 

the mailing address listed by the 

borrower in the mortgage loan 

documents, unless the borrower has 

notified the servicer of a new address 

pursuant to the servicer’s requirements 

for receiving a notice of a change of 

address. This requirement is consistent 

with current law.69 Proposed comment 

33(b)(3)–2 further clarifies that when a 

mortgage loan has more than one 

borrower, the notice of transfer need 

only be given to one borrower, but must 

be given to the primary borrower when 

one is readily apparent. 

The Bureau also proposes to amend 

the model form set forth in appendix 

MS–2 to reflect the proposed 

requirements in proposed 

§ 1024.33(b)(4) and to streamline the 

contents of the form. The Bureau 

believes that borrowers are best served 

by reducing the content of the form so 

that borrowers receive a form that 

clearly sets forth the required content 

regarding the transfer of servicing and 

the address to which the next payment 

should be sent. 

The Bureau proposes to exercise its 

authority under section 6(j)(3) of RESPA 

to set forth requirements necessary to 

carry out section 6 of RESPA. The 

Bureau further relies on its authority in 

section 19(a) of RESPA to make such 

rules and regulations necessary to 

achieve the consumer protection 

purposes of RESPA. 

Section 1024.34 Timely Payments by 

Servicer 

Proposed § 1024.34(a) would require a 

servicer to pay amounts owed for taxes, 

insurance premiums, and other charges 

from an escrow account in a timely 

manner, pursuant to the requirements of 


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70See Catalan v. GMAC Mortgage Corp., 629 F.3d 

676 (7th Cir. 2011); Pettie v. Saxon Mortgage 

Services, No. C08–5089, 2009 U.S. Dist. LEXIS 

41496 (W.D. Wa. May 12, 2009). 

71Notably, a notice of error may also constitute 

a direct dispute under Regulation V, which 

implements the Fair Credit Reporting Act, if it 

complies with the requirements in 12 CFR 1022.43. 

current § 1024.17(k), including the 

amendments proposed in this rule. 

Further, proposed § 1024.34(b) would 

implement the Dodd-Frank Act 

amendment to section 6(g) of RESPA by 

requiring a servicer to refund to a 

borrower any amounts remaining in an 

escrow account when a mortgage loan is 

paid in full. Section 6(g) of RESPA also 

permits a servicer to credit the escrow 

account balance to an escrow account 

for a new mortgage loan to the borrower 

with the same lender. ‘‘Lender’’ is 

defined in Regulation X to mean, 

generally, the secured creditor or 

creditors named in the debt obligation 

and document creating the lien. For 

loans originated by a mortgage broker 

that closes a federally related mortgage 

loan in its own name in a table funding 

transaction, the lender is the person to 

whom the obligation is initially 

assigned at or after settlement. 

The Bureau believes the purpose of 

the provision allowing a servicer to 

credit funds in an escrow account to an 

escrow account for a new mortgage loan 

is intended to allow the amounts to be 

smoothly transferred without the need 

for the borrower to expend funds to 

fund a new escrow account and wait for 

a refund of a prior escrow account. 

Consistent with the Bureau’s proposal to 

clarify that subpart C may relate to 

secondary market transactions, which is 

implemented by the amendment to 

current § 1024.5(b)(7), the Bureau 

proposes to interpret the language 

‘‘account with the same lender’’ 

consistent with secondary market 

practices. Accordingly, for purposes of 

section 6(g), the Bureau believes that a 

servicer should be able to credit an 

escrow account for a prior mortgage 

loan to a new mortgage loan where the 

lender for the new mortgage loan is (i) 

the same as the lender for the prior 

mortgage loan, (ii) the same as the 

current owner or assignee of the prior 

mortgage loan, or (iii) intends to use as 

its agent the same servicer that services 

the prior mortgage loan. 

Accordingly, proposed § 1024.34(b) is 

intended to clarify three points. First, a 

servicer may credit an escrow account 

balance to an escrow account for a new 

mortgage loan if the lender for the new 

mortgage loan is the owner or assignee 

of the prior mortgage loan, even if that 

entity was not the lender for the prior 

mortgage loan named in the debt 

obligation and document creating the 

lien. Second, a servicer may credit an 

escrow account balance to an escrow 

account for a new mortgage loan if the 

servicer for the new mortgage loan is the 

same as the servicer for the prior 

mortgage loan. Third, the 20-day 

allowance for section 6(g) only applies 

if the servicer refunds the escrow 

account balance to the borrower. If the 

servicer credits the funds in the escrow 

account to an escrow account for a new 

mortgage loan, the credit should occur 

as of the settlement of the new mortgage 

loan. 

Proposed comment 34(b)(2)–1 

clarifies that a servicer is not required 

to credit an escrow account balance to 

a new mortgage loan in any 

circumstance in which it would be 

permitted to do so. A servicer may 

determine, in all circumstances, to 

return funds in an escrow account to the 

borrower pursuant to proposed 

§ 1024.34(a). 

The Bureau requests comments 

regarding whether the Bureau has 

identified proper instances where 

servicers may credit funds to a new 

escrow account and how such crediting 

should occur. 

The Bureau is proposing these 

requirements to implement section 6(g) 

of RESPA pursuant to its authority in 

section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out 

section 6 of RESPA. The Bureau further 

relies on its authority in section 19(a) of 

RESPA to make such rules and 

regulations, to make such 

interpretations, and to grant such 

reasonable exemptions for classes of 

transactions as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

Section 1024.35 Error Resolution 

Procedures 

Proposed § 1024.35 states the error 

resolution requirements that servicers 

would be required to follow for a notice 

of error from a borrower. In general, this 

proposal provides an opportunity to 

clarify servicer obligations to correct 

errors and respond to information 

requests to provide certainty to 

borrowers regarding their rights and to 

servicers regarding their obligations. 

Currently, section 6(e) of RESPA 

requires servicers to respond to 

‘‘qualified written requests.’’ Qualified 

written requests must be in writing and 

must relate to the ‘‘servicing’’ of the 

mortgage loan, as that term is defined in 

RESPA. Although the Bureau believes 

that qualified written requests may be 

used to either assert an error or to 

request information, there has been 

confusion among courts regarding 

whether both types of requests are 

necessary to set forth a qualified written 

request.70

The Dodd-Frank Act adds another 

layer of complexity. Section 1463(a) of 

the Dodd-Frank Act amends RESPA to 

add section 6(k)(1)(C), which states that 

a servicer shall not fail to take timely 

action to ‘‘correct errors relating to 

allocation of payments, final balances 

for purposes of paying off the loan, or 

avoiding foreclosure, or other standard 

servicer’s duties.’’ Further, section 

1463(a) of the Dodd-Frank Act amends 

RESPA to add section 6(k)(1)(D) which 

states that a servicer shall not fail to 

provide information regarding the 

owner or assignee of a mortgage loan 

within ten business days of a borrower’s 

request. Neither section indicates 

whether the request to correct an error 

or the request for information must be 

in the form of a qualified written 

request. 

In light of these disparate obligations, 

the Bureau believes that both borrowers 

and servicers would be better served if 

the Bureau were to clearly define a 

servicer’s obligation to correct errors or 

respond to information requests. To that 

end, the Bureau proposes §§ 1024.35 

(Error resolution procedures) and 

1024.36 (Requests for information) to 

establish separate but parallel 

obligations for servicers to respond to 

notices of error and information 

requests. Further, the Bureau’s intention 

is to establish servicer procedural 

requirements for error resolution and 

information requests that are consistent 

with the requirements applicable to a 

qualified written request under RESPA. 

Through this, the Bureau intends to 

make the restrictions and 

circumlocutions inherent in the 

language of the qualified written request 

provisions obsolete. Any valid qualified 

written request is a valid notice of error 

or information request. An invalid 

qualified written request may still be a 

valid notice of error or information 

request.71

Proposed § 1024.35 establishes the 

rules implementing the servicer 

prohibitions set forth in section 

6(k)(1)(B), (C), and (E) of RESPA. These 

prohibitions make it unlawful for a 

servicer to charge a fee for responding 

to valid qualified written requests, to 

fail to take timely action to respond to 

a borrower’s requests to correct errors 

relating to allocation of payments, final 

balances for purposes of paying off the 

loan, avoiding foreclosure, or other 

standard servicer’s duties, and to fail to 

comply with any other obligation found 

by the Bureau to be appropriate to carry 


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57222 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

72See Small Business Review Panel Report at 30. 

73 Id. 74See Small Business Review Panel Report at 29. 

75Section 6(e)(1)(A) of RESPA states that a 

qualified written request may be provided by a 

‘‘borrower (or an agent of the borrower).’’ 

out the consumer protection purposes of 

RESPA. 

35(a) Notice of Error 

Proposed § 1024.35(a) states that a 

notice of error may be made orally or in 

writing and must include the name of 

the borrower, information that enables a 

servicer to identify the borrower’s 

mortgage loan account, and the error the 

borrower believes has occurred. 

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

by section 1463(a) of the Dodd-Frank 

Act, refers generically to servicers’ 

failures to respond to requests of 

borrowers to correct certain errors. 

However, unlike section 6(e) of RESPA, 

which contains the statutory language 

regarding qualified written requests, 

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

specify that borrowers’ requests to 

correct errors must be submitted in any 

particular format. 

Oral notices of error. The Bureau 

proposes to allow a borrower to make a 

notice of error either orally or in 

writing. The Bureau believes this 

approach is warranted because, based 

on its discussions with consumers, 

consumer advocates, servicers, and 

industry trade associations, it appears 

that the vast majority of borrower 

complaints are generated orally instead 

of in writing. A requirement that a 

notice of error must be in writing 

generally serves as a barrier that unduly 

restricts the ability of a borrower to have 

errors resolved. The Bureau believes it 

is important for consumers to receive 

the benefit of required correction or 

investigation from servicers of orally 

asserted errors. 

Servicers and servicer representatives 

stated that allowing a notice of error to 

be provided orally would create new 

burdens for servicers regarding tracking 

the notices of error and monitoring that 

a borrower receives written 

acknowledgements and responses. In 

addition, small entity representatives 

with whom the Small Business Review 

Panel conducted outreach reiterated 

these burdens on behalf of small 

servicers. The Small Business Review 

Panel recommended that the CFPB 

consider requiring small servicers to 

comply with the error resolution 

procedures only when borrowers 

provided error notices in writing.72 The 

Small Business Review Panel also 

recommended that the Bureau consider 

adopting a more flexible process for 

tracking errors and demonstrating 

compliance that could be used by small 

servicers.73

The Bureau recognizes the burdens on 

servicers to ensure compliance with this 

proposed rule for notices of error 

received orally. In order to implement 

this section, servicers may adopt 

systems to ensure that a borrower’s 

notice of error is tracked and receives 

the required acknowledgement and 

response. In light of the concerns 

express in the Small Business Review 

Panel Report, the Bureau has declined 

to specify any particular requirement 

that a servicer must undertake to track 

notices of error. Further, ensuring that 

borrower assertions of errors are 

investigated, responded to, and, as 

appropriate, corrected, is an objective of 

the reasonable information management 

policies and procedures set forth below 

in proposed § 1024.38. The Bureau has 

created that proposal to provide 

flexibility to servicers, including small 

servicers, to design policies and 

procedures that are appropriate to the 

particular circumstances of each 

servicer. The Bureau believes this 

flexibility reflects that Small Business 

Review Panel recommendation that the 

Bureau create flexibility in the manner 

in which small servicers comply with 

the error resolution requirements. 

The Bureau further believes that 

elements of the proposed rule assist in 

mitigating burden for all servicers. 

These elements include, for example, a 

limitation on the types of errors that 

servicers would be required to resolve to 

a finite list, as well as a proposal to 

allow servicers to designate a specific 

telephone number for receiving oral 

notices of error. 

The Bureau believes the error 

resolution (as well as the information 

management) requirement provides 

appropriate flexibility for small 

servicers to implement policies and 

procedures to comply with this 

objective that make sense for their 

organizations and responds to the 

findings and recommendations in the 

Small Business Review Panel Report.74

The Bureau solicits comments 

regarding whether servicers should be 

required to apply the error resolution 

requirements to notices of error received 

orally. The Bureau further solicits 

comments regarding whether small 

servicers (as that term is defined in the 

2012 TILA Servicing Proposal) should 

be exempt from a requirement to apply 

the error resolution procedures in 

proposed § 1024.35 to notices of error 

received orally. 

Qualified written requests. Proposed 

§ 1024.35(a) would require a servicer to 

treat notices of error, whether oral or 

written, the same way it treats a 

qualified written request that asserts an 

error. The Bureau’s intention is to 

propose servicer obligations applicable 

to a notice of error that are exactly the 

same as obligations applicable to a 

qualified written request. For example, 

as set forth below, a servicer may not 

charge a fee for responding to a notice 

of error, a servicer must acknowledge 

receipt of a notice of error within five 

days (excluding legal public holidays, 

Saturdays, and Sundays) and must 

respond to the notice of error within 30 

days (excluding legal public holidays, 

Saturdays, and Sundays). Moreover, a 

servicer’s potential liability for failure to 

respond to a notice of error is the same 

as the potential liability for failure to 

respond to a qualified written request. 

Thus, under proposed § 1024.35(a), 

there is no reason for a borrower to send 

a qualified written request as opposed to 

an oral or written notice of error nor is 

there a reason for a servicer to reject a 

qualified written request because it does 

not meet the requirements for a 

qualified written request in section 6(e) 

of RESPA when such request constitutes 

a valid notice of error. Even if a 

borrower does not comply with all the 

requirements of a qualified written 

request, including, for instance, by 

asserting an error orally, or by asserting 

an error that is defined in § 1024.35(b) 

but does not constitute ‘‘servicing’’ as 

defined in RESPA, the obligations for 

the servicer to respond to the borrower 

are the same and the liability for the 

servicer’s failure to respond to the 

borrower is the same. 

Proposed comment 35(a)–1 would 

clarify that a notice of error submitted 

by a person acting on behalf of the 

borrower is considered a notice of error 

pursuant to proposed § 1024.35(b). This 

clarification is substantially the same as 

the current requirement existing under 

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

to a qualified written request.75

Servicers may undertake reasonable 

procedures to determine if a person that 

claims to be an agent of a borrower has 

authority from the borrower to act on 

the borrower’s behalf. 

Proposed comment 35(a)–2 would 

clarify that the substance of the notice 

of error would determine the servicer’s 

obligation to comply with the error 

resolution requirements. No particular 

language (such as ‘‘qualified written 

request’’ or ‘‘notice of error’’) is 

necessary to set forth a notice of error. 

Legal authority. The Bureau relies on 

its authority in section 6(k)(1)(C) and 

6(k)(1)(E) of RESPA to implement the 


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notice of error requirements. Further, to 

the extent the requirements are also 

applicable to qualified written requests, 

the Bureau relies on its authority in 

sections 6(e) and 6(k)(1)(B) of RESPA. 

The Bureau further has authority 

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

establish any requirements necessary to 

carry out section 6 of RESPA and has 

authority under section 19(a) of RESPA 

to prescribe such rules and regulations 

and to make such interpretations as may 

be necessary to achieve the consumer 

protection purposes of RESPA. 

35(b) Scope of Error Resolution 

Proposed § 1024.35(b) provides a 

finite list of errors to which the error 

resolution provisions would relate 

(covered errors). A finite list of covered 

errors provides certainty to both 

borrowers and servicers regarding the 

types of errors that are subject to the 

error resolution process. Further, a finite 

list of covered errors is intended to 

ensure that servicer resources can be 

dedicated to responding to errors that 

are capable of correction, to the benefit 

of a borrower. For example, the Bureau 

considered whether to define as a 

covered error a servicer’s failure to 

accurately and timely provide a 

disclosure to a borrower as required by 

applicable law. The Bureau determined 

that such a failure was not appropriate 

as a covered error because the 

information request provisions provide 

the borrower the ability to obtain the 

underlying information. Further, the 

Bureau believes that a servicer’s action 

to attempt to correct the failure, such as 

by sending the untimely disclosure after 

the deadline, would not actually correct 

the timeliness error and would not be 

helpful or useful to borrowers. In that 

circumstance, the error resolution 

request would create burden and 

impose costs on servicers without 

offering concomitant benefit for 

borrowers. 

The Bureau further considered the 

impact of the proposed error resolution 

requirements if the types of covered 

errors were not limited. The proposal 

expands servicer’s obligations to 

respond to error notices and information 

requests from borrowers. Borrowers may 

initiate an error resolution process 

orally, not just in writing. Further, in 

general, the proposal reduces the time 

period within which a servicer must 

respond to a borrower (from 60 days to 

30 days), consistent with the DoddFrank Act amendments to section 6(e)(2) 

of RESPA. For certain types of covered 

errors, the time period to respond to the 

borrower is even more limited. The 

Bureau believes that the added costs 

and burden created by having an openended definition of an error could 

substantially increase the costs to 

servicers with limited additional benefit 

to consumers. The Bureau further 

believes that requiring servicers to 

respond to potentially any assertion of 

an error could, as a practical matter, 

lead to servicers using disproportionate 

resources to respond to every asserted 

error. That practice may cause servicers 

to expend fewer resources to address 

errors that may be far more significant 

to borrowers. 

The Small Business Review Panel 

received feedback from SERs regarding 

whether the error resolution procedures 

should include a catch-all provision to 

the enumerated list of errors. In general, 

the SERs commented favorably on the 

Bureau’s proposal to include a finite list 

of errors. The SERs indicated that if the 

Bureau were to consider adding a catchall provision, then the Bureau should 

request comment on whether to not 

include such a provision. Accordingly, 

for the reasons above, proposed 

§ 1024.35(b) provides a finite list of 

covered errors to which the error 

resolution provisions would relate. The 

Bureau requests comment regarding 

whether (1) the finite list of covered 

errors should include any other specific 

types of errors that are not addressed in 

the list and (2) whether the list of 

covered errors should not be finite and 

should include a catch-all provision for 

other types of errors not set forth in the 

rule. 

Covered errors. Paragraph 35(b) 

defines the types of covered errors for 

which the error resolution procedures 

apply. As discussed below, the 

proposed rule sets forth a finite list of 

nine types of covered errors based on 

the statutory language prohibiting 

servicers from failing to take timely 

action to respond to a borrower’s 

request to correct errors ‘‘relating to 

allocation of payments, final balances 

for purposes of paying off the loan, or 

avoiding foreclosure, or other standard 

servicer’s duties.’’ See RESPA section 

6(k)(1)(C). 

Proposed comment 35(b)–1 clarifies 

that a servicer would not be required to 

comply with the requirements of 

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

relates to something other than one of 

the types of covered errors in proposed 

§ 1024.35(b). The proposed comment 

provides examples of categories of 

excluded errors that would not be 

considered covered errors pursuant to 

proposed § 1024.35(b). These include 

matters relating to the origination or 

underwriting of a mortgage loan, matters 

relating to a subsequent sale or 

securitization of a mortgage loan, and 

matters relating to a sale, assignment, or 

transfer of the servicing of a mortgage 

loan other than the transfer of 

information for a borrower’s mortgage 

loan account. The Bureau believes that 

a mortgage servicer is generally not in 

a position to investigate or resolve 

borrower complaints regarding potential 

errors that may have occurred during an 

origination, underwriting, sale, or 

securitization process. The Bureau 

requests comment regarding whether 

any errors that may fall within the 

examples of excluded errors should 

instead be included as covered errors. 

Paragraph 35(b)(1) 

Proposed paragraph 35(b)(1) includes 

as a covered error a servicer’s failure to 

accept a payment that conforms to the 

servicer’s written requirements for the 

borrower to follow in making payments. 

Section 6(k)(1)(C) of RESPA prohibits 

a servicer from failing to take timely 

action to respond to a borrower’s 

request to correct errors relating to the 

allocation of payments for a borrower’s 

account. Paragraph 35(b)(1) is an 

example of one type of error that fits 

within the broad statutory prohibition. 

A failure to accept a proper payment 

will necessarily have implications for 

the correct application of borrower 

payments. Further, proper acceptance of 

payments is, by definition, ‘‘servicing,’’ 

as that term is defined in section 6(i)(3) 

of RESPA and already subject to the 

qualified written request procedure set 

forth in section 6(e) of RESPA and 

current § 1024.21(e) of Regulation X. 

The Bureau further believes that 

proper acceptance of borrower 

payments is a standard servicer duty as 

set forth in section 6(k)(1)(C) of RESPA. 

Section 6(k)(1)(C) of RESPA states that 

a servicer shall not fail to take timely 

action to respond to a borrower’s 

request to correct errors relating three 

specific categories as well as those 

relating to ‘‘other standard servicer 

duties.’’ The Bureau believes that 

standard servicer duties are those 

typically undertaken by servicers in the 

ordinary course of business. Such duties 

include not only the obligations that are 

specifically identified in section 

6(k)(1)(C), but also those duties that are 

defined as ‘‘servicing’’ by RESPA, as 

well as duties customarily undertaken 

by servicers to investors and consumers 

in connection with the servicing of a 

mortgage loan. These include duties that 

may not be contemplated within the 

definition of ‘‘servicing’’ in RESPA, 

such as duties to comply with investor 

agreements and servicing program 

guides, to advance payments to 

investors, to process and pursue 

mortgage insurance claims, to monitor 

coverage for insurance (e.g. hazard 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57224 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

insurance), to monitor tax 

delinquencies, to respond to borrowers 

regarding mortgage loan problems, to 

report data on loan performance to 

investors and guarantors, and to work 

with investors and borrowers on options 

to mitigate losses for defaulted mortgage 

loans. Throughout this proposal, the 

Bureau refers to these standard servicer 

duties, in the parlance of section 

6(k)(1)(C) of RESPA, as typical servicer 

duties to reflect the plain language 

connotation that such duties are those 

typically performed by servicers in the 

normal course of business. 

As set forth above, the Bureau is 

proposing § 1024.35(b)(1) to implement 

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

also relies on its authority in section 

6(j)(3) of RESPA to set forth 

requirements necessary to carry out 

section 6 of RESPA and in section 

6(k)(1)(E) of RESPA to set forth 

obligations appropriate to carry out the 

consumer protection purposes of 

RESPA. Further, the Bureau relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations and to 

make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

Paragraph 35(b)(2) 

Proposed paragraph 35(b)(2) would 

include as a covered error a servicer’s 

failure to apply an accepted payment to 

the amounts due for principal, interest, 

escrow, or other items pursuant to the 

terms of the mortgage loan and 

applicable law. 

Section 6(k)(1)(C) of RESPA prohibits 

a servicer from failing to take timely 

action to respond to a borrower’s 

request to correct errors relating to the 

allocation of payments for a borrower’s 

account. Paragraph 35(b)(2) implements 

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

RESPA. The Bureau also relies on its 

authority in section 6(j)(3) of RESPA to 

set forth requirements necessary to carry 

out section 6 of RESPA and in section 

6(k)(1)(E) of RESPA to set forth 

obligations appropriate to carry out the 

consumer protection purposes of 

RESPA. Further, the Bureau relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations and to 

make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

Paragraph 35(b)(3) 

Proposed paragraph 35(b)(3) includes 

as an error a servicer’s failure to credit 

a payment to a borrower’s mortgage loan 

account as of the date of receipt, where 

such failure has resulted in a charge to 

the consumer or the furnishing of 

negative information to a consumer 

reporting agency. 

Proper crediting of payments to 

consumers is required by section 129F 

of TILA, which was added by section 

1464 of the Dodd-Frank Act and would 

be implemented by proposed 

§ 1026.36(c) in the 2012 TILA Servicing 

Proposal. For a mortgage loan secured 

by a principal dwelling, TILA section 

129F mandates that servicers shall not 

fail to credit a payment to a consumer’s 

loan account as of the date of receipt, 

except when a delay in crediting does 

not result in any charge to the 

consumer, or in the furnishing of 

negative information to a consumer 

reporting agency. See 15 U.S.C. 1639f. 

TILA section 129F provides a specific 

exception for payments that do not 

conform to a servicer’s written 

requirements, but nonetheless are 

accepted by the servicer, in which case 

the servicer shall credit the payment as 

of five days after receipt. See 15 U.S.C. 

1639(f)(b). Servicers of mortgage loans 

covered by TILA section 129F have a 

duty to comply with that provision. 

Section 6(k)(1)(C) of RESPA prohibits 

a servicer from failing to take timely 

action to respond to a borrower’s 

request to correct errors relating to the 

allocation of payments for a borrower’s 

account. Paragraph 35(b)(3) implements 

this prohibition. A failure to credit a 

payment will necessarily have 

implications for the correct application 

of borrower payments. A servicer’s 

failure to properly credit a payment will 

cause the servicer to report to a 

borrower improper information 

regarding the amounts owed by the 

borrower and may cause a servicer to 

misapply other payments received by 

the borrower. Further, a servicer’s 

failure to properly credit borrower 

payments may generate improper late 

fees and other charges. 

The Bureau also observes that proper 

crediting of borrower payments is, by 

definition, ‘‘servicing,’’ as that term is 

defined in section 6(i)(3) of RESPA and, 

therefore, is subject to the qualified 

written request procedure set forth in 

section 6(e) of RESPA and current 

§ 1024.21(e) of Regulation X. 

For these reasons, the Bureau 

proposes to implement section 

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

servicers from failing to correct errors 

relating to proper crediting of borrower 

payments. The Bureau also relies on its 

authority in section 6(j)(3) of RESPA to 

set forth requirements necessary to carry 

out section 6 of RESPA and in section 

6(k)(1)(E) of RESPA to set forth 

obligations appropriate to carry out the 

consumer protection purposes of 

RESPA. Further, the Bureau relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations and to 

make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

Paragraph 35(b)(4) 

Proposed paragraph 35(b)(4) includes 

as an error a servicer’s failure to make 

disbursements from an escrow account 

for taxes, insurance premiums 

(including flood insurance), or other 

charges, including charges that the 

borrower and servicer have voluntarily 

agreed that the servicer should collect 

and pay, as required by current 

§ 1024.17(k), or to refund an escrow 

account balance in a timely manner as 

required by proposed § 1024.34(b). 

In the normal course of business, 

servicers typically engage in collecting 

payments from borrowers to fund 

escrow accounts and disburse payments 

from escrow accounts to pay borrower 

obligations for taxes, insurance 

premiums, and other charges. Servicers 

typically undertake this obligation on 

behalf of investors because a borrower’s 

maintenance of an escrow account 

reduces risk for investors that unpaid 

taxes may generate tax liens that are 

higher in priority than a lender’s 

mortgage lien and that unpaid insurance 

may cause lapses in insurance coverage 

that present risk for investors in the 

event of a loss. Servicers are required to 

make disbursements from escrow 

accounts in a timely manner pursuant to 

section 6(g) of RESPA and are required 

to account for the funds credited to an 

escrow account pursuant to section 10 

of RESPA. The Bureau further observes 

that proper disbursement of escrow 

funds is, by definition, ‘‘servicing,’’ as 

that term is defined in section 6(i)(3) of 

RESPA and, therefore, is currently 

subject to the qualified written request 

procedure set forth in section 6(e) of 

RESPA and current § 1024.21(e) of 

Regulation X. 

Proposed paragraph 35(b)(4) would 

require a servicer to correct errors 

relating to a typical servicer duty and 

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

The Bureau also relies on its authority 

in section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out 

section 6 of RESPA and in section 

6(k)(1)(E) of RESPA to set forth 

obligations appropriate to carry out the 

consumer protection purposes of 

RESPA. Further, the Bureau relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations and to 

make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57225 

76See, e.g., Mortgage Servicing: An Examination 

of the Role of Federal Regulators in Settlement 

Negotiations and the Future of Mortgage Servicing 

Standards: Joint Hearing Before the Subcommittee 

on Financial Institutions and Consumer Credit and 

Subcommittee on Oversight and Investigations of 

the House Financial Services Comm., No. 112–44, 

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

Calhoun, President, Center for Responsible 

Lending). 

Paragraph 35(b)(5) 

Proposed paragraph 35(b)(5) includes 

as an error a servicer’s imposition of a 

fee or charge that the servicer lacks a 

reasonable basis to impose upon the 

borrower. 

Servicers should not impose fees on 

borrowers that are not bona fide—that 

is, fees that a servicer does not have a 

reasonable basis to impose upon a 

borrower. Examples of non-bona fide 

charges include such common sense 

errors as late fees for payments that 

were not late, default property 

management fees for borrowers that are 

not in a delinquency status that would 

justify the charge, charges for services 

from service providers that were not 

actually rendered with respect to a 

borrower’s mortgage loan account, and 

charges for force-placed insurance 

where a servicer lacks a reasonable basis 

to impose the charge on the borrower as 

set forth in proposed § 1024.37. 

Improper fees harm both mortgage 

loan borrowers and the investors that 

are mortgage servicers’ principals. 

Improper and uncorrected fees harm 

borrowers by taking funds that may 

otherwise be used to keep a mortgage 

loan current. Further, improper fees 

reduce recovery values available to 

investors from foreclosures or loss 

mitigation activities. 

Servicers that operate in good faith in 

the normal course of business refrain 

from imposing charges on borrowers 

that the servicer does not have a 

reasonable basis to impose and correct 

errors relating to those fees when they 

arise. The Bureau believes that it is a 

typical servicer duty, both to the 

borrower and to the servicer’s principal, 

to ensure that the servicer has a 

reasonable basis to impose a charge on 

a borrower. 

Proposed paragraph 35(b)(5) would 

require a servicer to correct errors 

relating to a typical servicer duty and 

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

The Bureau also relies on its authority 

in section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out 

section 6 of RESPA and in section 

6(k)(1)(E) of RESPA to set forth 

obligations appropriate to carry out the 

consumer protection purposes of 

RESPA. Further, the Bureau relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations and to 

make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

Paragraph 35(b)(6) 

Proposed paragraph 35(b)(6) includes 

as an error a servicer’s failure to provide 

an accurate payoff balance to a borrower 

upon request pursuant to 12 CFR 

1026.36(c)(1)(iii). 

Borrowers require accurate payoff 

statements to manage their mortgage 

loan obligations. A payoff statement is 

necessary anytime a borrower repays a 

mortgage loan and servicers routinely 

provide payoff statements for borrowers 

to refinance or pay in full mortgage loan 

obligations. However, consumer 

advocates have indicated servicers have 

failed, or refused, to provide payoff 

statements to certain borrowers or have 

required borrowers to make a payment 

on a mortgage loan as a condition of 

fulfilling the borrower’s request for a 

payoff statement.76 Any such conduct 

has the perverse effect of impeding a 

borrower’s ability to pay a mortgage 

loan obligation in full. 

Servicers already have an obligation 

to comply with the timing requirements 

of section 129G of TILA with respect to 

any mortgage loan that constitutes a 

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

TILA. The Bureau believes that, in order 

to implement the prohibition set forth in 

section 6(k)(1)(C) of RESPA regarding a 

servicer’s failure to correct errors 

relating to final balances for purposes of 

paying off the loan, a servicer should be 

required to comply with the 

requirements within a reasonable time 

frame. Because servicers will be 

required to comply with the timeframes 

set forth in 12 CFR 1026.36(c)(1)(iii) 

with respect to certain mortgage loans 

they service, the Bureau does not 

believe that requiring servicers to 

correct errors for mortgage loans that 

may not constitute home loans as that 

term is used in section 129G of TILA 

within error resolution timeframes 

imposes additional burden on servicers. 

Proposed paragraph 35(b)(6) 

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

with respect to a servicer’s obligation to 

correct errors relating to final balance 

for purposes of paying of a mortgage 

loan. The Bureau also relies on its 

authority in section 6(j)(3) of RESPA to 

set forth requirements necessary to carry 

out section 6 of RESPA and in section 

6(k)(1)(E) of RESPA to set forth 

obligations appropriate to carry out the 

consumer protection purposes of 

RESPA. Further, the Bureau relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations and to 

make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

Paragraph 35(b)(7) 

Proposed paragraph 35(b)(7) includes 

as an error a servicer’s failure to provide 

accurate information to a borrower with 

respect to loss mitigation options 

available to the borrower and 

foreclosure timelines that may be 

applicable to the borrower’s mortgage 

loan account, as required by proposed 

§§ 1024.39–1024.40. 

In order to pursue loss mitigation 

options that may benefit both the 

borrower and the owner or assignee of 

the borrower’s mortgage loan, a 

borrower requires accurate information 

about the loss mitigation options 

available to the borrower, the 

requirements for receiving an evaluation 

for any such loss mitigation option, and 

the applicable timelines relating to both 

the evaluation of the borrower for the 

loss mitigation options and any 

potential foreclosure process. Although 

the Bureau does not generally believe a 

failure to provide a required disclosure 

to a borrower should constitute an error 

requiring compliance with the error 

resolution procedures in proposed 

§ 1024.35, borrowers may benefit from 

asserting errors with respect to a 

servicer’s failure to provide information 

regarding loss mitigation options that 

may be available to the borrower but for 

which the servicer has not provided 

information to the borrower. By 

correcting this error and providing the 

borrower with accurate information 

regarding loss mitigation options that 

may be available to the borrower, a 

servicer can help a borrower receive an 

evaluation for the loss mitigation option 

pursuant to proposed § 1024.41 and may 

be able to reach agreement with the 

borrower on a loss mitigation option 

that is mutually beneficial to the 

borrower and the owner or assignee of 

the borrower’s mortgage loan. 

Proposed paragraph 35(b)(7) 

implements section 6(k)(1)(C) of the 

Dodd-Frank Act. Specifically, proposed 

paragraph 35(b)(7) implements a 

servicer’s obligation to correct errors 

relating to avoiding foreclosure. Further, 

the Bureau believes that the National 

Mortgage Settlement, servicer 

participation in Home Affordable 

Modification Program (HAMP) 

sponsored by the U.S. Department of the 

Treasury (Treasury) and HUD, and 

service participation in other loss 

mitigation programs required by Fannie 

Mae and Freddie Mac demonstrate that 

servicers typically provide borrowers 

with information regarding loss 

mitigation options and foreclosure and 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57226 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

77See, e.g., Special Inspector General for the 

Troubled Asset Relief Program, The Net Present 

Value Test’s Impact on the Home Affordable 

Modification Program, at 7–8 (Jun.. 18, 2012), 

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

Audit%20Reports/NPV_Report.pdf (demonstrating 

that major HAMP servicers differed in their 

determinations regarding whether to apply a risk 

premium to the discount rate used to calculate net 

present value for determining eligibility for HAMP 

loan modifications). 

that providing such information to 

borrowers is a typical servicer duty. 

The Bureau also relies on its authority 

in section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out 

section 6 of RESPA and in section 

6(k)(1)(E) of RESPA to set forth 

obligations appropriate to carry out the 

consumer protection purposes of 

RESPA. Further, the Bureau relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations and to 

make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

Paragraph 35(b)(8) 

Proposed paragraph 35(b)(8) would 

include as an error a servicer’s failure to 

accurately and timely transfer 

information relating to a borrower’s 

mortgage loan account to a transferee 

servicer. 

In the normal course of business, 

servicers typically anticipate that they 

will be required to transfer servicing for 

some mortgage loans they service. 

Owners or assignees of mortgage loans 

typically have rights to transfer 

servicing for a mortgage loan pursuant 

to the requirements set forth in mortgage 

servicing agreements. Servicers are 

required to develop capacity for 

transferring information to transferee 

servicers in order to comply with such 

obligations to owners or assignees of 

mortgage loans. Further, servicers are 

required to develop capacity to onboard 

data for transferred mortgage loans onto 

the servicer’s servicing platform. 

Borrowers may be harmed, however, 

if information that is transferred to 

transferee servicers is not accurate or 

current. In certain circumstances, such 

failure may cause errors to occur 

relating to allocating payments, 

calculating final balances for purposes 

of paying off a mortgage loan, or 

avoiding foreclosure. 

Pursuant to proposed § 1024.38(a), 

servicers would be required to have 

policies and procedures to achieve the 

objectives set forth in proposed 

§ 1024.38(b), which includes an 

objective of facilitating servicing 

transfers. An objective of the servicer’s 

policies and procedures would be to 

timely transfer all information and 

documents relating to a transferred 

mortgage loan to a transferee servicer in 

a form and manner that ensures the 

accuracy of the information and 

documents transferred and that enables 

a transferee servicer to comply with the 

requirements of this subpart and the 

terms of the transferee servicer’s 

contractual obligations to the owner or 

assignee of the mortgage loan. 

The Bureau believes that by defining 

a servicer’s failure to accurately and 

timely transfer information relating to a 

borrower’s mortgage loan account to a 

transferee servicer, a borrower will have 

a remedy to ensure that a transferor 

servicer will update the information 

transferred to provide information to a 

transferee servicer that accurately 

reflects the borrower’s account 

consistent with the obligations 

applicable to a servicer’s information 

management policies and procedures. 

Proposed paragraph 35(b)(8) 

implements a servicer’s obligation to 

take timely action to correct errors 

relating to typical servicer duties 

pursuant to section 6(k)(1)(C) of RESPA. 

The Bureau also relies on its authority 

in section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out 

section 6 of RESPA and in section 

6(k)(1)(E) of RESPA to set forth 

obligations appropriate to carry out the 

consumer protection purposes of 

RESPA. Further, the Bureau relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations and to 

make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

Paragraph 35(b)(9) 

Proposed paragraph 35(b)(9) would 

include as an error a servicer’s failure to 

suspend a scheduled foreclosure sale in 

the circumstances described in 

proposed § 1024.41(g). Pursuant to 

proposed § 1024.41(g), a servicer that 

offers loss mitigation options to 

borrowers in the ordinary course of 

business would be prohibited from 

proceeding with a foreclosure sale when 

a borrower has submitted a complete 

application for a loss mitigation option 

unless the servicer denies the 

borrower’s application for a loss 

mitigation option (including any appeal 

thereof), the borrower rejects the 

servicer’s offer of a loss mitigation 

option, or the borrower fails to perform 

an agreement on a loss mitigation 

option. For further information, see 

discussion of proposed section 

§ 1024.41 below. 

The Bureau continues to consider 

whether to include as an error a 

servicer’s evaluation of a borrower for a 

loss mitigation option. The Bureau 

observes that the manner in which a 

borrower is evaluated for a loss 

mitigation option is complex and 

includes factors that are subjective.77

Further, the Bureau believes that the 

appeal process provided in proposed 

§ 1024.41(h) provides an appropriate 

procedural means for borrowers to 

address issues relating to a servicer’s 

evaluation of a borrower for a loan 

modification program. 

The Bureau requests comment 

regarding whether to include as an error 

a servicer’s failure to correctly evaluate 

a borrower for a loss mitigation option. 

The Bureau further requests comment 

regarding standards for determining if a 

borrower has been correctly evaluated 

for a loss mitigation option, including 

whether a servicer should be required to 

comply with the servicer’s own 

standards, standards promulgated by 

major investors and guarantors, and 

standards promulgated in connection 

with Federal- or State-sponsored loss 

mitigation options. 

Proposed paragraph 35(b)(9) 

implements section 6(k)(1)(C) of the 

Dodd-Frank Act. Specifically, proposed 

paragraph 35(b)(9) implements a 

servicer’s obligation to correct errors 

relating to avoiding foreclosure. The 

Bureau also relies on its authority in 

section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out 

section 6 of RESPA and in section 

6(k)(1)(E) of RESPA to set forth 

obligations appropriate to carry out the 

consumer protection purposes of 

RESPA. Further, the Bureau relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations and to 

make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

35(c) Contact Information for Borrowers 

To Assert Errors 

Proposed § 1024.35(c) permits a 

servicer to establish a telephone number 

and address that a borrower must use to 

assert an error. If a servicer chooses to 

establish a separate telephone number 

and address for receiving errors, a 

servicer must provide the borrower a 

written notice that states that the 

borrower may assert an error at the 

telephone number and address 

established by the servicer for that 

purpose. Proposed comment 35(c)–2 

would clarify that the written notice to 

the borrower may be set forth in another 

written notice provided to the borrower, 

such as a notice of transfer, periodic 

statement, or coupon book. 

The purpose of establishing a 

telephone number and address that a 

borrower must use to assert an error is 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57227 

to allow servicers to direct oral and 

written errors to appropriate personnel 

that have been trained to ensure that the 

servicer responds appropriately. At 

larger servicers with other consumer 

financial service affiliates, many 

personnel simply do not typically deal 

with mortgage servicing-related issues. 

For instance, at a major bank servicer, 

a borrower may incorrectly believe that 

local bank branch staff will be required 

to comply with error resolution 

requirements for mortgage servicing 

errors. If a servicer establishes a 

telephone number and address that a 

borrower must use, a servicer would not 

be required to comply with the error 

resolution requirements for errors that 

may be received by the servicer through 

a different method. Proposed comment 

35(c)–1 clarifies, however, that if a 

servicer has not designated a telephone 

number and address that a borrower 

must use to assert an error, then a 

servicer will be required to comply with 

the error resolution requirements for 

any notice of error received by any 

office of the servicer. 

The Bureau believes it is reasonable, 

especially in light of the expanded 

burden of requiring compliance with 

error resolution for oral notices of error, 

to allow servicers to manage the intake 

of notices of error to designated 

telephone numbers and addresses. 

Further, allowing a servicer to designate 

a specific telephone number and 

address is consistent with current 

requirements of Regulation X with 

respect to qualified written requests. 

Current § 1024.21(e)(1) permits a 

servicer to designate a ‘‘separate and 

exclusive office and address for the 

receipt and handling of qualified 

written requests.’’ Moreover, the Bureau 

believes that identifying a specific 

telephone number and address for 

receiving errors and information 

requests will benefit consumers as well. 

By providing a specific telephone 

number and address, servicers will 

identify to consumers the office capable 

of addressing errors identified by 

consumers. The Bureau is proposing in 

the concurrent 2012 TILA Servicing 

Proposal to require that any telephone 

number or address identified by a 

servicer must appear on the periodic 

statement or other payment form 

supplied by the servicer. See 2012 TILA 

Servicing Proposal at proposed 

§ 1026.41(d)(6). 

Multiple offices. Proposed 

§ 1024.35(c) would require a servicer to 

use the same telephone number and 

address it designates for receiving 

notices of error for receiving 

information requests pursuant to 

proposed § 1024.36(b), and vice versa. 

The Bureau believes that if servicers 

designate separate telephone numbers 

and addresses for notices of error and 

information requests, borrower attempts 

to provide notices of error and 

information requests to servicers could 

be impeded. Further, proposed 

comment 35(c)–3 clarifies that any 

telephone numbers or address 

designated by a servicer for any 

borrower may be used by any other 

borrower to submit a notice of error. 

This clarifies that a servicer may not 

determine that a notice of error is 

invalid if it was received at any 

telephone number or address designated 

by the servicer for receipt of notices of 

error just because it was not received by 

the specific phone number or address 

identified to a specific borrower. 

Proposed comment 35(c)–5 clarifies that 

a servicer may use automated systems, 

such as an interactive voice response 

system, to manage the intake of 

borrower calls. Prompts for asserting 

errors must be clear and provide the 

borrower the option to connect to a live 

representative. 

Internet intake of notices of error. 

Proposed comment 35(c)–4 would 

clarify that a servicer is not required to 

establish a process for receiving notices 

of error through email, Web site, or 

other online methods. If a servicer 

establishes a process for receiving 

notices of error through online methods, 

comment 35(c)–4 is intended to clarify 

that the process established is the only 

online intake process that a borrower 

can use to assert an error. Thus, a 

servicer would not be required to 

provide a written notice to a borrower 

in order to gain the benefit of the online 

process being considered the exclusive 

online process for receiving notices of 

error. Proposed comment 35(c)–4 

further clarifies that a servicer’s 

decision to accept notices of error 

through an online intake method shall 

not have any impact on a servicer’s 

obligation to comply with the 

requirements of § 1024.35 with respect 

to notices of error received in writing or 

orally. 

Legal authority. The Bureau relies on 

its authority in section 6(k)(1)(C) and 

6(k)(1)(E) of RESPA to implement the 

notice of error requirements. Further, to 

the extent the requirements are also 

applicable to qualified written requests, 

the Bureau relies on its authority in 

section 6(e) and 6(k)(1)(B) of RESPA. 

The Bureau further has authority 

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

establish any requirements necessary to 

carry out section 6 of RESPA and has 

authority under section 19(a) of RESPA 

to prescribe such rules and regulations 

and to make such interpretations as may 

be necessary to achieve the consumer 

protection purposes of RESPA. 

35(d) Acknowledgment of Receipt 

Proposed § 1024.35(d) would require 

a servicer to provide a borrower a 

written acknowledgement of a notice of 

error within five days (excluding legal 

public holidays, Saturdays, and 

Sundays) of receiving a notice of error. 

Proposed § 1024.35(d) would implement 

section 1463(c) of the Dodd-Frank Act 

which amended the current 

acknowledgement deadline of 20 days 

for qualified written requests to five 

days. Proposed § 1024.35(d) further 

applies the same timeline applicable to 

a qualified written request to any notice 

of error. 

The Bureau relies on its authority in 

section 6(k)(1)(C) and 6(k)(1)(E) of 

RESPA to implement the notice of error 

requirements. Further, to the extent the 

requirements are also applicable to 

qualified written requests, the Bureau 

relies on its authority in sections 6(e) 

and 6(k)(1)(B) of RESPA. The Bureau 

further has authority pursuant to section 

6(j)(3) of RESPA to establish any 

requirements necessary to carry out 

section 6 of RESPA and has authority 

under section 19(a) of RESPA to 

prescribe such rules and regulations and 

to make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

35(e) Response to Notice of Error 

Proposed § 1024.35(e) would set forth 

requirements on servicers for 

responding to notices of error. 

35(e)(1) Investigation and Response 

Requirements 

Proposed paragraph 35(e)(1) would 

require a servicer to correct an error 

within 30 days unless the servicer 

concludes after a reasonable 

investigation that no error occurred. 

Notices to borrower. If a servicer 

corrects the error identified by the 

borrower, it must provide the borrower 

with written notification that indicates 

that the error was corrected, the 

effective date of the correction, and a 

telephone number the borrower can use 

to get further information. 

If a servicer determines that no error 

occurred, it is required to have 

conducted a reasonable investigation 

and to provide the borrower a notice 

that the servicer has determined that no 

error has occurred, the reason(s) the 

servicer believes that no error has 

occurred, and contact information for 

servicer personnel that can provide 

further assistance. A servicer would also 

be required to inform the borrower in 

the notice that the borrower may request 


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57228 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

documents relied on by the servicer in 

reaching its determination and how the 

borrower can request such documents. 

Borrower right to request documents. 

Proposed § 1024.35(e)(4) would require 

that if a servicer determines no error 

occurred, the servicer is required to 

include a statement in its response that 

the borrower can request documents 

relied upon by the servicer. A servicer 

must provide the documents within 15 

days of the servicer’s receipt of the 

borrower’s request. The Bureau believes 

that this requirement strikes an 

appropriate balance that does not 

subject the servicer to undue paperwork 

burden while assuring that the borrower 

can access the underlying 

documentation if necessary. Further, in 

certain cases, a borrower may determine 

that the servicer’s response resolves an 

issue and that reviewing documents 

would be unnecessary and requiring a 

servicer to provide documents only 

upon a borrower’s request limits 

burden. Proposed comment 35(e)(4)–1 

clarifies that a servicer need only 

provide documents actually relied upon 

by the servicer to determine that no 

error occurred, not all documents 

reviewed by a servicer. Further, the 

proposed comment states that where a 

servicer relies upon entries in its 

collection systems, a servicer should 

provide print-outs reflecting the 

information entered into the system. 

A servicer would be required to 

provide information regarding the right 

to receive documents only if a servicer 

determines that no error has occurred. 

Proposed paragraph 35(e)(1)(i) would 

not require a servicer who determines 

that an error has occurred, and corrects 

the error, to provide documents to a 

borrower that were the basis for that 

determination or to provide a statement 

in the notice to the borrower about 

requesting documents. The Bureau 

believes that the purpose of the 

proposed rule is to facilitate the prompt 

correction of errors and borrowers likely 

do not need documents and information 

when errors are corrected per the 

borrower’s request. The Bureau does not 

believe it is necessary to require 

servicers to provide documents to a 

borrower if a servicer corrects an 

asserted error. 

Multiple responses. Proposed 

comment 35(e)(1)(i)–1 clarifies that if a 

notice of error asserts multiple errors, a 

servicer may respond to those errors 

through a single or separate written 

responses that address the alleged 

errors. The Bureau believes that the 

purpose of the rule, which is to require 

prompt resolution of errors, is facilitated 

by allowing a servicer to respond to 

multiple errors set forth in a single 

notice of error through separate 

communications. For example, a 

servicer could correct one error, and 

send a notice regarding the correction of 

that error, while an investigation is in 

process regarding another error that is 

the subject of the same notice of error. 

Further, a servicer’s obligation to 

provide a borrower with documents 

relied upon by the servicer only relates 

to any asserted errors that the servicer 

determines are not errors. A servicer is 

not required to provide documents with 

respect to any other errors in a notice of 

error that the servicer corrects. 

Different or additional error. Proposed 

paragraph 35(e)(1)(ii) would provide 

that if a servicer, during the course of 

a reasonable investigation, determines 

that a different or additional error has 

occurred, a servicer is required to 

correct that different or additional error 

and provide a borrower a written notice 

about the error, the corrective action 

taken, the effective date of the corrective 

action, and contact information for 

further assistance. Because the servicer 

would be correcting an error, a servicer 

would not be required to provide 

documents to the borrower regarding 

the error identified for the reasons 

discussed above. 

Legal authority. The Bureau relies on 

its authority in section 6(k)(1)(C) and 

6(k)(1)(E) of RESPA to implement the 

notice of error requirements. Further, to 

the extent the requirements are also 

applicable to qualified written requests, 

the Bureau relies on its authority in 

sections 6(e) and 6(k)(1)(B) of RESPA. 

The Bureau further has authority 

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

establish any requirements necessary to 

carry out section 6 of RESPA and has 

authority under section 19(a) of RESPA 

to prescribe such rules and regulations 

and to make such interpretations as may 

be necessary to achieve the consumer 

protection purposes of RESPA. 

35(e)(2) Requesting Documentation 

From Borrower 

Proposed § 1024.35(e)(2) states that a 

servicer could request that a borrower 

provide documentation if needed to 

investigate an error but may not require 

the borrower to provide such 

documentation as a condition of 

investigating the asserted error. Nor may 

the servicer determine that no error 

occurred because the borrower failed to 

provide the requested documentation. 

The purpose of this provision is to allow 

servicers to obtain information that may 

assist in resolving notices of error. 

However, the Bureau believes that the 

process for obtaining that information 

should not prejudice the ability of the 

borrower to seek the resolution of the 

error. 

35(e)(3) Time Limits 

Paragraph 35(e)(3)(i) 

Proposed paragraph 35(e)(3)(i) would 

require a servicer to respond to a notice 

of error not later than 30 days 

(excluding legal public holidays, 

Saturdays, and Sundays) after the 

borrower notifies the servicer of the 

asserted error, with two exceptions: 

Errors relating to accurate payoff 

balances and errors relating to failure to 

suspend a scheduled foreclosure sale 

where a borrower has submitted a 

complete application for a loss 

mitigation option. 

Shortened time limit to correct errors 

relating to payoff balances. Pursuant to 

proposed paragraph 35(e)(3)(i)(A), if a 

borrower submits a notice of error 

asserting that a servicer has failed to 

provide an accurate payoff balance as 

set forth in proposed paragraph 35(b)(6), 

a servicer must respond to the notice of 

error not later than five days (excluding 

legal public holidays, Saturdays, and 

Sundays) after the borrower notifies the 

borrower of the alleged error. The 

Bureau believes that a 30-day deadline 

for responding to this type of notice of 

error does not provide adequate 

protection for a borrower because the 

servicer’s failure to correct the error will 

prevent a borrower from pursuing 

options that protect the borrower, 

including, for example, a refinancing 

transaction. Based on discussions with 

servicers, the Bureau believes that a five 

day timeframe is reasonable for a 

servicer to correct an error with respect 

to calculating a payoff balance. 

The Bureau relies on its authority in 

sections 6(e) and 6(k)(1)(B) of RESPA 

with respect to qualified written 

requests, as well as its authority in 

sections 6(k)(1)(C) and 6(k)(1)(E) with 

respect to error resolution requirements 

to mandate a shorter time period for 

responding to notices that assert errors 

with respect to accurate payoff balances. 

The Bureau further has authority 

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

establish any requirements necessary to 

carry out section 6 of RESPA and has 

authority under section 19(a) of RESPA 

to prescribe such rules and regulations, 

to make such interpretations, and to 

make such exemptions for classes of 

transactions as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

The Bureau requests comment 

regarding whether five days (excluding 

legal public holidays, Saturdays, and 

Sundays) is an appropriate timeframe 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57229 

78See Small Business Review Panel Report at 30. 

79See Small Business Review Panel Report at 30. 

80See Small Business Review Panel Report at 29– 

30. 

81See, e.g., Fannie Mae Announcement SVC– 

2011–08R (September 7, 2011). 

for a servicer to correct an error with 

respect to a payoff balance. 

Shortened time limit to correct certain 

errors relating to foreclosure. Pursuant 

to proposed paragraph 35(e)(3)(i)(B), if a 

borrower submits a notice of error 

asserting that a servicer has failed to 

suspend a scheduled foreclosure sale, a 

servicer would be required to 

investigate and respond to the notice of 

error by the earlier of 30 days (excluding 

legal public holidays, Saturdays, and 

Sundays) or the date of a scheduled 

foreclosure sale. The Bureau believes 

that a timeframe that allowed a servicer 

to investigate and respond to the notice 

of error after the date of a scheduled 

foreclosure sale would cause irreparable 

harm to a borrower. Proposed comment 

35(e)(3)(i)(B)–1 would clarify that a 

servicer could maintain a 30-day 

timeframe to respond to the notice of 

error if it cancels or postpones the 

scheduled foreclosure sale and a 

subsequent sale is not scheduled before 

the expiration of the 30-day deadline. 

Extensions of time limits. Proposed 

§ 1024.35(e)(3)(ii) would permit a 

servicer to extend the time period for 

investigating and responding to a notice 

of error by 15 days (excluding legal 

public holidays, Saturdays, and 

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

period set forth in proposed 

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

the borrower of the extension and the 

reasons for the delay in responding. 

Proposed comment 35(e)(3)(ii)–1 

clarifies that if a notice of error asserts 

multiple errors, a servicer may extend 

the time period for investigating and 

responding to those errors for which 

extensions are permissible pursuant to 

proposed § 1024.35(e)(3)(ii). Section 

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

amended section 6(e) of RESPA to 

provide a 15-day extension of time and 

proposed § 1024.35(e)(3)(ii) would 

implement this provision. 

The Bureau proposes not to apply the 

extension allowance of proposed 

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

respond to errors relating to payoff 

statement or to a servicer’s failure to 

suspend a scheduled foreclosure sale. 

For the reasons set forth above, the 

Bureau does not believe that allowing a 

servicer to extend the time period for 

investigating and responding to these 

types of errors will provide timely 

resolution of errors. 

Legal authority. The Bureau relies on 

its authority in sections 6(e) and 

6(k)(1)(B) of RESPA with respect to 

qualified written requests, as well as its 

authority in sections 6(k)(1)(C) and 

6(k)(1)(E) with respect to error 

resolution requirements to mandate a 

shorter time period for responding to 

notices that assert errors for a servicer’s 

failure to suspend a scheduled 

foreclosure sale. The Bureau further has 

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

RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority under section 

19(a) of RESPA to prescribe such rules 

and regulations, to make such 

interpretations, and to make such 

exemptions for classes of transactions as 

may be necessary to achieve the 

consumer protection purposes of 

RESPA. 

35(f) Alternative Compliance 

Proposed § 1024.35(f) states that a 

servicer is not required to comply with 

paragraphs (d) and (e) of proposed 

§ 1024.35 in two situations. First, a 

servicer that corrects the error identified 

by the borrower within five days of 

receiving the notice of error, and 

notifies the borrower of the correction in 

writing, is not required to comply with 

paragraphs (d) and (e). Because such 

errors are corrected, an investigation 

would not be required. Second, a 

servicer that receives a notice of error 

for failure to suspend a scheduled 

foreclosure sale, pursuant to paragraph 

35(b)(9), seven days or less before a 

scheduled foreclosure, is not required to 

comply with paragraphs (d) and (e), if, 

within the time period set forth in 

paragraph (e)(3)(i)(B), the servicer 

responds to the borrower, orally or in 

writing, and corrects the error or states 

the reason the servicer has determined 

that no error has occurred. 

The Bureau proposes these alternative 

compliance methods for two reasons. 

First, feedback from servicers, and 

especially small servicers, indicates that 

the majority of errors are addressed 

promptly after a borrower’s 

communication and generally within 

five days. SERs communicated to the 

Small Business Review Panel that small 

servicers have a high-touch customer 

service model, which made it very easy 

for borrowers to report errors or make 

inquiries, and to receive real-time 

responses.78 The Bureau believes the 

alternative compliance method is 

appropriate to reduce unnecessary 

burden of an acknowledgement on 

servicers, and especially small servicers, 

that are able to correct borrower errors 

within five days consistent with the 

Small Business Review Panel 

recommendation that the Bureau 

consider requirements that provide 

flexibility to small servicers. 

Second, the Bureau believes that 

reduced requirements are appropriate 

when servicers receive a notice of error 

that may impact a scheduled foreclosure 

scale less than five days before a 

scheduled foreclosure sale. Only notices 

of errors identified in proposed 

paragraph 35(b)(9) implicate this 

concern. Numerous entities, including 

other federal agencies and SERs during 

the Small Business Review Panel 

outreach, expressed concern about 

borrower use of error resolution 

requirements as a procedural tool to 

impede proper foreclosures and 

promote litigation.79 The Bureau 

believes that reducing the procedural 

requirements for servicers to follow 

when a notice asserting an error 

identified in paragraph (b)(9) is 

submitted less than 5 days before a 

scheduled foreclosure sale mitigates this 

concern while maintaining protection 

for consumers. The Bureau believes that 

this alternative compliance method is 

also consistent with the Small Business 

Review Panel recommendation that the 

Bureau provide flexibility to small 

servicers and responds to SERs’ concern 

that error resolution procedures may be 

used in unwarranted litigation.80

Further, the Bureau understands the 

timing to be consistent with account 

reviews required by the GSEs to 

document that all required actions have 

occurred permitting the servicer to 

proceed with a scheduled foreclosure 

sale.81

The Bureau relies on its authority in 

section 6(k)(1)(C) and 6(k)(1)(E) of 

RESPA to implement the notice of error 

requirements. Further, to the extent the 

requirements are also applicable to 

qualified written requests, the Bureau 

relies on its authority in sections 6(e) 

and 6(k)(1)(B) of RESPA. The Bureau 

further has authority pursuant to section 

6(j)(3) of RESPA to establish any 

requirements necessary to carry out 

section 6 of RESPA and has authority 

under section 19(a) of RESPA to 

prescribe such rules and regulations and 

to make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

The Bureau requests comment 

regarding whether the Bureau should 

consider other alternative compliance 

methods or should adjust the 

requirements of the proposed alternative 

compliance methods. 

35(g) Requirements Not Applicable 

Proposed § 1024.35(g) would state 

that the error resolution requirements of 

proposed § 1024.35 would not apply to 


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57230 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

82See Small Business Review Panel Report at 23. 

83 Id. 

certain types of notices of error if the 

servicer complies with proposed 

§ 1024.35(g)(2). The types of notice of 

error to which the requirements would 

not apply would be set forth in 

§ 1024.35(g)(1). The Bureau solicits 

comments regarding whether additional 

types of notices of error should be 

identified in proposed § 1024.35(g)(1). 

35(g)(1) In General 

Proposed paragraph 35(g)(1) would 

state that a servicer is not required to 

comply with the requirements of 

§ 1024.35(d) and (e) if the servicer 

reasonably makes certain 

determinations specified in paragraphs 

(g)(1)(i), (ii), or (iii). A servicer may be 

liable to the borrower for its 

unreasonable determination and 

resulting failure to comply with 

proposed § 1024.35(d) and (e). 

Paragraph 35(g)(1)(i) 

Proposed paragraph 35(g)(1)(i) would 

state that a servicer is not required to 

comply with the notice of error 

requirements in proposed § 1024.35(d) 

and (e) with respect to a notice of error 

where the asserted error is substantially 

the same as an error previously asserted 

by or on behalf of the borrower for 

which the servicer has previously 

complied with its obligation to respond 

to the notice of error pursuant to 

§ 1024.35(e)(1), unless the borrower 

provides new and material information. 

New and material information means 

information that was not reviewed by 

the servicer in connection with 

investigating the prior notice of error 

and is reasonably likely to change a 

servicer’s determination with respect to 

the existence of an error. The Bureau 

believes that both elements of this 

requirement are important. First, the 

information must not have been 

reviewed by the servicer. If the 

information was reviewed by the 

servicer, then such information is not 

new and requiring a servicer to re-open 

an investigation will create unwarranted 

burden and delay. Second, even if the 

information is new, it must be material 

to the asserted error. A servicer may not 

have reviewed information because the 

information may not have been material 

to the error asserted by the borrower. 

The purpose of this proposed 

paragraph is to ensure that a servicer is 

not required to expend resources 

conducting duplicative investigations of 

notices of error unless there is a 

reasonable basis for re-opening a prior 

investigation because of new and 

material information. 

Proposed comment 35(g)(1)(i)–1 

clarifies that a dispute regarding a 

servicer’s interpretation of information 

previously reviewed, including the 

materiality of that information, does not 

itself constitute new and material 

information and, consequently, does not 

require a servicer to re-open a prior, 

resolved investigation of a notice of 

error. 

Paragraph 35(g)(1)(ii) 

Proposed paragraph 35(g)(1)(ii) 

provides that a servicer is not required 

to comply with the notice of error 

requirements in proposed § 1024.35(d) 

and (e) with respect to a notice of error 

that is overbroad or unduly 

burdensome. The rule defines 

‘‘overbroad’’ and ‘‘unduly burdensome’’ 

for this purpose. A notice of error is 

overbroad if a servicer cannot 

reasonably determine from the notice of 

error the specific covered error that a 

borrower asserts has occurred on a 

borrower’s account. A notice of error is 

unduly burdensome if a diligent 

servicer could not respond to the notice 

of error without either exceeding the 

maximum timeframe permitted by 

paragraph (e)(3)(ii) or incurring costs (or 

dedicating resources) that would be 

unreasonable in light of the 

circumstances. 

Consumers, consumer advocates, 

servicers, and servicing industry 

representatives have indicated to the 

Bureau that the current qualified written 

request process is not typically utilized 

by consumers to resolve errors. Rather, 

the process is more frequently used 

strategically to obtain documents and a 

servicer’s responses to claims as a 

preliminary form of civil litigation 

discovery. During the Small Business 

Review Panel outreach, SERs expressed 

that typically qualified written requests 

received from borrowers were vague 

forms found online or forms used by 

advocates as a form of pre-litigation 

discovery.82 Servicers and servicing 

industry representatives indicated that 

these types of qualified written requests 

are unreasonable and unduly 

burdensome. SERs in the Small 

Business Review Panel outreach 

requested that the Bureau consider an 

exemption for abusive requests, or 

requests made with the intent to harass 

the servicer.83

The Bureau is likewise concerned 

that, in light of the expanded 

requirements for servicers to respond to 

notices of error, including adding new 

categories of covered errors that do not 

specifically relate to ‘‘servicing’’ as 

defined in RESPA as well as errors 

asserted orally, a requirement for 

servicers to respond to notices of error 

that are overbroad or unduly 

burdensome may harm consumers and 

frustrate servicers’ ability to comply 

with the new error resolution 

requirements. The effect of the proposed 

rule is to expand a servicer’s obligation 

to undertake the obligations similar to 

those currently applicable to qualified 

written requests to a broader universe of 

potential notices of error, including 

notices of error made orally to a 

servicer. Requiring servicers to respond 

to overbroad or unduly burdensome 

notices of error from some borrowers 

may cause servicers to expend fewer 

resources to address other errors that 

may be more clearly stated and more 

clearly require servicer attention. 

Further, the Bureau does not believe 

that the error resolution procedures are 

the appropriate forum for borrowers to 

prosecute wide-ranging complaints 

against mortgage servicers that are more 

appropriate for resolution through 

litigation. 

Proposed paragraph 35(g)(1)(ii) 

provides that if a servicer determines 

that a notice of error is overbroad or 

unduly burdensome, the servicer is 

required to notify the borrower, 

pursuant to proposed § 1024.35(g)(2), 

that it is not required to comply with 

the requirements of proposed 

§ 1024.35(d) and (e). Further, the notice 

must state that the notice of error was 

overbroad or unduly burdensome, but 

does not need to state the specific basis 

for such a determination. Proposed 

comment 35(g)(1)(ii)–1 sets forth 

characteristics that may indicate if a 

notice of error is overbroad or unduly 

burdensome. If a servicer can identify a 

proper assertion of a covered error in a 

notice of error that is otherwise 

overbroad or unduly burdensome, a 

servicer would be required to respond to 

the covered error submissions it can 

identify. 

The Bureau requests comment 

regarding whether a servicer should not 

be required to undertake the error 

resolution procedures in proposed 

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

that are overbroad or unduly 

burdensome. The Bureau further 

requests comment on the appropriate 

definition of overbroad or unduly 

burdensome notices of error and on the 

appropriate indicia for identifying 

notices of error that should be subject to 

the exclusion. 

Paragraph 35(g)(1)(iii) 

Proposed paragraph 35(g)(1)(iii) 

provides that a servicer is not required 

to comply with the notice of error 

requirements in proposed § 1024.35(d) 

and (e) for an untimely notice of error— 

that is, a notice of error received by a 


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Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57231 

servicer more than one year after either 

servicing for the mortgage loan that is 

the subject of the notice of error was 

transferred by that servicer to a 

transferee servicer or the mortgage loan 

amount was paid in full, whichever date 

is applicable. The purpose of this 

proposed paragraph is to set a specific 

and clear time that a servicer may be 

responsible for correcting errors for a 

mortgage loan. 

The purpose of the proposed 

paragraph is to achieve the same goal 

that currently exists in Regulation X 

with respect to qualified written 

requests. Specifically, current 

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

request does not constitute a qualified 

written request if it is delivered to a 

servicer more than one year after either 

the date of transfer of servicing or the 

date that the mortgage servicing loan 

amount was paid in full, whichever date 

is applicable.’’ 

35(g)(3) Notice to Borrower 

Proposed § 1024.35(g)(3) states that if 

a servicer determines it is not required 

to comply with the notice of error 

requirements in proposed § 1024.35(d) 

and (e) with respect to a notice of error, 

the servicer must provide a notice to the 

borrower informing the borrower of the 

servicer’s determination. The notice 

must be sent not later than five days 

(excluding legal public holidays, 

Saturdays, and Sundays) after the 

servicer’s determination and must set 

forth the basis upon which the servicer 

has made the determination and the 

applicable provision of proposed 

§ 1024.35(g)(1). 

The Bureau believes that borrowers 

should be notified that a servicer does 

not intend to take any action on the 

asserted error. The Bureau also believes 

borrowers should know the basis for the 

servicer’s determination. By providing 

borrowers with notice of the basis for 

the servicer’s determination, a borrower 

will know the servicer’s basis and will 

have the opportunity to bring a legal 

action to challenge that determination 

where appropriate. The Bureau requests 

comment regarding the requirement that 

servicers provide a notice to the 

borrower and the appropriate content 

for the notice. 

Legal authority. The Bureau relies on 

its authority in section 6(k)(1)(C) and 

6(k)(1)(E) of RESPA to implement the 

notice of error requirements in proposed 

§ 1024.35(g). Further, to the extent the 

requirements are also applicable to 

qualified written requests, the Bureau 

relies on its authority in sections 6(e) 

and 6(k)(1)(B) of RESPA. The Bureau 

further has authority pursuant to section 

6(j)(3) of RESPA to establish any 

requirements necessary to carry out 

section 6 of RESPA and has authority 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations, and to grant 

such reasonable exemptions for classes 

of transactions as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

35(h) Payment Requirements Prohibited 

Proposed § 1024.35(h) would prohibit 

a servicer from charging a fee, or 

requiring a borrower to make any 

payment that may be owed on a 

borrower’s account, as a condition of 

investigating and responding to a notice 

of error. The Bureau is implementing 

this provision for three reasons. First, 

section 1463(a) of the Dodd-Frank Act 

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

which prohibits a servicer from charging 

fees for responding to valid qualified 

written requests. Proposed § 1024.35(h) 

would implement that provision with 

respect to qualified written requests. 

Second, the Bureau believes that a 

servicer’s practice of charging for 

responding to a notice of error impedes 

borrowers from pursuing valid notices 

of error. Third, the Bureau understands 

that, in some instances, servicer 

personnel have demanded that 

borrowers make payments before the 

servicer will correct errors or provide 

information requested by a borrower. 

The Bureau believes that a servicer 

should be required to correct errors 

notwithstanding the payment status of a 

borrower’s account. 

The Bureau relies on its authority in 

section 6(k)(1)(B), (C), and (E) of RESPA 

to implement the notice of error 

requirements. The Bureau further has 

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

RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority under section 

19(a) of RESPA to prescribe such rules 

and regulations, to make such 

interpretations, and to grant such 

reasonable exemptions for classes of 

transactions as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

35(i) Effect on Servicer Remedies 

Adverse Information. Proposed 

§ 1024.35(i)(1) states that a servicer may 

not furnish adverse information 

regarding any payment that is the 

subject of a notice of error to any 

consumer reporting agency for 60 days 

after receipt of a notice of error. RESPA 

section 6(e) sets forth this prohibition 

on servicers with respect to a qualified 

written request that asserts an error. 

Proposed § 1024.35(i)(1) would 

implement Section 6(e) of RESPA with 

respect to qualified written requests. 

The Bureau proposes to maintain the 

60-day timeframe set forth in section 

6(e)(3) of RESPA. Even though a notice 

of error may be resolved by no later than 

45 days pursuant to proposed 

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

that the 60-day timeframe is appropriate 

in the event that there are follow-up 

inquiries or additional information 

provided to the borrower. 

The Bureau relies on its authority in 

section 6(e)(3), 6(k)(1)(C), and 6(k)(1)(E) 

of RESPA to implement the adverse 

information requirements for qualified 

written requests and notices of error. 

The Bureau further has authority 

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

establish any requirements necessary to 

carry out section 6 of RESPA and has 

authority under section 19(a) of RESPA 

to prescribe such rules and regulations, 

to make such interpretations, and to 

grant such reasonable exemptions for 

classes of transactions as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

Ability to pursue foreclosure. 

Proposed § 1024.35(i)(2) states that a 

servicer’s obligation to comply with the 

requirements of proposed § 1024.35 

would not prohibit a lender or servicer 

from pursuing any remedies, including 

proceeding with a foreclosure sale, 

permitted by the applicable mortgage 

loan instrument, with one exception. 

The purpose of this provision is to 

clarify that, in general, a notice of error 

could not be used to require a servicer 

to suspend a scheduled foreclosure sale. 

The purpose of requiring prompt 

correction of errors is not furthered by 

allowing a notice of error to impede a 

lender’s or servicer’s ability to pursue 

remedies permitted by the applicable 

mortgage loan instrument. 

The Bureau is proposing one 

exception because it believes it is 

inappropriate for a servicer to proceed 

with a scheduled foreclosure sale in the 

circumstances described in proposed 

§ 1024.41(g). Failure to suspend a 

potential foreclosure sale during such 

periods has caused borrower harm, as 

discussed below. 

Defining as an error a servicer’s 

failure to suspend a scheduled 

foreclosure sale in the circumstances 

described in proposed § 1024.41(g) is 

consistent with section 17 of RESPA. 

The Bureau observes that the 

requirements of proposed § 1024.41 

would not impede a lender’s or 

servicer’s ability to pursue a foreclosure 

action, or maintain a scheduled 

foreclosure sale. Rather, the 

requirements in proposed § 1024.41 

establish procedures that servicers must 


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84See, e.g., Small Business Review Panel Report 

at 30. 

85See Small Business Review Panel Report at 23– 

24, 29. 

follow for reviewing loss mitigation 

applications. Servicers are capable of 

complying with the requirements prior 

to a scheduled foreclosure sale. Nothing 

in this proposed requirement affects the 

validity or enforceability of the 

mortgage loan or lien. Further, a servicer 

has the opportunity to retain its 

remedies when a borrower submits a 

completed application for a loss 

mitigation option. A servicer may 

establish a deadline by which a 

borrower must submit a completed 

application for a loss mitigation option, 

and, so long as the servicer fulfills its 

duty to evaluate the borrower for a loss 

mitigation option before the date of a 

scheduled foreclosure sale, a servicer 

may comply with the requirements of 

§ 1024.35 without suspending the 

scheduled foreclosure sale. 

Legal authority. The Bureau relies on 

its authority in section 6(k)(1)(C), and 

6(k)(1)(E) of RESPA to implement the 

error resolution requirements. To the 

extent the error resolution requirements 

relate to qualified written requests, the 

Bureau also relies on its authority in 

sections 6(e) and 6(k)(1)(B) of RESPA. 

The Bureau further has authority 

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

establish any requirements necessary to 

carry out section 6 of RESPA and has 

authority under section 19(a) of RESPA 

to prescribe such rules and regulations, 

to make such interpretations, and to 

grant such reasonable exemptions for 

classes of transactions as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

Section 1024.36 Requests for 

Information 

Proposed § 1024.36 contains 

requirements servicers would be 

required to follow for information 

requests received from borrowers. 

Proposed § 1024.36 implements the 

servicer prohibitions set forth in section 

6(k)(1)(B) and 6(k)(1)(D) of RESPA, as 

well as other obligations the Bureau 

believes to be appropriate to carry out 

the consumer protection purposes of 

RESPA pursuant to section 6(k)(1)(E) of 

RESPA. 

36(a) Information Requests 

Proposed § 1024.36(a) would require a 

servicer to comply with the 

requirements of proposed § 1024.36 for 

an information request from a borrower 

that includes the borrowers name, 

enables the servicer to identify the 

borrower’s mortgage loan account, and 

states the information the borrower is 

requesting for the borrower’s mortgage 

loan account. 

The Bureau proposes to allow a 

borrower to make an information 

request either orally or in writing. Based 

on the Bureau’s discussions with 

consumers, consumer advocates, 

servicers, and industry trade 

associations, it appears that the vast 

majority of borrowers orally request 

information from servicers. As is the 

case for notices of error, a requirement 

that an information request must be in 

writing generally serves as a barrier that 

unduly restricts the ability of borrower 

to have errors resolved. Further, as with 

notices of error, servicers and servicer 

representatives stated that allowing an 

information request to be provided 

orally would create new burdens for 

servicers. The Bureau recognizes the 

burdens on servicers to ensure 

compliance with this proposed rule and 

incorporates the discussion above with 

respect to oral notices of error. 

Responding to oral information requests 

will impose costs on servicers to ensure 

that such requests receive responses, but 

the Bureau believes it is important for 

consumers to receive the benefit of a 

requirement that servicers provide 

information requested by the borrowers. 

The Bureau further believes that 

elements of the proposed rule would 

assist in mitigating servicer burden. 

These elements include, for example, a 

proposal to allow servicers to designate 

a specific telephone number for 

receiving oral information requests and 

an alternative compliance provision that 

allows a servicer to provide information 

orally if the information is provided 

within five days of the borrower’s 

request. The Bureau has learned from 

discussions with servicers, including 

the SERs in the Small Business Review 

Panel outreach, that most information 

requests are responded to by servicers 

either on the same telephone call with 

the borrower or within an hour of a 

borrower’s communication.84 The 

Bureau believes that allowing servicers 

to respond to information requests 

orally significantly reduces burden 

associated with the proposed 

information request requirements on 

servicers. Further, the Bureau believes 

that this requirement provides 

flexibility for small servicers consistent 

with the recommendations of the Small 

Business Review Panel and mitigates 

concerns by the SERs regarding 

compliance costs.85

The Bureau requests comment 

regarding whether servicers should be 

required to apply the information 

request requirements to requests 

received orally from borrowers. The 

Bureau further requests comment 

regarding whether small servicers (as 

that term is defined in the 2012 TILA 

Servicing Proposal) should be exempt 

from the information request 

requirements for information requests 

received orally. 

Qualified written requests. Similar to 

the proposed requirements for notices of 

error, proposed § 1024.36(a) would 

require a servicer to treat information 

requests, whether oral or written, the 

same way it treats a qualified written 

request that requests information. The 

Bureau’s intention is to propose servicer 

obligations applicable to an information 

request that are exactly the same as 

obligations applicable to a qualified 

written request. Thus, under proposed 

§ 1024.36(a), there is no reason for a 

borrower to send a qualified written 

request nor is there a reason for a 

servicer to reject a qualified written 

request because it does not meet the 

requirements for a qualified written 

request in section 6(e) of RESPA when 

the request would otherwise constitute 

an information request pursuant to 

proposed § 1024.36. 

Borrower’s representative. Proposed 

comment 36(a)–1 would clarify that an 

information request submitted by a 

person acting as an agent of the 

borrower is treated the same as a request 

by the borrower. This requirement is 

substantially similar as the current 

requirement existing under section 

6(e)(1)(A) of RESPA for a qualified 

written request. Specifically, section 

6(e)(1)(A) of RESPA states that a 

qualified written request may be 

provided by a ‘‘borrower (or an agent of 

the borrower).’’ See RESPA section 

6(e)(1)(A). 

Information subject to information 

request procedures. In general, any 

information requested by a borrower is 

subject to the information request 

requirements in proposed § 1024.36 

unless such information is subject to 

proposed § 1024.36(f). Proposed 

comment 36(a)–2 would clarify that if a 

borrower requests information regarding 

the owner or assignee of a mortgage 

loan, a servicer identifies the owner or 

assignee of the mortgage loan by 

identifying the entity that holds the 

legal right to receive payments from a 

mortgage loan. Proposed comments 

36(a)–2.i and 36(a)–2.ii provide 

examples of which party is the owner or 

assignee of a mortgage loan for different 

forms of mortgage loan ownership. 

These include situations when a 

mortgage loan is held in portfolio by an 

affiliate of a servicer, when a mortgage 

loan is owned by a trust in connection 

with a private label securitization 

transaction, and when a mortgage loan 


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86See Small Business Review Panel Report at 24. 

87 Id. 

is held in connection with a GSE or 

Ginnie Mae guaranteed securitization 

transaction. The Bureau believes that it 

would not provide additional consumer 

protection to impose an obligation on a 

servicer to identify entities that may 

have an interest in a borrower’s 

mortgage loan other than the owner or 

assignee of the mortgage loan. 

Servicers generally have not 

expressed concerns to the Bureau 

regarding the obligation to provide 

borrowers with the type of information 

subject to the information request 

requirements. Specifically, in the Small 

Business Review Panel outreach, SERs 

indicated that they felt fairly 

comfortable with the types of 

information that would be subject to the 

requirements, indicating that this 

information was generally in the 

borrower’s mortgage loan file.86

The SERs did express concern 

regarding the obligation to provide 

information regarding the owner or 

assignee of a mortgage loan. The SERs 

stated that servicers may not have 

contact information for owners or 

assignees of mortgage loans, that such 

owners or assignees are not prepared to 

handle calls from borrowers, and that a 

typical servicer duty is to handle 

customer complaints so that owners or 

assignees of mortgage loans do not have 

to handle that responsibility.87 Certain 

owners, assignees, and guarantors of 

mortgage loans, including other federal 

agencies, have expressed similar 

concerns to the Bureau. 

The Bureau understands the concerns 

asserted by servicers, owners, assignees, 

guarantors, and other federal agencies 

that requiring servicers to provide this 

information to borrowers may confuse 

borrowers and lead to attempts to 

communicate with owners or assignees 

that are unprepared or unwilling to 

engage in such communications. The 

requirement that servicers identify to 

the borrower the owner or assignee of a 

mortgage loan was added as section 

6(k)(1)(D) of RESPA by the Dodd-Frank 

Act and is not a discretionary exercise 

of the Bureau’s authority. The DoddFrank Act clearly requires that 

information regarding the owner or 

assignee of a mortgage loan must be 

provided to borrowers. The Bureau 

proposes comment 36(a)–2 to 

implement this requirement. 

Legal authority. The Bureau relies on 

its authority in section 6(k)(1)(E) of 

RESPA to implement the information 

request requirements. To the extent the 

information request requirements relate 

to qualified written requests, the Bureau 

also relies on its authority in sections 

6(e) and 6(k)(1)(B) of RESPA. The 

Bureau further has authority pursuant to 

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

implement information request 

requirements for requests for the 

identity of the owner or assignee of a 

mortgage loan. The Bureau further relies 

on section 6(j)(3) of RESPA to establish 

any requirements necessary to carry out 

section 6 of RESPA and has authority 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations, and to grant 

such reasonable exemptions for classes 

of transactions as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

36(b) Contact Information for Borrowers 

To Request Information 

Proposed § 1024.36(b) permits a 

servicer to establish a telephone number 

and address that a borrower must use to 

request information. If a servicer 

chooses to establish a separate 

telephone number and address for 

receiving information requests, a 

servicer must provide the borrower a 

written notice that states that the 

borrower should only assert an error at 

the telephone number and address 

established by the servicer for that 

purpose. Proposed comment 36(b)–2 

would clarify that the written notice to 

the borrower may be set forth in another 

written notice provided to the borrower, 

such as a notice of transfer, periodic 

statement, or coupon book. 

As discussed above for proposed 

§ 1024.35(c), the purpose of establishing 

a telephone number and address that a 

borrower must use to request 

information is to allow servicers to 

direct oral and written errors to 

appropriate personnel that have been 

trained to ensure that the servicer 

responds appropriately. Proposed 

comment 36(b)–1 clarifies that if a 

servicer has not designated a telephone 

number and address that a borrower 

must use to request information then a 

servicer will be required to comply with 

the information request requirements for 

any information request received by any 

office of the servicer. 

The Bureau believes it is reasonable, 

especially in light of the expanded 

burden of requiring compliance with 

error resolution and information 

requests, to allow servicers to manage 

the intake of information requests to 

designated telephone numbers and 

addresses. Further, allowing a servicer 

to designate a specific telephone 

number and address is consistent with 

current requirements of Regulation X 

with respect to qualified written 

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

a servicer to designate a ‘‘separate and 

exclusive office and address for the 

receipt and handling of qualified 

written requests.’’ Moreover, the Bureau 

believes that identifying a specific 

telephone number and address for 

receiving errors and information 

requests will benefit consumers as well. 

By providing a specific telephone 

number and address, servicers will 

identify to consumers the office capable 

of responding to information requests. 

The Bureau is proposing in the 

concurrent 2012 TILA Servicing 

Proposal to require that any telephone 

number or address identified by a 

servicer must appear on the periodic 

statement or other payment form 

supplied by the servicer. See 2012 TILA 

Servicing Proposal at proposed 

§ 1026.41(d)(6). 

Internet intake of information 

requests. Proposed comment 36(b)–4 

would clarify that a servicer is not 

required to establish a process for 

receiving information requests through 

email, Web site, or other online 

methods. In the event a servicer 

establishes a process for receiving 

information requests through online 

methods, comment 36(b)–4 is intended 

to clarify that the process established is 

the only online intake process that a 

borrower can use to make an 

information request. Thus, a servicer 

would not be required to provide a 

written notice to a borrower in order to 

gain the benefit of the online process 

being considered the exclusive online 

process for receiving information 

requests. 

Multiple offices. Proposed 

§ 1024.36(b), similar to proposed 

§ 1024.35(c) for notices of error, would 

require a servicer to use the same 

telephone number and address it 

designates for receiving notices of error 

for receiving information requests 

pursuant to proposed § 1024.36(b), and 

vice versa. Further, proposed comment 

36(b)–3 clarifies that any telephone 

numbers or address designated by a 

servicer for any borrower may be used 

by any other borrower to submit an 

information request. This clarifies that a 

servicer may not determine that an 

information request is invalid if it was 

received at any telephone number or 

address designated by the servicer for 

receipt of information requests just 

because it was not received by the 

specific phone number or address 

identified to a specific borrower. 

Proposed comment 36(b)–5 clarifies that 

a servicer may use automated systems, 

such as an interactive voice response 

system, to manage the intake of 

borrower calls. Prompts for requesting 

information must be clear and provide 


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88Small Business Review Panel Report at 30. 

the borrower the option to connect to a 

live representative. 

Legal authority. The Bureau relies on 

its authority in section 6(k)(1)(E) of 

RESPA to implement the proposed 

information request requirements. To 

the extent the information request 

requirements relate to qualified written 

requests, the Bureau also relies on its 

authority in section 6(e) and 6(k)(1)(B) 

of RESPA. The Bureau further has 

authority pursuant to section 6(k)(1)(D) 

of RESPA to implement information 

request requirements for requests for the 

identity of the owner or assignee of a 

mortgage loan. The Bureau further relies 

on section 6(j)(3) of RESPA to establish 

any requirements necessary to carry out 

section 6 of RESPA and has authority 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations, and to grant 

such reasonable exemptions for classes 

of transactions as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

36(c) Acknowledgment of Receipt 

Proposed § 1024.36(c) would require a 

servicer to provide a borrower a written 

acknowledgement of an information 

request within five days (excluding legal 

public holidays, Saturdays, and 

Sundays) of receiving an information 

request. Proposed § 1024.36(c) would 

implement section 1463(c) of the DoddFrank Act which amended the current 

acknowledgement deadline of 20 days 

for qualified written requests to five 

days. Proposed § 1024.36(c) would 

further apply the same timeline 

applicable to a qualified written request 

to any information request. 

The Bureau relies on its authority in 

section 6(k)(1)(E) of RESPA to 

implement the information request 

requirements. Further, to the extent the 

requirements are also applicable to 

qualified written requests, the Bureau 

relies on its authority in section 6(e), 

including the amendment to section 6(e) 

of RESPA set forth in section 1463(c) of 

the Dodd-Frank Act, as well as section 

6(k)(1)(B) of RESPA. The Bureau further 

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

of RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority under section 

19(a) of RESPA to prescribe such rules 

and regulations and to make such 

interpretations as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

36(d) Response to Information Request 

Proposed § 1024.36(d) would set forth 

requirements on servicers for 

responding to information requests. 

36(d)(1) Investigation and Response 

Requirements 

Proposed paragraph 36(d)(1) would 

require a servicer to respond to an 

information request within 30 days by 

either (i) providing the borrower with 

the requested information and contact 

information for further assistance, or (ii) 

conducting a reasonable search for the 

requested information and providing the 

borrower with a written notification that 

states that the servicer has determined 

that the requested information is not 

available or cannot reasonably be 

obtained by the servicer, as appropriate, 

the basis for the servicer’s 

determination, and contact information 

for further assistance. A servicer would 

only be required to provide a written 

notice to the borrower in response to the 

information request if the information 

requested by the borrower is not 

available or cannot reasonably be 

obtained by the servicer. A servicer 

would be able to respond either orally 

or in writing to the borrower (or 

electronically with the borrower’s 

consent) if the servicer is providing the 

information requested by the borrower. 

The Bureau believes that the goal of 

providing information to borrowers is 

furthered by allowing servicers to 

respond orally. Additionally, allowing 

oral communication reduces burden on 

servicers. 

A servicer could demonstrate its 

compliance with this requirement by, 

for example, retaining a copy of any 

written correspondence to the borrower 

that includes the information, retaining 

tapes of telephone conversations during 

which the borrower is provided the 

requested information, or by making a 

notation in a collector’s notes that the 

information requested was provided to 

the borrower. The Bureau believes that 

the flexibility for a servicer to develop 

systems that are appropriate for that 

servicer addresses the Small Business 

Review Panel recommendation that the 

Bureau consider adopting a more 

flexible process for small servicers to 

demonstrate compliance with the 

information request requirements.88

Information not available. Proposed 

comment 36(d)(1)(ii)–1 clarifies that 

information should not be considered as 

available to a servicer if the information 

is not in the servicer’s possession or 

control and the servicer cannot retrieve 

the information in the ordinary course 

of business through reasonable efforts. 

The purpose of the information 

request requirements is to provide an 

efficient means for borrowers to obtain 

information regarding their mortgage 

loan accounts and the Bureau believes 

that imposing obligations on servicers to 

provide information in response to an 

information request is an efficient 

means of achieving the goal of providing 

a borrower with access to requested 

information. The Bureau believes that 

burden for information requests will 

greatly increase, however, if a servicer is 

required to undertake an investigation 

for documents that are not in a 

servicer’s possession or control. The 

same inefficiency exists even if 

information is in a servicer’s possession 

or control but, for appropriate business 

reasons, is stored in a medium that is 

not accessible by a servicer in the 

ordinary course of business. The Bureau 

believes that the marginal benefit of 

additional information available to 

borrowers is outweighed by the 

significant burdens that such 

investigations may incur. 

Accordingly, the Bureau believes that 

servicers should not be required to 

provide documents in response to an 

information request that are not in the 

possession or control of the servicer and 

cannot be retrieved through reasonable 

efforts in the ordinary course of 

business. Proposed comment 

36(d)(1)(ii)–1 provides examples of 

when documents should and should not 

be considered to be available to a 

servicer in response to an information 

request. 

The Bureau has authority pursuant to 

section 6(k)(1)(E) of RESPA to set forth 

servicer obligations to provide 

information in response to information 

requests. The Bureau further has 

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

RESPA to set forth requirements 

necessary to carry out section 6 of 

RESPA. The Bureau further relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations 

necessary to achieve the consumer 

protection purposes of RESPA. 

36(d)(2) Time Limits 

Paragraph 36(d)(2)(i) 

Proposed paragraph 36(d)(2)(i) would 

require a servicer to respond to an 

information request not later than 30 

days (excluding legal public holidays, 

Saturdays, and Sundays) after the 

servicer receives the information 

request, with one exception discussed 

below. 

Legal authority. Section 1463(b) of the 

Dodd-Frank Act amended section 6(e)(2) 

of RESPA to require a servicer to 

investigate and respond to a qualified 

written request within 30 days. 

Proposed paragraph 36(e)(e)(i) would 

implement this provision of RESPA 


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89Small Business Review Panel Report at 30. 

with respect to qualified written 

requests. 

Shortened time limit to provide 

information regarding the identity of the 

owner or assignee. Under proposed 

paragraph 36(d)(2)(i)(A), if a borrower 

submits a request for information 

regarding the identity of, and address or 

relevant contact information for, the 

owner or assignee of a mortgage loan, a 

servicer shall respond to the 

information request with ten days 

(excluding legal public holidays, 

Saturdays, and Sundays). 

Section 1463(a) of the Dodd-Frank Act 

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

which sets forth a ten business day 

limitation on a servicer to respond to an 

information request with respect to the 

owner or assignee of a mortgage loan. 

Proposed paragraph 36(d)(2)(i)(A) 

implements this provision of RESPA. 

Proposed § 1024.36(d)(2)(i)(A) would 

require a servicer to provide the 

requested information within ten days 

(excluding legal public holidays, 

Saturdays, and Sundays) instead of ‘‘10 

business days.’’ The Bureau interprets 

the ‘‘10 business day’’ requirement in 

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

calendar days with an exclusion for 

intervening legal public holidays, 

Saturdays, and Sundays, and proposes 

to implement that interpretation in 

proposed § 1024.36(d)(2)(i)(A). Section 

19(a) of RESPA provides the Bureau 

with authority to make interpretations 

that are necessary to achieve the 

consumer protection purposes of 

RESPA. 

Extensions of time limits. Proposed 

§ 1024.36(d)(2)(ii) permits a servicer to 

extend the time period for responding to 

an information request by 15 days 

(excluding legal public holidays, 

Saturdays, and Sundays) if, before the 

end of the 30-day period set forth in 

proposed § 1024.36(d)(2)(i)(B), the 

servicer notifies the borrower of the 

extension and the reasons for the delay 

in responding. Section 1463(c)(3) of the 

Dodd-Frank Act amended section 6(e) of 

RESPA to provide a 15-day extension of 

time and proposed § 1024.36(d)(2)(ii) 

would implement this provision with 

respect to qualified written requests. 

The Bureau has authority pursuant to 

section 6(k)(1)(E) and 6(j)(3) of RESPA 

to apply the extension of time provision 

to information requests as well. The 

Bureau further has authority under 

section 19(a) of RESPA to make such 

rules and regulations, and to make such 

interpretations necessary to achieve the 

consumer protection purposes of 

RESPA. 

The Bureau proposes not to apply the 

extension allowance of proposed 

§ 1024.36(d)(2)(ii) to information 

requests with respect to the owner or 

assignee of a mortgage loan. The Bureau 

does not believe that the burden of 

obtaining this information for any 

borrower will be significant enough to 

justify an extension beyond the ten days 

(excluding legal public holidays, 

Saturdays, and Sundays) established by 

Congress. Servicers generally have 

access to identification of investors as 

that information is necessary to 

determine where to direct mortgage loan 

payments and reports with respect to 

the performance of serviced assets. The 

benefit to the borrower of obtaining the 

information, which Congress has 

required, outweighs the costs to 

servicers of complying within ten days 

(excluding legal public holidays, 

Saturdays, and Sundays). 

36(e) Alternative Compliance 

Proposed § 1024.36(e) would provide 

that a servicer is not required to comply 

with the requirements of paragraphs (c) 

and (d) of proposed § 1024.36 if the 

information requested by a borrower is 

provided to the borrower within five 

days along with contact information the 

borrower can use for further assistance. 

A servicer may provide the information 

requested either orally or in writing 

(including electronically, with the 

borrower’s consent). A servicer’s records 

should indicate that a servicer has 

provided the information requested to 

the borrower. A servicer may 

demonstrate its compliance with this 

requirement by, for example, retaining a 

copy of any written correspondence to 

the borrower that includes the 

information, retaining tapes of 

telephone conversations during which 

the borrower is provided the requested 

information, or by making a notation in 

a collector’s notes that the information 

requested was provided to the borrower. 

As discussed above, the Bureau believes 

that the flexibility for a servicer to 

develop systems that are appropriate for 

that servicer addresses the Small 

Business Review Panel recommendation 

that the Bureau consider adopting a 

more flexible process for small servicers 

to demonstrate compliance with the 

information request requirements.89

36(f) Requirements Not Applicable 

Proposed § 1024.36(f) would state that 

the information request requirements of 

proposed § 1024.36 would not apply to 

certain types of information requests if 

the servicer complies with proposed 

§ 1024.36(f)(2). The types of information 

requests to which the requirements 

would not apply would be set forth in 

§ 1024.36(f)(1). The Bureau solicits 

comments regarding whether any forms 

of information requests should be 

removed from proposed § 1024.36(f)(1) 

or whether additional potential forms of 

information requests should be 

identified in proposed § 1024.36(f)(1). 

36(f)(1) In General 

Paragraph 36(f)(1) 

Proposed paragraph 36(f)(1) would 

state that a servicer is not required to 

comply with the information request 

requirements in proposed § 1024.36(c) 

and (d) if the servicer reasonably makes 

certain determinations specified in 

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

A servicer may be liable to the borrower 

for its unreasonable determination and 

resulting failure to comply with 

proposed § 1024.36(c) and (d). 

Paragraph 36(f)(1)(i) 

Proposed paragraph 36(f)(1)(i) would 

state that a servicer is not required to 

comply with the information request 

requirements in proposed § 1024.36(c) 

and (d) with respect to an information 

request that requests information that is 

substantially the same as information 

previously requested by or on behalf of 

the borrower, and for which the servicer 

has previously complied with its 

obligation to respond to the information 

request. The purpose of this proposed 

paragraph is to ensure that a servicer is 

not required to expend resources 

conducting duplicative searches for 

documents. 

Paragraph 36(f)(1)(ii) 

Proposed paragraph 36(f)(1)(ii) 

provides that a servicer is not required 

to comply with the information request 

requirements in proposed § 1024.36(c) 

and (d) with respect to an information 

request that requests confidential, 

proprietary, or general corporate 

information of a servicer. 

The Bureau believes that the purposes 

of the provision, which is to provide 

borrowers with a means to request 

information regarding a borrower’s 

mortgage loan account, are not furthered 

by permitting borrowers to request 

confidential, proprietary, or general 

corporation information of a servicer. 

Proposed comment 36(f)(1)(ii)–1 

provides examples of confidential, 

proprietary, or general corporate 

information. These include information 

requests regarding: Management and 

profitability of a servicer; other 

mortgage loans than the borrower’s; 

investor reports; compensation, 

bonuses, and personnel actions for 

servicer personnel; the servicer’s 

training programs; investor agreements; 

the evaluation or exercise of any owner 

or assignee remedy; the servicer’s 


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90See Small Business Review Panel Report at 23. 

91 Id. 

servicing program guide; investor 

instructions or requirements regarding 

loss mitigation options, examination 

reports, compliance audits or other 

investigative materials. 

The Bureau believes the protection in 

proposed paragraph 36(f)(1)(ii) is 

appropriate to fulfill the purpose of the 

proposed rule, which is to provide a 

means for borrowers to obtain 

information from servicers regarding 

their own mortgage loan accounts. 

Permitting information requests for 

confidential, proprietary, or general 

corporate information does not further 

the purposes of the proposed rule. 

Paragraph 36(f)(1)(iii) 

Proposed paragraph 36(f)(1)(iii) would 

provide that a servicer is not required to 

comply with the information request 

requirements in proposed § 1024.36(c) 

and (d) with respect to a request for 

information that is not directly related 

to the borrower’s mortgage loan account. 

The Bureau believes the protection in 

proposed paragraph 36(f)(1)(iii) is 

appropriate to fulfill the purpose of the 

proposed rule, which is to provide a 

means for borrowers to obtain 

information from servicers regarding 

their own mortgage loan accounts. 

Paragraph 36(f)(1)(iv) 

Proposed paragraph 36(f)(1)(iv) 

provides that a servicer is not required 

to comply with the request for 

information requirements in proposed 

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

request for information that is overbroad 

or unduly burdensome. The rule defines 

‘‘overbroad’’ and ‘‘unduly burdensome’’ 

for this purpose. An information request 

is overbroad if a borrower requests a 

servicer provide an unreasonable 

volume of documents or information to 

a borrower. A notice of error is unduly 

burdensome if a diligent servicer could 

not respond to the information request 

without either exceeding the maximum 

timeframe permitted by paragraph 

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

dedicating resources) that would be 

unreasonably in light of the 

circumstances. 

As discussed above for proposed 

paragraph 35(g)(1)(ii), consumers, 

consumer advocates, servicers, and 

servicing industry representatives have 

indicated to the Bureau that the current 

qualified written request process is not 

typically utilized by consumers to 

request information. During the Small 

Business Review Panel outreach, SERs 

expressed that typically qualified 

written requests received from 

borrowers were vague forms found 

online or forms used by advocates as a 

form of pre-litigation discovery.90

Servicers and servicing industry 

representatives indicated that these 

types of qualified written requests are 

unreasonable and unduly burdensome. 

SERs in the Small Business Review 

Panel outreach requested that the 

Bureau consider an exemption for 

abusive requests, or requests made with 

the intent to harass the servicer.91

The Bureau is concerned that, in light 

of the expanded requirements for 

servicers to respond to information 

requests, a requirement for servicers to 

respond to information requests that are 

overbroad or unduly burdensome may 

harm consumers and frustrate servicers’ 

ability to comply with the new 

information request requirements. The 

effect of the proposed rule is to expand 

a servicer’s obligation to undertake the 

obligations similar to those currently 

applicable to qualified written requests 

to a broader universe of information 

requests, including requests made orally 

to a servicer and requests for 

information that do not specifically 

relate to ‘‘servicing’’ as defined in 

RESPA. Requiring servicers to respond 

to overbroad or unduly burdensome 

information requests from some 

borrowers may impose unjustified and 

unmanageable burdens on servicers. 

Further, the Bureau does not believe 

that the request for information 

requirements should replace or supplant 

civil litigation document requests and 

should not be used as a forum for prelitigation discovery. 

Proposed paragraph 36(f)(1)(iv) 

provides that if a servicer determines 

that an information request is overbroad 

or unduly burdensome, the servicer is 

required to notify the borrower, 

pursuant to proposed § 1024.36(f)(2), 

that the servicer is not required to 

comply with the requirements of 

proposed § 1024.36(c) and (d). Further, 

the servicer must identify the specific 

basis for the servicer’s determination so 

that the borrower is informed that the 

basis of the servicer’s determination was 

that the information request was 

overbroad or unduly burdensome. 

Proposed comment 36(f)(1)(iv)–1 sets 

forth characteristics that may indicate if 

an information request is overbroad or 

unduly burdensome. A servicer bears 

the risk that its determination that an 

information request is overbroad or 

unduly burdensome is found to be 

unjustified. If a servicer can identify a 

proper information request from an 

information request that is otherwise 

overbroad or unduly burdensome, a 

servicer would be required to respond to 

those information requests it could 

identify. 

The Bureau requests comment 

regarding whether a servicer should not 

be required to undertake the 

information request requirements in 

proposed § 1024.36(c) and (d) for 

information requests that are overbroad 

or unduly burdensome. 

Paragraph 36(f)(1)(v) 

Proposed paragraph 36(f)(1)(v) would 

provide that a servicer is not required to 

comply with the information request 

requirements in proposed § 1024.36(c) 

and (d) with respect to an information 

request that is delivered to a servicer 

more than one year after either servicing 

for the mortgage loan that is the subject 

of the information request was 

transferred from the servicer to a 

transferee servicer or the mortgage loan 

amount was paid in full, whichever date 

is applicable. 

The purpose of this proposed 

paragraph is to set a bound on the time 

that a servicer may be responsible for 

responding to information requests with 

respect to a mortgage loan. The effect of 

the proposed paragraph is to achieve the 

same limitation that currently exists in 

Regulation X with respect to qualified 

written requests. Specifically, current 

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

request does not constitute a qualified 

written request if it is delivered to a 

servicer more than one year after either 

the date of transfer of servicing or the 

date that the mortgage servicing loan 

amount was paid in full, whichever date 

is applicable.’’ The Bureau requests 

comment regarding the requirement that 

servicers provide a notice to the 

borrower and the appropriate content 

for the notice. 

36(f)(2) Notice to Borrower 

Proposed § 1024.36(f)(2) provides that 

if a servicer determines it is not required 

to comply with the information request 

requirements in proposed § 1024.36(c) 

and (d) with respect to an information 

request because the information 

requests meets one of the categories in 

proposed § 1024.36(f)(1), the servicer 

must provide a notice to the borrower 

informing the borrower of the servicer’s 

determination. The notice must be sent 

not later than five days (excluding legal 

public holidays, Saturdays, and 

Sundays) after the servicer’s 

determination and must set forth the 

basis upon which the servicer has made 

the determination, with a reference to 

the applicable provision of proposed 

§ 1024.36(f)(1). 

The Bureau’s intention for proposing 

this requirement is to ensure that 

borrowers are notified that a servicer 


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92See, e.g., Fannie Mae/Freddie Mac Note at ¶ 5. 

93See, e.g., Fannie Mae Single-Family Servicing 

Guide, Part II, Ch. 2 (2012) (‘‘Part of a servicer’s 

responsibility for protecting Fannie Mae’s interest 

in the security property is to ensure that hazard 

insurance (including flood insurance), under the 

terms specified in Fannie Mae’s Guides, is in place 

at all times. If the servicer is unable to obtain 

evidence of acceptable hazard insurance for a 

property, the servicer should obtain alternative 

insurance coverage (so-called ‘‘force-placed’’ or 

‘‘lender-placed’’ insurance) to protect Fannie Mae’s 

interests, available at https://www.efanniemae.com/ 

sf/guides/ssg/svcg/svc031412.pdf. 

94See, e.g., United States of America v. Fairbanks 

Capital Corp., Civ. Action No. 03–12219–DPW, 

Complaint at ¶ 17 (D. Mass. Nov. 12, 2003) (alleging 

that Fairbanks improperly obtained force-placed 

insurance when it knew or should have known that 

borrowers already had insurance), available at: 

Continued 

does not intend to otherwise respond to 

the information requests and that 

borrowers are informed of the basis for 

the servicer’s determination that it is not 

required to comply with the information 

request requirements in proposed 

§ 1024.36(c) and (d). 

By receiving a notice that sets forth 

for the servicer’s determination, a 

borrower will have the opportunity to 

assert any claims the borrower may have 

with respect to the reasonableness of the 

servicer’s determination that the 

servicer is not required to comply with 

the information request requirements in 

proposed § 1024.36(c) and (d). 

Legal authority. The Bureau relies on 

its authority pursuant to section 

6(k)(1)(E) of RESPA to set forth 

information requests requirements. 

Further, to the extent the information 

request requirements apply to qualified 

written requests, the Bureau further 

relies on its authority in section 6(e) and 

6(k)(1)(B) of RESPA with respect to 

qualified written requests. The Bureau 

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

of RESPA to set forth requirements 

necessary to carry out section 6 of 

RESPA. The Bureau further relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations 

necessary to achieve the consumer 

protection purposes of RESPA. 

36(g) Payment Requirement Limitations 

Proposed § 1024.36(g) would prohibit 

a servicer from charging a fee, or 

requiring a borrower to make any 

payment that may be owed on a 

borrower’s account, as a condition of 

responding to an information request. 

The Bureau is implementing this 

provision for three reasons. First, 

section 1463(a) of the Dodd-Frank Act 

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

which prohibits a servicer from charging 

fees for responding to valid qualified 

written requests. Proposed § 1024.36(g) 

would implement that provision with 

respect to qualified written requests that 

for information relating to the servicing 

of a mortgage loan. Second, the Bureau 

does not believe that a servicer practice 

of charging for responding to an 

information request facilitates the 

purpose of the information request 

requirements, which is to provide a tool 

for borrowers to obtain information 

regarding their mortgage loan accounts. 

Rather, such a practice would 

improperly impede borrowers from 

pursuing valid information requests. 

Third, the Bureau has learned from 

outreach with consumer advocates that, 

in some instances, servicers have 

demanded that borrowers make 

payments before the servicer will 

provide a borrower with information 

requested by the borrower or will 

correct errors identified by a borrower. 

The Bureau believes that a servicer is 

required to provide a borrower with 

information about the borrower’s 

mortgage loan account notwithstanding 

the payment status of a borrower’s 

account. 

Legal authority. The Bureau relies on 

its authority in section 6(k)(1)(B) and 

6(k)(1)(E) of RESPA. The Bureau 

believes the limitations of fees are 

appropriate to carry out the consumer 

protection purposes of RESPA, pursuant 

to section 6(k)(1)(E) of RESPA. 

In addition to the authority, the 

Bureau also has authority pursuant to 

section 6(j)(3) and 19(a) of RESPA to 

establish requirements to carry out 

section 6 of RESPA or to make such 

rules and regulations as appropriate to 

achieve the consumer protection 

purposes of RESPA. 

The Bureau requests comment 

regarding whether the Bureau should 

carve out from the prohibition on 

charging fees for responding to an 

information request any fees charged in 

connection with providing payoff 

statements or State law beneficiary 

notices. The Bureau further requests 

comment regarding whether other types 

of information requests should be 

excluded from a proposed prohibition 

on charging fees for responding to an 

information request. 

36(h) Servicer Remedies 

Proposed § 1024.36(h) states that the 

existence of an outstanding information 

request does not prohibit a servicer from 

furnishing adverse information to any 

consumer reporting agency or from 

pursuing any remedies, including 

proceeding with a foreclosure sale, 

permitted by the applicable mortgage 

loan instrument. This proposed 

requirement is consistent with section 

6(e)(3) of RESPA and clarifies that 

prohibitions on furnishing adverse 

information only apply to qualified 

written requests that assert an error with 

respect to a mortgage loan, not to a 

qualified written request that requests 

information. The Bureau relies on its 

authority in section 6(k)(1)(E) to apply 

this provision to information request 

requirements. The Bureau further relies 

on its authority in section 6(j)(3) to 

establish any requirement to carry out 

section 6 of RESPA and its authority in 

section 19(a) to make such 

interpretations as may be necessary to 

carry out the consumer protection 

purposes of RESPA. 

Section 1024.37 Force-Placed 

Insurance 

37(a) Definitions 

37(a)(1) Force-Placed Insurance 

Section 1463 of the Dodd-Frank Act 

amended RESPA section 6 by adding a 

new section 6(k)(2), which sets forth 

that for purposes of RESPA section 6(k)– 

(m), ‘‘force-placed insurance’’ means 

‘‘hazard insurance coverage obtained by 

a servicer of a federally related mortgage 

when the borrower has failed to 

maintain or renew hazard insurance on 

such property as required of the 

borrower under the terms of the 

mortgage.’’ The Bureau proposes to 

implement RESPA section 6(k)(2) by 

adding new § 1024.37(a)(1) to 

Regulation X to define ‘‘force-placed 

insurance’’ to mean hazard insurance 

obtained by a servicer on behalf of the 

owner or assignee of a mortgage loan on 

a property securing such loan. 

The Bureau’s definition of forceplaced insurance is broader than the 

statutory definition of force-placed 

insurance. Virtually all mortgage loan 

contracts require borrowers to maintain 

hazard insurance during the term of the 

loan, and permit lenders to charge 

borrowers for any hazard insurance 

lenders obtain if borrowers fail to 

maintain hazard insurance coverage.92

The Bureau recognizes that force-placed 

insurance is hazard insurance that 

servicers are contractually required to 

obtain on behalf of the owner or 

assignee of a mortgage loan when the 

servicer is unable to obtain evidence 

that the borrower has complied with the 

borrower’s obligation to maintain 

hazard insurance.93 But in its review of 

issues related to force-placed insurance, 

the Bureau has learned that in recent 

years, some servicers might have 

improperly obtained force-placed 

insurance when they arguably knew or 

should have known that the borrower 

already had hazard insurance.94 The 


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http://ftc.gov/os/2003/11/0323014comp.pdf; see 

also Ocwen Federal Bank FSB, OTS Docket No. 

04592 (April 19, 2004) (requiring the bank to take 

reasonable actions to determine whether 

appropriate hazard insurance is already in place 

before it obtained force-placed insurance, available 

at http://files.ots.treas.gov/93606.pdf. 

95See Assurant Specialty Property, Lender-Placed 

Insurance (Assurant Specialty Property), available 

at http://newsroom.assurant.com/releasedetail.cfm?

ReleaseID=645046&ReleaseType=Featured%

20News. According to Assurant, approximately 

13% of the loans it monitors are identified as loans 

with a potential lapse in insurance, but 

approximately only 2% of that group of loans gets 

force-placed insurance because Assurant uses an 

advance notification process that resolves most of 

the lapses with the borrower renewing or replacing 

coverage on their own. 

96See, e.g., Letter from the Financial Services 

Roundtable re: Outline of Proposals Under 

Consideration and Alternatives Considered in 

connection with the Small Business Review Panel 

for Mortgage Servicing Rulemaking to Peter Carroll, 

Consumer Financial Protection Bureau (May 31, 

2012), at 5. See also Small Business Review Panel 

Report at 21–22. 

97See Assurant Specialty Property (estimating 

that the force-placed insurance Assurant writes 

costs, on average, 1.5 to 2 times more than the prior 

hazard insurance purchased by the borrower.), 

available at: http://newsroom.assurant.com/

releasedetail.cfm?ReleaseID=645046&ReleaseType=

Featured%20News. 98 Id. (‘‘Lender-placed insurance provides 

coverage for the structural property. It typically 

does not extend to liability coverage or a 

homeowner’s personal contents, as the lender has 

no collateral interest in these items’’). In contrast, 

a homeowner’s policy offers a much broader scope 

of coverage. In addition to insuring the 

homeowner’s personal contents against loss, it also 

pays a homeowner’s additional living expenses 

while the home is being repaired, and covers a 

homeowner’s personal liability for injuries to other 

people or their property while they are on the 

property. 

99See The National Consumer Law Center and 

Center and the Center for Economic Justice, The 

Consumer Financial Protection Bureau Should Rein 

in Mortgage Servicers’ Use of Force-Placed 

Insurance (May 2012), available at: http://

www.nclc.org/images/pdf/regulatory_reform/ibforce-placed-insurance.pdf. 

100See Fannie Mae March 2012 Servicing Guide 

Announcement, available at: https://

www.efanniemae.com/sf/guides/ssg/annltrs/pdf/

2012/svc1204.pdf. 

101See, e.g., Jeff Horowitz, Ties to Insurers Could 

Land Mortgage Servicers in More Trouble, The 

American Banker (November 10, 2010). 

102See The Need for National Mortgage Servicing 

Standards: Hearing Before the Subcomm. on 

Housing, Transportation, and Community Affairs of 

the Senate Comm. on Banking and Urban Affairs, 

S. Hrg. 112–139, 112th Cong. 125 (2011) (statement 

of Laurie Goodman). 

103 Donghoon Lee et al., A New Look at Second 

Liens, n.5 (February 2012). 

Bureau has met with servicers and 

insurance companies that write forceplaced insurance. They have told the 

Bureau that when they detect a gap in 

borrower-obtained hazard insurance 

coverage, they typically communicate 

with the borrower to confirm the 

absence of borrower-obtained hazard 

insurance before obtaining force-placed 

insurance. According to industry, forceplaced insurance is an uncommon 

occurrence.95 It appears that the new 

Dodd-Frank requirements on forceplaced insurance, such as, for example, 

requiring servicers to provide advance 

notice over a 45-day notice period 

before charging borrowers for forceplaced insurance, discussed further 

below, reflect common practice for the 

majority of the mortgage servicing 

market.96 But the Bureau has learned 

that there does not appear to be an 

industry standard for providing advance 

notice before a servicer renews or 

replaces existing force-placed insurance. 

As discussed further below, the Bureau 

proposes to exercise its authority under 

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

19(a) to add new § 1024.37(e), which 

would require servicers to follow an 

advance notice process before they 

renew or replace existing force-placed 

insurance. 

The Bureau also believes that 

obtaining force-placed insurance when 

servicers arguably knew or should have 

known that the borrower already had 

insurance is problematic for individual 

borrowers, particularly borrowers 

experiencing financial hardship. Forceplaced insurance is generally 

substantially more expensive than 

hazard insurance a borrower could 

purchase.97 It also generally provides 

less protection against loss than 

insurance that a borrower could 

purchase.98 Consumer advocates have 

asserted that the higher cost of forceplaced insurance could drive borrowers 

into default.99 According to Fannie Mae, 

‘‘[force-placed insurance] should only 

be issued after the servicer has 

exhausted all means to keep the 

borrower’s insurance policy in 

force.’’ 100 The Bureau also notes that it 

finds problematic the incentives that 

have reportedly influenced some 

servicers’ decision to obtain forceplaced insurance, such as the receipt of 

commissions or reinsurance fees by 

servicers and their insurance affiliates 

on the force-placed insurance policies 

they obtain,101 or that a servicer or an 

affiliate of the servicer may have an 

ownership interest in an insurance 

company that writes force-placed 

insurance.102 For similar reasons, the 

Bureau is proposing to require that 

servicers continue paying for a 

borrower’s hazard insurance when 

practicable if the borrower has escrowed 

for hazard insurance, as discussed 

previously in the Bureau’s discussion of 

proposed § 1024.17(k)(5). 

The statutory definition in RESPA 

section 6(k)(2), discussed previously, 

may convey that ‘‘force-placed 

insurance’’ used in RESPA section 6(k)– 

(m) is limited to hazard insurance 

obtained when the borrower has in fact 

failed to maintain or renew hazard 

insurance. Based on its review of issues 

concerning force-placed insurance 

discussed above, the Bureau has 

concluded that defining force-placed 

insurance broadly is appropriate to 

carry out the consumer protection 

purposes of the new Dodd-Frank 

requirements on force-placed insurance. 

As discussed previously in the 

Bureau’s discussion of proposed 

§ 1024.30, the Bureau’s proposed 

subpart C would maintain Regulation 

X’s current exclusion for all open-end 

lines of credit (home-equity plans) from 

the servicer requirements of Regulation 

X. Although virtually all mortgage loan 

contracts require borrowers to maintain 

hazard insurance during the term of the 

loan, the majority of open-end homeequity plans are subordinate liens.103

The Bureau has learned that servicers 

generally obtain force-placed insurance 

on behalf of first-lien holders, not 

subordinate-lien holders. Accordingly, 

the Bureau believes it is appropriate to 

maintain the exemption in current 

Regulation X for open-end lines of 

credit (home-equity plans) from the 

Bureau’s proposed force-placed 

insurance regulations. The Bureau 

understands that the one exception to 

servicers obtaining force-placed 

insurance for open-end lines of credit 

(home-equity plans) is when flood 

insurance is required by the FDPA. As 

discussed below, however, the Bureau is 

proposing to exempt hazard insurance 

to protect against flood loss obtained by 

a servicer as required by the FDPA from 

the Bureau’s proposed definition of 

force-placed insurance. The Bureau, 

however, invites comment on whether 

the Bureau’s proposed force-placed 

insurance regulations should be 

extended cover open-end lines of credit 

(home-equity plans). 

Legal authority. As discussed 

previously, section 1463 of the DoddFrank Act amended RESPA section 6 by 

adding a new section 6(k)(2), which sets 

forth the definition of ‘‘force-placed 

insurance’’ for purposes of RESPA 

section 6(k)–(m). The Bureau is 

proposing to implement section 6(k)(2) 

of RESPA, pursuant to its authority 

under section 6(j)(3) of RESPA by 

adding new § 1024.37(a)(1) to 

Regulation X to define ‘‘force-placed 

insurance’’ to mean hazard insurance 

obtained by a servicer on behalf of the 

owner or assignee of a mortgage loan on 

a property securing such loan. Section 

6(j)(3) of RESPA authorizes the Bureau 

to set forth any requirements necessary 

to carry out section 6 of RESPA. 

Section1024.37(a)(1) is additionally 


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104 76 FR 64175, 64181 (October 17, 2011) 

(addressing the requirement for the force placement 

of flood insurance the under the Act). 

105See 61 FR 45684 (August 29, 1996) 

(announcing the regulations originally adopted by 

the Board, the OCC, the FDIC, the FCA, NCUA, and 

the Office of Thrift Supervision (OTS) with respect 

to requirements for lenders and servicers when 

purchasing force-placed insurance for loans secured 

by properties located in SHFAs). 

106Moving Ahead for Progress in the 21st Century 

Act of 2012, PL 112–141, 126 Stat 405 (2012) 

107Federal Emergency Management 

Administration, Mandatory Purchase of Flood 

Insurance Guidelines (2007), at 40 (explaining that 

a lender or servicer has statutory authority to 

purchase flood insurance for a property and charge 

the premium to the borrower if the property is in 

a SFHA). 

108 Id. at 23. 

proposed pursuant to the Bureau’s 

authority under section 6(k)(1)(E) of 

RESPA to prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA, and 

under section 19(a) of RESPA to make 

such rules and regulations, and to make 

such interpretations, as may be 

necessary to achieve the consumer 

protection purpose of RESPA. 

37(a)(2) Types of Insurance Not 

Considered Force-Placed Insurance 

Paragraph 37(a)(2)(i) 

Proposed § 1024.37(a)(2)(i) would 

exempt hazard insurance to protect 

against flood loss obtained by a servicer 

as required by the FDPA from the 

definition of force-placed insurance for 

the purposes of § 1024.37. The Bureau 

understands that pursuant to section 

102(e) of the FDPA, lenders or the 

servicers acting on the lenders’ behalf 

must obtain force-placed flood 

insurance under certain circumstances. 

The Bureau understands that the 

circumstances are as follows: (1) The 

lender determines at any time during 

the life of the loan that the property 

securing the loan is located in a Special 

Flood Hazard Area (SFHA); (2) flood 

insurance under the ‘‘Act’’ (referring to 

both the National Flood Insurance Act 

of 1968 and the FDPA, as revised by the 

National Flood Insurance Reform Act of 

1994) is available; (3) the lender 

determines that flood insurance 

coverage is inadequate or does not exist; 

and (4) after required notice, the 

borrower fails to buy the appropriate 

amount of coverage within 45 days.104

Since servicers are already subject to 

regulations when obtaining force-placed 

flood insurance as required by the 

FDPA,105 the Bureau proposes to 

exempt hazard insurance to protect 

against flood loss obtained by a servicer 

as required by the FDPA from the 

definition of force-placed insurance for 

purposes of proposed § 1024.37. 

As discussed previously, to 

implement Dodd-Frank Act section 

1463, the Bureau’s proposed definition 

of ‘‘hazard insurance’’ would include 

hazard insurance to protect against 

flood loss. Additionally, the Bureau has 

proposed to define ‘‘force-placed 

insurance’’ as a type of ‘‘hazard 

insurance’’ to implement RESPA section 

6(k)(2). If the Bureau does not propose 

an exemption for hazard insurance to 

protect against flood loss obtained by a 

servicer as required by the FPDA, such 

insurance would be considered ‘‘forceplaced insurance’’ under the definition 

of ‘‘force-placed insurance’’ set forth in 

proposed § 1024.37(a)(1). In turn, 

servicers who obtain force-placed flood 

insurance as required by the FDPA 

would be subject to the Bureau’s 

proposed § 1024.37 as well if the Bureau 

does not propose the exemption. 

Without the Bureau’s proposed 

exemption, the Bureau believes the 

result would be the creation of 

overlapping servicer obligations. For 

example, section 6(l) of RESPA, 

discussed in greater detail below, 

requires a servicer to provide a borrower 

with two written notices over a 45-day 

notice period before charging the 

borrower for force-placed insurance. 

The FDPA also provides a 45-day notice 

period, but only one notice is required. 

Additionally, the FPDA was recently 

amended to require the lender or 

servicer to terminate force-placed flood 

insurance and refund to the borrower all 

force-placed flood insurance premiums 

and related fees paid by the borrower 

during any period when the borrower 

had insurance coverage in force within 

30 days of receiving confirmation of a 

borrower’s existing flood insurance 

coverage.106 In contrast, section 6 of 

RESPA, as amended by Dodd-Frank Act 

section 1463, requires a servicer to 

cancel force-placed insurance and 

refund any premium and fees paid 

during the period of overlapping 

coverage within 15 days of receiving 

confirmation of a borrower’s existing 

hazard insurance coverage. 

The requirements set forth in DoddFrank Act section 1463 with respect to 

servicers’ purchase of force-placed 

insurance represent the establishment of 

new consumer protections where 

protection did not exist before. The 

FDPA, however, has established a 

separate consumer protection paradigm 

to protect consumers when servicers are 

required by the FDPA to obtain forceplaced flood insurance. As discussed 

above, the FDPA requires advance 

notice to consumers, and provides 

consumers with 45 days to provide 

evidence of flood insurance. Also as 

discussed above, the FDPA now 

contains termination and refund 

provisions with respect to force-placed 

flood insurance obtained by servicers as 

required by the FDPA. Accordingly, the 

Bureau believes it is consistent with the 

consumer protection purposes of RESPA 

to exempt hazard insurance to protect 

against flood loss obtained by a servicer 

as required by the FPDA from the 

Bureau’s proposed definition of ‘‘forceplaced insurance.’’ For similar reasons, 

the Bureau proposes to exempt charges 

authorized by the FDPA from the 

proposed requirement that charges 

related to force-placed insurance (other 

than charges subject to State regulation 

as the business of insurance) must be 

bona fide and reasonable for purposes of 

proposed § 1024.37(h), discussed below. 

The Bureau notes that the proposed 

exemption would only apply to 

servicers that obtain hazard insurance to 

protect against flood loss as required by 

the FDPA. The Bureau understands that 

the FDPA does not currently apply to a 

mortgaged property that is not located 

in a SFHA.107 The Bureau further 

understands that the FDPA does not 

currently apply to mortgage loans made 

by and kept in the portfolio of a private 

mortgage lender.108 The Bureau’s 

proposed § 1024.37 would apply in 

situations where the FDPA does not 

apply. The Bureau, however, recognizes 

that operational complexity may be 

introduced if a servicer had to 

continuously monitor its servicing 

portfolio to identify when it is required 

to comply with the FDPA and when it 

is required to comply with proposed 

§ 1024.37. As discussed above, the 

Bureau invites comment on whether the 

Bureau’s definition of ‘‘hazard 

insurance’’ should exclude hazard 

insurance to protect against flood loss. 

An alternative to excluding hazard 

insurance to protect against flood loss 

from the definition of ‘‘hazard 

insurance’’ is to exclude hazard 

insurance to protect against flood loss 

obtained by a servicer from the 

definition of ‘‘force-placed insurance.’’ 

The Bureau also seeks comment on this 

alternative. The Bureau recognizes that 

another possible alternative exists, and 

it is to harmonize the force-placed 

insurance requirements set forth in 

Dodd-Frank Act section 1463 with the 

FDPA. Accordingly, the Bureau invites 

comments on how the force-placed 

insurance requirements set forth in 

Dodd-Frank Act section 1463 could be 

harmonized with the FDPA. 

Legal authority. The Bureau proposes 

to exempt hazard insurance to protect 

against flood loss obtained by a servicer 

as required by the FDPA from the 


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57240 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

definition of force-placed insurance for 

purposes of proposed § 1024.37 by 

adding new § 1024.37(a)(2)(i), pursuant 

to its authority under section 19(a) of 

RESPA. Section 19(a) of RESPA 

provides the Bureau with authority to 

prescribe such rules and regulations, to 

make such interpretations, and to grant 

such reasonable exemptions for classes 

of transactions as may be necessary to 

achieve the purposes of RESPA. As 

previously discussed, the FDPA has 

established a separate consumer 

protection paradigm to protect 

consumers when servicers are required 

by the FDPA to obtain force-placed 

flood insurance. Furthermore, for 

reasons discussed above, the exemption 

will reduce regulatory burden. 

Paragraph 37(a)(2)(ii) 

Proposed § 1024.37(a)(2)(ii) provides 

that hazard insurance obtained by a 

borrower but renewed by the borrower’s 

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

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

insurance for purposes of § 1024.37. A 

servicer that complies with 

§ 1024.17(k)(1), (k)(2), or proposed 

§ 1024.17(k)(5) would be continuing the 

borrower’s hazard insurance. 

Paragraph 37(a)(2)(iii) 

Proposed § 1024.37(a)(2)(iii) provides 

that hazard insurance renewed by the 

servicer at its discretion if the servicer 

is not required to renew the borrower’s 

hazard insurance as required by 

§ 1024.17(k)(1), (k)(2), or (k)(5) is not 

force-placed insurance for purposes of 

§ 1024.37. The Bureau believes that 

proposed § 1024.37(a)(2)(iii) would 

provide an incentive for servicers to 

work with non-escrowed borrowers to 

renew hazard insurance obtained by 

these borrowers. 

Legal authority. The Bureau proposes 

to add new § 1024.37(a)(2)(ii)–(iii) 

pursuant to its authority under section 

6(j)(3) of RESPA, which authorizes the 

Bureau to establish any requirements 

necessary to carry out the purposes of 

section 6 of RESPA. As discussed 

previously, the Bureau is proposing to 

define ‘‘force-placed insurance’’ as 

hazard insurance obtained by a servicer 

on behalf of the owner or assignee of a 

mortgage loan on a property securing 

such loan in proposed § 1024.37(a)(1). 

The Bureau believes it is necessary and 

appropriate to clarify that the term does 

not apply to hazard insurance obtained 

by a borrower and renewed by a 

borrower’s servicer. It will reduce 

regulatory burden and may, as 

discussed above, incentivize servicers to 

work with non-escrowed borrowers to 

renew the hazard insurance obtained by 

such borrowers. Section 

1024.37(a)(2)(ii)–(iii) is additionally 

proposed pursuant to the Bureau’s 

authority under section 6(k)(1)(E) of 

RESPA to prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA, and 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations as may be 

necessary to achieve the purposes of 

RESPA. 

37(b) Basis for Obtaining Force-Placed 

Insurance 

The Bureau is proposing a new 

§ 1024.37(b) to implement new section 

6(k)(1)(A) of RESPA, added by section 

1463 of the Dodd-Frank Act, which 

requires a servicer to have a reasonable 

basis to believe that the borrower has 

failed to comply with the loan contract’s 

requirement to maintain property 

insurance before obtaining force-placed 

insurance. Proposed § 1024.37(b) sets 

forth that a servicer may not obtain 

force-placed insurance unless the 

servicer has a reasonable basis to believe 

that the borrower has failed to comply 

with the mortgage loan contract’s 

requirement to maintain hazard 

insurance. 

Proposed comment 37(b)–1 provides 

examples of ‘‘reasonable basis’’ for 

borrowers with escrow. The comment 

clarifies that a servicer has a reasonable 

basis to believe that a borrower with an 

escrow account established for hazard 

insurance has failed to maintain hazard 

insurance if, for example, by a 

reasonable time leading up to the 

expiration date of the borrower’s hazard 

insurance (e.g., 30 days before the 

expiration date), the servicer has not 

received a renewal bill. It also sets forth 

that the receipt by a servicer of a notice 

of cancellation or non-renewal from the 

borrower’s insurance company before 

payment is due for the borrower’s 

hazard insurance provides a servicer 

with a reasonable basis to believe that 

the borrower has failed to maintain 

hazard insurance. 

Proposed comment 37(b)–2 provides 

an example of ‘‘reasonable basis’’ for 

borrowers without escrow. The 

comment provides that a servicer has a 

reasonable basis to believe a borrower 

without an escrow account established 

for hazard insurance has failed to 

maintain hazard insurance if, for 

example, a servicer receives a notice of 

cancellation or non-renewal from the 

borrower’s insurance company. 

The Bureau believes it is appropriate 

to distinguish situations where the 

borrower has escrowed for hazard 

insurance from situations where the 

borrower has not done so. For a 

borrower who has escrowed for hazard 

insurance, a servicer receives a request 

to pay a borrower’s existing hazard 

insurance before the insurance lapses. 

When a borrower has not escrowed for 

hazard insurance, the Bureau 

understands that a servicer does receive 

a payment request and thus may not 

learn of the lapse in insurance until the 

borrower’s coverage has expired. 

Legal authority. As discussed above, 

the Bureau is proposing a new 

§ 1024.37(b) to implement new section 

6(k)(1)(A) of RESPA. The Bureau 

proposes to implement section 

6(k)(1)(A) pursuant to its authority 

under RESPA section 6(j)(3) to establish 

any requirements necessary to carry out 

the purposes of section 6 of RESPA. The 

Bureau has additional authority under 

section 6(k)(1)(E) of RESPA to prescribe 

regulations that are appropriate to carry 

out the consumer protection purposes of 

RESPA, and under section 19(a) of 

RESPA to prescribe such rules and 

regulations, to make such 

interpretations as may be necessary to 

achieve the purposes of RESPA. 

37(c) Requirements for Charging 

Borrower Force-Placed Insurance 

37(c)(1) In General 

Section 1463 of the Dodd-Frank Act 

amended section 6 of RESPA by setting 

forth certain requirements a servicer 

must follow before imposing any charge 

on a borrower for force-placed insurance 

with respect to any property securing a 

mortgage by adding new section 

6(l)(1)(A)–(C) to RESPA. RESPA section 

6(l)(1)(A) requires servicers to use firstclass mail to send a written notice to the 

borrower 45 days before charging a 

borrower for force-placed insurance. 

RESPA section 6(l)(1)(B) requires 

servicers to use first-class mail to send 

a second written notice to the borrower 

at least 30 days after mailing the notice 

required by RESPA section 6(l)(1)(A). 

RESPA section 6(l)(1)(C) permits a 

servicer to charge a borrower for forceplaced insurance at the end of the 45- 

day notice period only if the servicer 

has not received any demonstration of 

hazard insurance coverage during the 

45-day notice period. 

Legal authority. The Bureau proposes 

to implement RESPA section 6(l)(1)(A)– 

(C), pursuant to its authority under 

RESPA section 6(j)(3) to establish any 

requirements necessary to carry out 

section 6 of RESPA by adding new 

§ 1024.37(c)(1) to Regulation X. The 

Bureau has additional authority under 

section 6(k)(1)(E) of RESPA to prescribe 

regulations that are appropriate to carry 

out the consumer protection purposes of 

RESPA, and under section 19(a) of 

RESPA to prescribe such rules and 


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regulations, to make such 

interpretations as may be necessary to 

achieve the purposes of RESPA. 

Proposed § 1024.37(c)(1), in 

implementing RESPA section 6(l)(1)(A)– 

(C), states that a servicer may not charge 

a borrower for force-placed insurance 

unless: (1) The servicer delivers to the 

borrower or places in the mail a written 

notice with the disclosures set forth in 

proposed § 1024.37(c)(2) at least 45 days 

before the premium charge or any fee is 

assessed; (2) the servicer delivers to the 

borrower or places in the mail a written 

notice in accordance with 

§ 1024.37(d)(1); and (3) during the 45- 

day notice period, the servicer has not 

received verification that the borrower 

has hazard insurance in place 

continuously. Determining whether the 

borrower has hazard insurance in place 

continuously shall take account of any 

grace period provided under State or 

other applicable law. 

Proposed 1024.37(c)(1) permits a 

servicer to choose between delivering 

the written notice to the borrower or 

mailing the written notice required by 

RESPA section 6(l)(1)(A) and 6(l)(1)(B). 

In some situations, a borrower who 

receives the written notice via courier 

may get it faster than a borrower who 

gets the notice in the mail. The Bureau 

believes allowing servicers to deliver 

the notice is appropriate to carry out the 

consumer protection purposes of 

RESPA. 

Proposed comment 37(c)(1)–1 clarifies 

that the 45-day notice period set forth in 

§ 1024.37(c)(1) begins on the day that 

the servicer delivers or mails the notice 

to the borrower and expires 45 days 

later. The servicer may assess the 

premium charge and any fees for forceplaced insurance beginning on the 46th 

day if the servicer has fulfilled the 

requirements of § 1024.37(c) and (d). As 

discussed previously, virtually all 

mortgage loan contracts provide that 

lenders may charge borrowers for 

hazard insurance lenders obtain if 

borrowers fail to maintain hazard 

insurance coverage, and that the 

obligation to obtain the coverage 

typically falls on servicers. Accordingly, 

proposed comment 37(c)(1)–1 clarifies 

that if not prohibited by State or other 

applicable law, the servicer may 

retroactively charge a borrower for 

force-placed insurance obtained during 

the 45-day notice period. 

The Bureau notes, however, pursuant 

to proposed § 1024.37(g) discussed 

below, if a servicer receives verification 

that the borrower had hazard insurance 

in place during some or all of the 45-day 

notice period, then, if the servicer 

retroactively charged the borrower for 

force-placed insurance during the notice 

period, the servicer would have to 

refund the force-placed insurance 

premium charges and related fees paid 

by the borrower for the period of time 

during the notice period during which 

the borrower’s hazard insurance was in 

place. The servicer would also have to 

remove all force-placed insurance 

premium charges and related fees from 

the borrower’s account for that period of 

time. 

Proposed comment 37(c)(1)(iii)–1 

provides examples of borrowers having 

hazard insurance in place continuously. 

A borrower’s prior hazard insurance 

might have expired on January 2. But so 

long as a borrower’s current hazard 

insurance takes effect January 3, then 

the borrower has hazard insurance in 

place continuously. When there is a 

grace period, the servicer must take the 

grace period into account when 

determining whether the borrower has 

hazard insurance in place continuously. 

For example, a borrower’s prior hazard 

insurance might have an expiration date 

of June 1, but a grace period extends the 

effectiveness of the borrower’s prior 

hazard insurance to June 10. 

Accordingly, so long as the borrower 

obtains hazard insurance, effective June 

11, then the borrower has hazard 

insurance in place continuously. 

37(c)(2) Content of Notice 

RESPA section 6(l)(1)(A)(i)–(iv) 

requires the following disclosures in the 

notice required pursuant to RESPA 

section 6(l)(1)(A) and (1)(B): (1) A 

reminder of the borrower’s obligation to 

maintain hazard insurance on the 

property securing the federally related 

mortgage; (2) a statement that the 

servicer does not have evidence of 

insurance coverage of such property; (3) 

a clear and conspicuous statement of the 

procedures by which the borrower may 

demonstrate that the borrower already 

has insurance coverage; and (4) a 

statement that the servicer may obtain 

such coverage at the borrower’s expense 

if the borrower does not provide such 

demonstration of the borrower’s existing 

coverage in a timely manner. 

Additionally, RESPA section 6(l)(2) 

requires a servicer to accept any 

reasonable form of written confirmation 

from a borrower of existing force-placed 

coverage, which ‘‘shall include the 

existing insurance policy number along 

with the identity of, and contact 

information for the insurance company 

or agent, or as otherwise required by the 

Bureau of Consumer Financial 

Protection.’’ The Bureau believes that it 

is the servicer’s obligation to verify a 

borrower’s hazard insurance status, and 

that RESPA section 6(l)(2) means that 

for purposes of verification, the servicer 

must accept from the borrower 

information that contains the borrower’s 

existing insurance policy number, and 

the name, mailing address, and phone 

number of the borrower’s insurance 

company or the borrower’s insurance 

agent if the borrower provides the 

information to the servicer in writing. 

To implement RESPA section 6(l)(2), the 

Bureau is requiring a servicer to 

provide, in the notice required by 

proposed § 1024.37(c)(1)(i), a statement 

requesting the borrower to promptly 

provide the servicer with the insurance 

policy number and the name, mailing 

address and phone number of the 

borrower’s insurance company or the 

borrower’s insurance agent. 

Proposed § 1027.37(c)(2) would 

require servicers to provide, in the 

notice required by proposed 

§ 1024.37(c)(1)(i), the following 

disclosures: (1) The date of the notice; 

(2) the servicer’s name and mailing 

address; (3) the borrower’s name and 

mailing address; (4) a statement that 

requests the borrower to provide hazard 

insurance information for the borrower’s 

property and identifies the property by 

its address; (5) a statement that the 

borrower’s hazard insurance is expiring 

or expired, as applicable, and that the 

servicer does not have evidence that the 

borrower has hazard insurance coverage 

past the expiration date. For a borrower 

that has more than one type of hazard 

insurance on the property, the servicer 

must identify the type of hazard 

insurance for which the servicer lacks 

evidence of coverage; (6) a statement 

that hazard insurance is required on the 

borrower’s property and that the 

servicer has obtained or will obtain, as 

applicable, insurance at the borrower’s 

expense; (7) a statement requesting the 

borrower to promptly provide the 

servicer with the insurance policy 

number and the name, mailing address 

and phone number of the borrower’s 

insurance company or the borrower’s 

insurance agent; (8) a description of 

how the borrower may provide the 

information requested pursuant to 

§ 1024.37(c)(2)(vii). A servicer that will 

only accept the requested information in 

writing must disclose that fact in the 

notice; (9) the cost of the force-placed 

insurance, stated as an annual premium. 

If the cost of the force-placed insurance 

is not known as of the date of the 

disclosure, a good faith estimate shall be 

disclosed and be identified as such; (10) 

a statement that insurance the servicer 

obtains may cost significantly more than 

hazard insurance obtained by the 

borrower and may not provide as much 

coverage as hazard insurance obtained 

by the borrower; and (11) the servicer’s 


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telephone number for borrower 

questions. Proposed § 1024.37(c)(2) is 

subject to the general disclosure 

requirements of proposed § 1024.32, 

including, for example, proposed 

§ 1024.32’s clear and conspicuous 

requirement. As discussed previously, 

proposed § 1024.32 also permits 

servicers to combine disclosures 

required pursuant to subpart C of 

Regulation X with disclosures required 

by applicable law, including state law. 

Proposed comment 37(c)(2)(v)–1 

explains that if a borrower has 

purchased a homeowner’s insurance 

policy and a separate hazard insurance 

policy to insure loss against hazards not 

covered under his or her homeowner’s 

insurance policy, the servicer must 

disclose whether it is the borrower’s 

homeowner’s insurance policy or the 

separate hazard insurance policy for 

which it lacks evidence of coverage to 

comply with § 1024.37(c)(2)(v). As 

discussed previously, certain hazards 

are covered by policies separate from a 

homeowner’s insurance policy. The 

Bureau believes that it is important to 

specify the type of hazard insurance that 

the borrower is required to maintain if 

the borrower has a hazard insurance 

policy the borrower uses to protect 

against loss by hazards excluded from 

his or her homeowner’s insurance 

policy. 

As discussed in part III.B, above, the 

Bureau tested the force-placed 

insurance disclosures required by the 

Dodd-Frank Act in three rounds of 

consumer testing. Participant response 

in consumer testing suggests that 

knowing about the higher cost of forceplaced insurance could motivate 

borrowers to act promptly and thus 

avoid being charged with force-placed 

insurance. All participants said that 

they would immediately contact their 

insurance provider to find out whether 

or not their hazard insurance has 

expired or purchase new hazard 

insurance because they would not want 

to pay for the higher cost of force-placed 

insurance. Accordingly, in proposed 

§ 1024.37(c)(2)(ix) discussed above, the 

Bureau is proposing to supplement the 

disclosure requirements of the DoddFrank Act by requiring servicers to 

disclose the cost of the force-placed 

insurance, stated as an annual premium. 

If the cost of the force-placed insurance 

is not known as of the date of the 

disclosure, a good faith estimate shall be 

disclosed and be identified as such. 

Proposed comment 37(c)(2)(ix)–1 

explains that the good faith estimate of 

the cost of the force-placed insurance 

the servicer may obtain should be 

consistent with the best information 

reasonably available to the servicer at 

the time the disclosure is provided. 

Differences between the amount of the 

estimated cost disclosed under 

§ 1024.37(c)(2)(ix) and the actual cost do 

not necessarily constitute a lack of good 

faith, so long as the estimated cost was 

based on the best information 

reasonably available to the servicer at 

the time the disclosure was provided. 

For example, a mortgage investor’s 

requirements may provide that the 

amount of coverage for force-placed 

insurance depends on the borrower’s 

delinquency status (the number of days 

the borrower’s mortgage payment is past 

due). The amount of coverage affects the 

cost of force-placed insurance. A 

servicer that provides an estimate of the 

cost of force-placed insurance based on 

the borrower’s delinquency status at the 

time the disclosure is made complies 

with § 1024.37(c)(2)(ix). The Bureau 

believes its proposed good faith 

standard balances the concern that some 

servicers may underestimate the cost of 

force-placed insurance and mislead 

borrowers into believing the cost of the 

force-placed insurance to be less than it 

actually is and the fact that the cost may 

change due to legitimate reasons 

between the time the disclosure is made 

and the time the borrower is charged. 

The Bureau is also proposing to 

supplement the disclosure requirements 

of the Dodd-Frank Act with the 

requirement, discussed above, that 

servicers disclose to borrowers that 

insurance obtained by the servicer may 

cost significantly more than hazard 

insurance obtained by the borrower and 

that such insurance may not provide as 

much coverage as hazard insurance 

obtained by the borrower. As discussed 

previously, the consequences of 

servicers obtaining force-placed 

insurance may be significant and 

negative for borrowers. Accordingly, the 

Bureau believes it is appropriate to 

inform borrowers about the fact that 

force-placed insurance may not provide 

as much coverage as insurance 

borrowers could purchase for 

themselves, even though force-placed 

insurance may be significantly more 

expensive. 

Legal authority. The Bureau is 

proposing a new § 1024.37(c)(2) to 

Regulation X pursuant to its authority 

under section 6(j)(3) of RESPA to 

implement new section 6(l)(1)(A)(i)–(iv) 

and 6(l)(2) of RESPA, added by section 

1463 of the Dodd-Frank Act. Section 

6(j)(3) of RESPA authorizes the Bureau 

to establish any requirements necessary 

to carry out the purposes of section 6 of 

RESPA. The Bureau has additional 

authority under section 6(k)(1)(E) of 

RESPA to prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA, and 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations as may be 

necessary to achieve the purposes of 

RESPA. The disclosures in proposed 

§ 1024.37(c)(2) are additionally 

proposed pursuant to Dodd Frank Act 

section 1032. Consistent with this 

provision, the Bureau believes that 

proposed disclosures will ensure that 

the costs, benefits, and risks associated 

with the service that servicers provide 

in servicing the loan by obtaining forceplaced insurance are fully, accurately, 

and effectively disclosed to borrowers, 

in light of the facts and circumstances. 

37(c)(3) Format 

Proposed 1024.37(c)(3) provides the 

disclosures set forth in § 1024.37(c)(2) 

must be in a format substantially similar 

to form MS–3(A), set forth in appendix 

MS–3. Disclosures made pursuant to 

§ 1024.37(c)(2)(vi) and (c)(2)(ix) must be 

in bold text. Disclosure made pursuant 

to § 1024.37(c)(2)(iv) must be in bold 

text, except that the physical address of 

the borrower’s property may be in 

regular text. The Bureau believes the use 

of highlighting (bold text) to bring 

attention to important information 

allows borrowers to find the information 

quickly and efficiently. The Bureau 

believes it is important that borrowers 

can promptly identify the purpose of the 

notice. Additionally, the Bureau 

believes it is important to bring 

attention to the cost of force-placed 

insurance so borrowers have a clear 

understanding of the cost to them of the 

service that servicers provide in 

obtaining force-placed insurance. The 

Bureau further believes it is important 

for borrowers to understand that the 

servicer’s purchase of force-placed 

insurance arises from the borrower’s 

obligation to maintain hazard insurance. 

Although the notice contains additional 

information that are important, the 

Bureau believes the usefulness of 

highlighting in focusing a borrower’s 

attention on important information 

decreases if highlighting is used 

unsparingly. 

Legal authority. As previously 

discussed, section 6(l)(1) of RESPA 

requires a servicer to provide a borrower 

with two notices before charging a 

borrower for force-placed insurance. 

The Bureau believes that model forms 

facilitate compliance with the new 

Dodd-Frank Act requirements 

concerning force-placed insurance 

disclosures and the Bureau’s proposed 

supplemental disclosures. To 

implement section 6(l)(1) of RESPA, the 

Bureau is proposing a new 

§ 1024.37(c)(3) to Regulation X pursuant 


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to its authority under section 6(j)(3) of 

RESPA. Section 6(j)(3) of RESPA 

authorizes the Bureau to establish any 

requirements necessary to carry out the 

purposes of section 6 of RESPA. The 

Bureau has additional authority under 

section 6(k)(1)(E) of RESPA to prescribe 

regulations that are appropriate to carry 

out the consumer protection purposes of 

RESPA, and under section 19(a) of 

RESPA to prescribe such rules and 

regulations, to make such 

interpretations as may be necessary to 

achieve the purposes of RESPA. The 

model form MS–3(A) in appendix MS– 

3 is additionally proposed pursuant to 

Dodd-Frank Act section 1032(b). 

37(d) Reminder Notice 

37(d)(1) In General 

As discussed above, section 6(l) of 

RESPA, as added by section 1463 of the 

Dodd-Frank Act, requires that servicers 

send two written notices to the borrower 

prior to charging the borrower for forceplaced insurance. Specifically, RESPA 

section 6(l)(1)(B) requires servicers to 

use first-class mail to send a second 

written notice to the borrower at least 30 

days after mailing the initial notice 

required by RESPA section 6(l)(1)(A). 

Proposed § 1024.37(d)(1) implements 

section 6(l)(B) of RESPA by providing 

that one written notice in addition to 

the written notice required pursuant to 

§ 1024.37(c)(1)(i) must be delivered to 

the borrower or placed in the mail prior 

to a servicer charging a borrower for 

force-placed insurance. The servicer 

may not deliver or place the written 

notice required pursuant to 

§ 1024.37(d)(1) in the mail until 30 days 

after delivering to the borrower or 

placing in the mail the written notice set 

forth in § 1024.37(c)(1)(i). A servicer 

that receives no insurance information 

after delivering or placing in the mail 

the written notice set forth in 

§ 1024.37(c)(1)(i) must provide the 

disclosures set forth in § 1024.37 

(d)(2)(i). A servicer that receives 

insurance information after delivering 

or placing in the mail the written notice 

set forth in § 1024.37(c)(1)(i) but does 

not receive verification that the 

borrower has hazard insurance coverage 

continuously must provide the 

disclosures set forth in 

§ 1024.37(c)(1)(ii). 

Proposed comment 37(d)(1)–1 

explains that when a servicer is required 

to deliver or place in the mail the 

written notice pursuant to 

§ 1024.37(d)(1), the content of the 

reminder notice will be different 

depending on the insurance information 

the servicer has received from the 

borrower. For example, on June 1, the 

servicer places in the mail the written 

notice required pursuant to 

§ 1024.37(c)(1)(i) to Borrower A. The 

servicer does not receive any insurance 

information from Borrower A. The 

servicer must deliver to Borrower A or 

place in the mail one written notice, 

with the content set forth in 

§ 1024.37(d)(2)(i), 15 days before the 

servicer charges Borrower A for forceplaced insurance. Take the example 

above, except that Borrower A provides 

the servicer with insurance information 

on June 18. But the servicer cannot 

verify that Borrower A has had 

continuous insurance coverage based on 

the information Borrower A provided 

(e.g., the servicer cannot verify that 

Borrower A had coverage between June 

10 and June 15. The servicer must either 

deliver to Borrower A or place in the 

mail one reminder notice, with the 

content set forth in § 1024.37(d)(2)(ii), 

15 days before charging Borrower A for 

force-placed insurance it obtains for the 

period between June 10 and June 15. 

Legal authority. The Bureau proposes 

to implement RESPA section 6(l)(1)(B) 

pursuant to its authority under RESPA 

section 6(j)(3) by adding new 

§ 1024.37(d)(1) to Regulation X. Section 

6(j)(3) of RESPA authorizes the Bureau 

to establish any requirements necessary 

to carry out the purposes of section 6 of 

RESPA. The Bureau has additional 

authority under section 6(k)(1)(E) of 

RESPA to prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA, and 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations as may be 

necessary to achieve the purposes of 

RESPA. 

37(d)(2) Content of Reminder Notice 

37(d)(2)(i) Servicer Receiving No 

Insurance Information 

Proposed § 1024.37(d)(2)(i) 

implements RESPA section 6(l)(1)(B). It 

provides that a servicer that has not 

received any insurance information 

from the borrower within 30 days after 

delivering or placing in the mail the 

notice required pursuant to 

§ 1024.37(c)(1)(i) must provide a 

reminder notice that contains the 

disclosures set forth in 

§ 1024.37(c)(2)(ii) to (c)(2)(xi), the date 

of the notice, and a statement that the 

notice is the second and final notice. 

The Bureau believes that the date of the 

notice and a statement that the notice is 

the second and final notice helps to 

distinguish the notice from the notice 

required pursuant to § 1024.37(c)(1)(i). 

Because the servicer has not received 

any insurance information, the Bureau 

believes it is appropriate to require the 

servicer to provide the disclosures set 

forth in § 1024.37(c)(2)(ii) to (c)(2)(xi). 

Legal authority. The Bureau proposes 

to implement section 6(l)(1)(B) of 

RESPA by adding new § 1024.37(d)(2)(i) 

pursuant to its authority under section 

6(j)(3) of RESPA. Section 6(j)(3) of 

RESPA authorizes the Bureau to 

establish any requirements necessary to 

carry out the purposes of section 6 of 

RESPA. The Bureau has additional 

authority under section 6(k)(1)(E) of 

RESPA to prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA, and 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations as may be 

necessary to achieve the purposes of 

RESPA. The disclosures in proposed 

§ 1024.37(d)(2)(i) are additionally 

proposed pursuant to Dodd-Frank Act 

section 1032. Consistent with this 

provision, the Bureau believes that 

proposed disclosures will ensure that 

the costs, benefits, and risks associated 

with the service that servicers provide 

in servicing the loan by obtaining forceplaced insurance are fully, accurately, 

and effectively disclosed to borrowers, 

in light of the facts and circumstances. 

The Bureau notes that proposed 

§ 1024.37(d)(2)(i) is subject to the 

general disclosure requirements 

proposed § 1024.32, including, for 

example, proposed § 1024.32’s clear and 

conspicuous requirement. As discussed 

previously, proposed § 1024.32 also 

permits servicers to combine disclosures 

required pursuant to subpart C of 

Regulation X with disclosures required 

by applicable law, including state law. 

37(d)(2)(ii) Servicer Not Receiving 

Verification of Continuous Coverage 

Proposed § 1024.37(d)(2)(ii) provides 

that a servicer that has received 

insurance information from the 

borrower within 30 days after delivering 

to the borrower or placing in the mail 

the written notice set forth 

§ 1024.37(c)(1)(i), but not verification 

that the borrower has hazard insurance 

in place continuously, must deliver or 

place in the mail a written notice that 

contains the following: (1) The date of 

the notice; (2) a statement that the 

notice is the second and final notice; (3) 

the disclosures set forth in 

§ 1024.37(c)(2)(ii), (c)(2)(iii), (c)(2)(iv), 

and (c)(2)(xi); (4) a statement that the 

servicer has received the hazard 

insurance information that the borrower 

provided; and (5) a statement that 

indicates to the borrower that the 

servicer is unable to verify that the 

borrower has hazard insurance in place 

continuously; and (6) a statement that 


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the borrower will be charged for 

insurance the servicer obtains for the 

period of time where the servicer is 

unable to verify hazard insurance 

coverage unless the borrower provides 

the servicer with hazard insurance 

information for such period. 

As discussed previously, new RESPA 

section 6(l)(1) requirements added by 

section 1463 of the Dodd-Frank Act 

require servicers to provide advance 

written notice to borrowers 45 days 

before charging a borrower for forceplaced insurance. RESPA section 

6(l)(1)(B) provides that the notice 

required pursuant to RESPA section 

6(l)(1)(B) must contain all of the 

information set forth in the first written 

notice. The Bureau believes that a 

borrower that provides his or her 

servicer with the information requested 

after receiving the initial written notice 

might become angry and confused if he 

or she receives a second notice 

containing information they previously 

received. However, if a borrower’s 

servicer cannot verify that the borrower 

has hazard insurance in place 

continuously based on the information 

the borrower provided, the Bureau 

believes it benefits the borrower to 

receive the reminder notice required 

pursuant to proposed § 1024.37(d)(1) 

because it would be useful in helping 

borrowers avoid force-placed insurance 

charges. Accordingly, the Bureau is 

proposing to require servicers to 

disclose different information in the 

notice required pursuant to proposed 

§ 1024.37(d)(1), as set forth in proposed 

§ 1024.37(d)(2)(i) and (d)(2)(ii). 

Legal authority. The Bureau proposes 

to implement section 6(l)(1)(B) of 

RESPA by adding new 

§ 1024.37(d)(2)(ii) pursuant to its 

authority under section 6(j)(3) of 

RESPA. Section 6(j)(3) of RESPA 

authorizes the Bureau to establish any 

requirements necessary to carry out the 

purposes of section 6 of RESPA. The 

Bureau has additional authority under 

section 6(k)(1)(E) of RESPA to prescribe 

regulations that are appropriate to carry 

out the consumer protection purposes of 

RESPA, and under section 19(a) of 

RESPA to prescribe such rules and 

regulations, to make such 

interpretations as may be necessary to 

achieve the purposes of RESPA. The 

disclosures in proposed 

§ 1024.37(d)(2)(ii) are additionally 

proposed pursuant to Dodd-Frank Act 

section 1032. Consistent with this 

provision, the Bureau believes that 

proposed disclosures will ensure that 

the costs, benefits, and risks associated 

with the service that servicers provide 

in servicing the mortgage loan by 

obtaining force-placed insurance are 

fully, accurately, and effectively 

disclosed to borrowers, in light of the 

facts and circumstances. 

The Bureau notes that proposed 

§ 1024.37(d)(2)(ii) is subject to the 

general disclosure requirements 

proposed § 1024.32, including, for 

example, proposed § 1024.32’s clear and 

conspicuous requirement. As discussed 

previously, proposed § 1024.32 also 

permits servicers to combine disclosures 

required pursuant to subpart C of 

Regulation X with disclosures required 

by applicable law, including state law. 

37(d)(3) Format 

Proposed § 1024.37(d)(3) provides 

that the disclosures set forth in 

paragraph (d)(2)(i) of this section must 

be in a format substantially similar to 

form MS–3(B), and the disclosures set 

forth in paragraph (d)(2)(ii) of this 

section must be in a format substantially 

similar to form MS–3(C). The model 

forms are set forth in appendix MS–3. 

Disclosures required by 

§ 1024.37(d)(2)(i)(B), (d)(2)(ii)(B), and 

(d)(2)(ii)(F) of this section must be in 

bold text. The Bureau discussed the use 

of highlight (bold text) previously. It is 

proposing that disclosures required by 

§ 1024.37(d)(2)(i)(B), (d)(2)(ii)(B), and 

(d)(2)(ii)(F) of this section must be in 

bold text for reasons previously 

discussed. 

Legal authority. As previously 

discussed, section 6(l)(1) of RESPA 

requires a servicer to provide a borrower 

with two notices before charging a 

borrower for force-placed insurance, 

and that the Bureau believes that model 

forms facilitate compliance with the 

new Dodd-Frank Act requirements 

concerning force-placed insurance 

disclosures and the Bureau’s proposed 

supplemental disclosures. To 

implement section 6(l)(1) of RESPA, the 

Bureau is proposing a new 

§ 1024.37(d)(3) to Regulation X pursuant 

to its authority under section 6(j)(3) of 

RESPA. Section 6(j)(3) of RESPA 

authorizes the Bureau to establish any 

requirements necessary to carry out the 

purposes of section 6 of RESPA. The 

Bureau has additional authority under 

section 6(k)(1)(E) of RESPA to prescribe 

regulations that are appropriate to carry 

out the consumer protection purposes of 

RESPA, and under section 19(a) of 

RESPA to prescribe such rules and 

regulations, to make such 

interpretations as may be necessary to 

achieve the purposes of RESPA. The 

forms MS–3(B) and MS–3(C) are 

additionally proposed under DoddFrank Act section 1032(b). 

37(d)(4) Updating Notice With Borrower 

Information 

Proposed § 1024.37(d)(4) provides 

that if a servicer receives hazard 

insurance information from a borrower 

after a written notice required pursuant 

to § 1024.37(d)(1) has been put into 

production, the servicer is not required 

to update the notice so long the notice 

was put into production within a 

reasonable time prior to the servicer 

delivering the notice to the borrower or 

placing the notice in the mail. Proposed 

comment 37(d)(4)–1 provides that a 

servicer may have to prepare the written 

notice required pursuant to 

§ 1024.37(d)(1) in advance of delivering 

or placing the notice in the mail. If the 

notice has already been put into 

production, the servicer is not required 

to update the notice with insurance 

information received from the borrower 

after production has started so long as 

the notice was put into production 

within a reasonable time prior to the 

servicer delivering or placing the notice 

in the mail. The Bureau proposes to 

provide guidance that 5 days prior is a 

reasonable time. The Bureau invites 

comment on whether, in certain 

circumstances, a longer time frame is 

reasonable. 

Legal authority. The Bureau 

recognizes that servicers may receive 

borrower’s hazard insurance 

information after they have put the 

notices required pursuant to 

§ 1024.37(d)(1) into production, and that 

it may be impracticable for them to stop 

production to update the notices. 

Accordingly, the Bureau is using its 

authority under RESPA section 

6(k)(1)(E) to provide a safe harbor in 

proposed § 1024.37(d)(4). Section 

6(k)(1)(E) of RESPA authorizes the 

Bureau to prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA. The 

Bureau has additional authority under 

section 6(j)(3) of RESPA to establish any 

requirements necessary to carry out the 

purposes of section 6 of RESPA, and 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations as may be 

necessary to achieve the purposes of 

RESPA. 

37(e) Renewal or Replacement of ForcePlaced Insurance 

37(e)(1) In General 

Proposed § 1024.37(e)(1) provides that 

a servicer may not charge a borrower for 

renewing or replacing existing forceplaced insurance unless: (1) The 

servicer delivers or places in the mail a 

written notice to the borrower with the 

disclosures set forth in § 1024.37(e)(2) at 


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least 45 days before the premium charge 

or any fee is assessed; and (2) during the 

45-day notice period, the servicer has 

not received evidence that the borrower 

has obtained hazard insurance. 

Proposed § 1024.37(e)(1) further 

provides that notwithstanding 

§ 1024.37(e)(1)(i) and (e)(ii), a servicer 

that has renewed or replaced the 

existing force-placed insurance during 

the 45-day notice period may charge the 

borrower for the renewal or replacement 

promptly after the servicer receives 

verification that hazard insurance 

obtained by the borrower did not 

provide the borrower with insurance 

coverage for any period of time 

following the expiration of the existing 

force-placed insurance. 

Proposed comment 37(e)(1)(iii)–1 

illustrates when a servicer may charge a 

borrower for the renewal or replacement 

of the borrower’s existing force-placed 

insurance before the end of the 45-day 

notice period. In the example, on 

January 2, the servicer sends the notice 

required by § 1024.37(e)(1). On January 

12, the existing force-placed insurance 

the servicer had obtained on the 

borrower’s property expires and the 

servicer replaces the expired forceplaced insurance policy with a new 

force-placed insurance policy effective 

January 13. On February 5, the servicer 

receives verification that the borrower 

obtained hazard insurance effective 

January 31. The servicer may charge the 

borrower for force-placed insurance 

from January 13 to January 30, as early 

as February 5. 

Legal authority. As discussed 

previously, there does not appear to be 

an industry standard that applies to 

renewal procedures for force-placed 

insurance. Moreover, incentives like 

commissions paid to servicers or their 

insurance affiliates may cause servicers 

to prefer renewing or replacing existing 

force-placed insurance coverage over 

providing borrowers with an 

opportunity to obtain hazard insurance. 

The Bureau’s proposal could help a 

borrower avoid incurring the cost to the 

borrower associated his or her servicer 

renewing or replacing existing forceplaced insurance because the proposal 

provides for advance notice that allows 

a borrower the time the borrower may 

need to buy hazard insurance before 

being charged for the cost of forceplaced insurance. The Bureau proposes 

to add new § 1024.37(e)(1) pursuant to 

its authority under RESPA section 

6(k)(1)(E), which authorizes the Bureau 

to prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA. The 

Bureau has additional authority under 

section 6(j)(3) of RESPA to establish any 

requirements necessary to carry out the 

purposes of section 6 of RESPA, and 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations as may be 

necessary to achieve the purposes of 

RESPA. 

37(e)(2) Content of Renewal Notice 

Except as set forth below, proposed 

§ 1024.37(e)(2) would require servicers 

to provide the disclosures set forth in 

proposed § 1024.37(c)(2) in the notice 

required by proposed § 1024.37(e)(1). 

The main differences between the 

disclosures set forth in proposed 

§ 1024.37(c)(2) and proposed 

§ 1024.37(e)(2) is that in proposed 

§ 1024.37(e)(2), servicers must provide a 

statement that: (1) The servicer 

previously obtained insurance on the 

borrower’s property and assessed the 

cost of the insurance to the borrower 

because the servicer did not have 

evidence that the borrower had hazard 

insurance coverage for the property; and 

(2) the servicer has the right to maintain 

insurance by renewing or replacing the 

insurance it previously obtained 

because insurance is required. The 

Bureau believes the differences are 

necessary to distinguish the notice 

required pursuant to § 1024.37(e)(1) 

from the notice required pursuant to 

proposed § 1024.37(c)(1). 

Paragraph 37(e)(2)(vii) 

Proposed § 1024.37(e)(2)(vii) would 

require a servicer to set forth the cost of 

the force-placed insurance, stated as an 

annual premium. If the cost of the forceplaced insurance is not known as of the 

date of the disclosure, a good faith 

estimate shall be disclosed and be 

identified as such. Proposed comment 

37(e)(2)(vii)–1 provides that the good 

faith requirement set forth in 

§ 1024.37(e)(2)(vii) is the same good 

faith requirement set forth in 

§ 1024.37(c)(2)(ix). 

Legal authority. The Bureau proposes 

to add new § 1024.37(e)(2) to Regulation 

X pursuant to its authority under 

section 6(k)(1)(E) of RESPA. Section 

6(k)(1)(E) of RESPA authorizes the 

Bureau to prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA. As 

discussed above, the Bureau’s proposal 

to require servicers to provide a written 

notice before charging a borrower for the 

renewal or replacement of existing 

hazard insurance could help a borrower 

avoid incurring the cost to the borrower 

associated his or her servicer renewing 

or replacing existing force-placed 

insurance. The Bureau has additional 

authority under section 6(j)(3) of RESPA 

to establish any requirements necessary 

to carry out the purposes of section 6 of 

RESPA, and under section 19(a) of 

RESPA to prescribe such rules and 

regulations, to make such 

interpretations as may be necessary to 

achieve the purposes of RESPA. The 

disclosures in proposed § 1024.37(e)(2) 

are additionally proposed pursuant to 

Dodd-Frank Act section 1032. 

Consistent with this provision, the 

Bureau believes that proposed 

disclosures will ensure that the costs, 

benefits, and risks associated with the 

service that servicers provide in the loan 

by obtaining force-placed insurance to 

renew or replace existing force-placed 

insurance are fully, accurately, and 

effectively disclosed to borrowers, in 

light of the facts and circumstances. 

The Bureau notes that proposed 

§ 1024.37(e)(2) is subject to the general 

disclosure requirements proposed 

§ 1024.32, including, for example, 

proposed § 1024.32’s clear and 

conspicuous requirement. As discussed 

previously, proposed § 1024.32 also 

permits servicers to combine disclosures 

required pursuant to subpart C of 

Regulation X with disclosures required 

by applicable law, including state law. 

37(e)(3) Format 

Proposed § 1024.37(e)(3) provides that 

the disclosures set forth in 

§ 1024.37(e)(2) must be in a format 

substantially similar to form MS–3(D), 

set forth in appendix MS–3. Disclosures 

made pursuant to § 1024.37(e)(2)(vi)(B) 

and 37(e)(2)(vii) must be in bold text. 

Disclosures made pursuant to 

§ 1024.37(e)(2)(iv) must be in bold text, 

except that the physical address of the 

property may be in regular text. The 

Bureau discussed the usefulness of 

highlighting (bold text) important 

information to borrowers previously, 

and is proposing that disclosures 

discussed above be in bold text for 

similar reasons. 

Legal authority. The Bureau proposes 

to exercise its authority under RESPA 

section 6(k)(1)(E) to add new 

§ 1024.37(e)(3) to Regulation X. As 

discussed above, the Bureau believes 

model forms facilitate compliance. 

Section 6(k)(1)(E) of RESPA authorizes 

the Bureau to prescribe regulations that 

are appropriate to carry out the 

consumer protection purposes of 

RESPA. The Bureau has additional 

authority under section 6(j)(3) of RESPA 

to establish any requirements necessary 

to carry out the purposes of section 6 of 

RESPA, and under section 19(a) of 

RESPA to prescribe such rules and 

regulations, to make such 

interpretations as may be necessary to 

achieve the purposes of RESPA. The 

model form MS–3(D) is additionally 


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57246 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

proposed under Dodd-Frank Act section 

1032(b). 

37(e)(4) Compliance 

Proposed § 1024.37(e)(4) provides that 

before the first anniversary of a servicer 

obtaining force-placed insurance on a 

borrower’s property, the servicer shall 

deliver to the borrower or place in the 

mail the notice required by 

§ 1024.37(e)(1). Subsequently, a servicer 

is not required to comply with 

§ 1024.37(e)(1) before charging a 

borrower for renewing or replacing 

existing force-placed insurance more 

than once every 12 months. 

The Bureau expects borrowers should 

be able to retain the notice proposed in 

proposed § 1024.37(e)(1) over the course 

of a 12-months period. Additionally, the 

Bureau notes that because it is 

proposing to require a servicer to state 

the annual cost of force-placed 

insurance, the borrower would be 

informed of the annualized cost of the 

force-placed insurance. Accordingly, the 

Bureau does not believe that receiving 

more than one renewal or replacement 

notice every 12-month period would 

significantly benefit borrowers. The 

Bureau solicits comment on whether 

providing the renewal or replacement 

notice once during a 12-month period 

adequately informs borrowers about the 

costs, benefits, and risks associated with 

servicers’ renewal or replacement of 

existing force-placed insurance. 

Legal authority. The Bureau proposes 

to exercise its authority under RESPA 

sections 6(k)(1)(E) add § 1024.37(e)(4) to 

Regulation X. Section 6(k)(1)(E) of 

RESPA authorizes the Bureau to 

prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA. For 

reasons discussed above, the Bureau 

does not believe that receiving more 

than one renewal or replacement notice 

every 12-month period would 

significantly benefit borrowers. Section 

1024.37(e)(4) is additionally proposed 

under section 6(j)(3) of RESPA to 

establish any requirements necessary to 

carry out the purposes of section 6 of 

RESPA, and under section 19(a) of 

RESPA to prescribe such rules and 

regulations, to make such 

interpretations as may be necessary to 

achieve the purposes of RESPA. 

37(f) Mailing the Notices 

RESPA section 6(l)(1), discussed 

previously, requires servicers to send 

the notices required under RESPA 

section 6(l)(1)(A) and (B) by first-class 

mail. The Bureau proposes to 

implement RESPA section 6(l)(1) by 

adding new § 1024.37(f) to Regulation X 

to provide that if a servicer mails a 

notice required pursuant to 

§ 1024.37(c)(1)(i), (d)(1) and (e)(1) of this 

section, as applicable, the servicer must 

use a class of mail not less than firstclass mail. Although the notice required 

proposed § 1024.37(e)(1) is not required 

by statute, the Bureau believes that 

proposing that the same mailing 

requirements to any notice required 

pursuant to § 1024.37 facilitates 

compliance by promoting consistency. 

Legal authority. The Bureau proposes 

to implement RESPA section 6(l)(1), 

pursuant to its authority under RESPA 

section 6(j)(3) to establish any 

requirements necessary to carry out 

section 6 of RESPA by adding new 

§ 1024.37(f) to Regulation X. Section 

1024.37(f) is additionally proposed 

pursuant to the Bureau’s authority 

under section 6(k)(1)(E) of RESPA to 

prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA, and 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations as may be 

necessary to achieve the purposes of 

RESPA. 

37(g) Cancellation of Force-Placed 

Insurance 

Section 1463 amended RESPA by 

adding new section 6(l)(3) to RESPA. 

RESPA section 6(l)(3) provides that 

within 15 days of receipt by a servicer 

of confirmation of a borrower’s existing 

coverage, the servicer must: (1) 

Terminate the force-placed insurance; 

and (2) refund to the borrower all forceplaced insurance premium charges and 

related fees charged to the borrower 

during any period in which the 

borrower’s insurance and the forceplaced insurance were each in effect. 

Proposed § 1024.37(g) provides that 

within 15 days of receiving verification 

that the borrower has hazard insurance 

in place, a servicer must: (1) Cancel 

force-placed insurance obtained for a 

borrower’s property; and (2) for any 

period during which the borrower’s 

hazard insurance was in place, refund to 

the borrower all force-placed insurance 

premium charges and related fees paid 

by the borrower for such period and 

remove all force-placed insurance 

charges and related fees from the 

borrower’s account for such period that 

the servicer has assessed to the 

borrower. Proposed comment 37(g)–1 

provides an example of how to comply 

with proposed § 1024.37(g). Assume 

that a servicer obtains force-placed 

insurance, effective January 1, and the 

premium and related charges are paid 

by the borrower in monthly 

installments, due on the first of each 

month. After the borrower paid the 

April installment, the servicer receives 

insurance information from the 

borrower, and verifies that the borrower 

had obtained hazard insurance and that 

the insurance had been in place since 

March 15. To comply with § 1024.37(g), 

within 15 days of receiving such 

verification, the servicer must: (1) 

Cancel the force-placed insurance; (2) 

provide a refund for force-placed 

insurance premium charges and related 

fees paid by the borrower for the period 

between March 15 and April 30; and (3) 

remove from the borrower’s account any 

force-placed insurance premium charges 

and related fees for the period after 

March 15 that the servicer has assessed 

to the borrower but the borrower has not 

yet paid. 

Legal authority. The Bureau proposes 

to implement RESPA section 6(l)(3), 

pursuant to its authority under RESPA 

section 6(j)(3) to establish any 

requirements necessary to carry out 

section 6 of RESPA by adding new 

§ 1024.37(g) to Regulation X. Section 

1024.37(g) is additionally proposed 

pursuant to the Bureau’s authority 

under section 6(k)(1)(E) of RESPA to 

prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA, and 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations as may be 

necessary to achieve the purposes of 

RESPA. 

37(h) Limitation on Force-Placed 

Insurance Charges 

Section 1463 of the Dodd-Frank Act 

amended RESPA section 6 by adding 

new section 6(m) to RESPA to require 

that all charges, apart from charges 

subject to State regulation as the 

business of insurance, related to forceplaced insurance imposed on the 

borrower by or through the servicer 

must be bona fide and reasonable. 

Proposed § 1024.37(h)(1) provides 

that except for charges subject to State 

regulation as the business of insurance 

and charges authorized by the FDPA, all 

charges related to force-placed 

insurance assessed to a borrower by or 

through the servicer must be bona fide 

and reasonable. Proposed 

§ 1024.37(h)(2) provides that that a bona 

fide and reasonable charge is a charge 

for a service actually performed that 

bears a reasonable relationship to the 

servicer’s cost of providing the service, 

and is not otherwise prohibited by 

applicable law. 

As previously discussed, RESPA 

section 6(m) provides that charges 

subject to State regulation as the 

business of insurance are not subject to 

RESPA 6(m)’s ‘‘bona fide and 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57247 

109Problems in Mortgage Servicing From 

Modification to Foreclosure: Hearings Before the 

Senate Comm. on Banking, Housing and Urban 

Affairs, S. Hrg. 111–987, 111th Cong. 360 (2010) 

(statement of Daniel K. Tarullo, Board of Governors, 

Federal Reserve System), available at: http:// 

www.federalreserve.gov/newsevents/testimony/ 

tarullo20101201a.htm. 

110The National Mortgage Settlement is available 

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

111 Failure to Recover: The State of Housing 

Markets, Mortgage Servicing Practices and 

Foreclosures: Hearings Before the House Committee 

on Oversight and Government Reform, No. 112–134, 

112th Cong. 17 (2012) (statement of Morris Morgan, 

Office of the Comptroller of the Currency), available 

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

congressional-testimony/2012/pub-test-2012-47- 

written.pdf. 

reasonable’’ requirement. Furthermore, 

the Bureau believes it is important to 

clarify that proposed § 1024.37(h) does 

not regulate charges authorized by the 

FDPA. As discussed previously in the 

discussion of proposed 

§ 1024.37(a)(2)(i), certain servicers are 

required by the FDPA to obtain forceplaced flood insurance. The FDPA 

provides that notwithstanding any 

Federal or State law, any servicer for a 

loan ‘‘secured by improved real estate or 

a mobile home’’ may charge a 

reasonable fee for determining whether 

the building or mobile home securing 

the loan is located or will be located in 

a SFHA. See 42 U.S.C. 4012a(h). As 

discussed previously, the Bureau is 

concerned about issuing regulations that 

would overlap with regulations issued 

pursuant to the FDPA. Accordingly, the 

Bureau proposes to use its exemption 

authority pursuant to RESPA section 

19(a) to exempt charges authorized by 

the FDPA from proposed § 1024.37(h). 

Also as previously discussed, forceplaced insurance is substantially more 

expensive than hazard insurance a 

borrower could obtain for himself and 

some servicers may be incentivized to 

obtain force-placed insurance even 

though helping a borrower to renew 

hazard insurance obtained by the 

borrower when practicable is better for 

the borrower and the owners and 

assignees of mortgage loans. The Bureau 

believes it is important to ensure that 

these servicers do not try to inflate the 

already-high cost of force-placed 

insurance by assessing charges to 

borrowers that are not for services 

actually performed, do not bear a 

reasonable relationship to the servicer’s 

cost of providing the service, and is 

prohibited by applicable law. 

Accordingly, the Bureau believes its 

proposed definition of bona fide and 

reasonable charge, discussed above, is 

appropriate. 

Legal authority. The Bureau proposes 

to implement RESPA section 6(m), 

pursuant to its authority under RESPA 

section 6(j)(3), to establish any 

requirements necessary to carry out 

section 6 of RESPA by adding 

§ 1024.37(h) to Regulation X. Section 

1024.37(h) is additionally proposed 

pursuant to the Bureau’s authority 

under section 6(k)(1)(E) of RESPA to 

prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA, and 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations, and to grant 

such reasonable exemptions, as may be 

necessary to achieve the purposes of 

RESPA. 

37(i) Relationship to Flood Disaster 

Protection Act of 1973 

Section 1463 of the Dodd-Frank Act 

amended RESPA section 6 to add new 

section 6(l)(4) to provide that the new 

Dodd-Frank Act requirements 

concerning force-placed insurance do 

not prohibit servicers from sending a 

simultaneous or concurrent notice of a 

lack of flood insurance pursuant to 

section 102(e) of the FDPA. Proposed 

§ 1024.37(i) provides that if permitted 

by regulation under section 102(e) of the 

Flood Disaster Protection Act of 1973, a 

servicer subject to the requirements of 

§ 1024.37 may deliver to the borrower or 

place in the mail any notice required by 

§ 1024.37 together with the notice 

required by section 102(e) of the Flood 

Disaster Protection Act of 1973. 

Legal authority. The Bureau proposes 

to implement RESPA section 6(l)(4), 

pursuant to its authority under RESPA 

section 6(j)(3) to establish any 

requirements necessary to carry out 

section 6 of RESPA by adding 

§ 1024.37(i) to Regulation X. Section 

1024.37(i) is additionally proposed 

pursuant to the Bureau’s authority 

under section 6(k)(1)(E) of RESPA to 

prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA, and 

under section 19(a) of RESPA to 

prescribe such rules and regulations, to 

make such interpretations, and to grant 

such reasonable exemptions, as may be 

necessary to achieve the purposes of 

RESPA. 

Section 1024.38 Reasonable 

Information Management Policies and 

Procedures 

Background. A servicer’s obligation to 

maintain accurate and timely 

information regarding a mortgage loan 

account is one of the most basic servicer 

duties. A servicer cannot comply with 

its myriad obligations to investors and 

under applicable law, unless it 

maintains accurate information 

regarding a mortgage loan account, 

including accurate and timely 

information with respect to borrower 

payments. Notwithstanding these 

obligations, recent evaluations of 

mortgage servicer practices have 

indicated that borrowers have been 

harmed as a result of servicer’s lacking 

adequate practices to provide servicer 

personnel with appropriate borrower 

information. Federal regulatory agencies 

reviewing mortgage servicing practices 

have found that certain servicers 

demonstrated ‘‘significant weaknesses 

in risk-management, quality control, 

audit, and compliance practices.’’109

Further, and as discussed in detail 

above, major servicers demonstrated 

failures to document and verify, in 

accordance with applicable law, 

information relating to borrower 

mortgage loan accounts in connection 

with foreclosure proceedings.110

Examinations by prudential regulators 

found ‘‘critical deficiencies in 

foreclosure governance processes, 

document preparation processes, and 

oversight and monitoring of third 

parties * * * [a]ll servicers [examined] 

exhibited similar deficiencies, although 

the number, nature, and severity of 

deficiencies varied by servicer.’’ 111

38(a) In General 

Proposed § 1024.38(a) would require a 

servicer to establish reasonable policies 

and procedures for maintaining and 

managing information and documents 

relating to borrower mortgage loan 

accounts. The proposed rule would 

provide that a servicer meets this 

requirement if the servicer’s policies 

and procedures are reasonably designed 

to achieve the objectives set forth in 

proposed § 1024.38(b) and are 

reasonably designed to ensure 

compliance with the standard 

requirements in proposed § 1024.38(c). 

Proposed comment 38(a)–1 clarifies 

that a servicer may determine the 

specific methods by which it will 

implement reasonable information 

management policies and procedures to 

achieve the required objectives. 

Servicers have flexibility to design the 

operations that are reasonable in in light 

of the size, nature, and scope of the 

servicer’s operations, including, for 

example, the volume and aggregate 

unpaid principal balance of mortgage 

loans serviced, the credit quality, 

including the default risk, of the 

mortgage loans serviced, and the 

servicer’s history of consumer 

complaints. This clarification is 

intended to provide servicers, including 


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112See Small Business Review Panel Report at 31. 

113 Id. 

small servicers, flexibility to design 

policies and procedures that are 

appropriate for their servicing 

businesses. When this proposal was 

discussed with SERs during the Small 

Business Review Panel outreach, the 

SERs were supportive of a definition 

that provides inherent flexibility for 

small servicers to design policies and 

procedures that reflect the needs of their 

servicing operations.112 Consistent with 

the Small Business Review Panel 

recommendations,113 the Bureau 

requests comment on further guidance 

that should be included to clarify the 

types of policies and procedures that 

would be reasonable for small servicers. 

Proposed § 1024.38(a)(2) provides a 

safe harbor, which states that a servicer 

satisfies the requirement in proposed 

§ 1024.38(a)(1) if the servicer does not 

engage in a pattern or practice of failing 

to achieve any of the objectives set forth 

in proposed § 1024.38(b) and does not 

engage in a pattern or practice of failing 

to comply with any of the standard 

requirements in proposed § 1024.38(c). 

The purpose of this provision is to 

establish an objectives-based test for 

determining if a servicer’s policies and 

procedures are reasonable. Thus, 

servicers have flexibility to develop 

policies and procedures that a servicer 

determines are appropriate so long as 

those policies and procedures do not 

result in a pattern or practice of failing 

to achieve an enumerated objective or 

comply with a standard requirement. If 

a servicer demonstrates a pattern or 

practice of failing to achieve an 

objective or comply with a standard 

requirement, a servicer may violate this 

provision if the policies and procedures 

are not reasonable. Proposed comment 

38(a)(1)–1 provides examples of 

potential pattern and practice failures 

by servicers. Proposed comment 

38(a)(2)–1 clarifies that in the event a 

servicer fails to comply with the safe 

harbor in proposed § 1024.38(a)(2) 

because the servicer has a pattern or 

practice of failing to achieve the 

objectives set forth in proposed 

§ 1024.38(b) or failing to ensure 

compliance with the standard 

requirements in proposed § 1024.38(c), a 

servicer may still comply with the 

requirements of proposed § 1024.38 if 

the servicer’s policies and procedures 

were reasonably designed to achieve the 

objectives set forth in proposed 

§ 1024.38(b) and to ensure compliance 

with the standard requirements in 

proposed § 1024.38(c). 

A servicer’s failure to achieve each of 

the objectives harms borrowers because 

such failures create the potential for 

adverse consequences. These may 

include, without limitation, imposing 

improper fees on borrowers, inability to 

reasonably evaluate loss mitigation 

applications for loss mitigation options 

that may benefit borrowers and owners 

or assignees of mortgage loans, 

unwarranted costs to borrowers, and the 

potential for fraud upon courts through 

inaccurate or unverifiable legal 

pleadings. 

The Bureau relies on its authority in 

section 6(k)(1)(E) of RESPA to establish 

obligations appropriate to carry out the 

consumer protection purposes of RESPA 

to propose § 1024.38(a). The Bureau 

further has authority pursuant to section 

6(j)(3) of RESPA to establish any 

requirements necessary to carry out 

section 6 of RESPA and has authority 

under section 19(a) of RESPA to 

prescribe such rules and regulations and 

to make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

38(b) Objectives 

38(b)(1) Accessing and Providing 

Accurate Information 

Proposed § 1024.38(b)(1) would 

mandate that a servicer’s policies and 

procedures for maintaining and 

managing information and documents 

must be designed to enable the servicer 

to (1) provide accurate and timely 

disclosures to borrowers, (2) investigate, 

respond to, and, as appropriate, correct 

errors, (3) provide borrowers with 

requested information, (4) provide 

owners or assignees of mortgage loans 

with accurate and current information 

about any mortgage loans they own, and 

(5) submit documents or filings required 

for a foreclosure process that reflect 

accurate and current information and 

comply with applicable law. 

For the reasons stated above in the 

background to proposed § 1024.38, the 

Bureau believes it is necessary to 

achieve the consumer protection 

purposes of RESPA that servicers 

implement policies and procedures to 

achieve the objectives set forth in 

proposed § 1024.38(b)(1). These 

objectives provide reasonable and 

appropriate protections for borrowers 

against harms resulting from actions 

based on improper or inaccurate 

servicer documentation or information. 

Further, the requirement in proposed 

§ 1024.38(b)(4) ensures that owners and 

assignees of mortgage loans get better 

information reporting about the 

mortgage loans they own. Owners and 

assignees can play an important role in 

ensuring that servicers comply with 

requirements of the owner or assignee, 

which may inure to the benefit of 

consumers. For example, when a 

servicer improperly obtains force-placed 

insurance for a delinquent borrower, the 

costs of that insurance may push a 

borrower further into delinquency and 

ultimately foreclosure, where the costs 

of the more expensive policy will 

reduce the ultimate recovery to the 

owner or assignee. 

The Bureau requests comment 

regarding whether the Bureau had 

identified the appropriate objectives and 

whether objectives should be removed, 

or other objectives included, in the 

requirements. 

Legal authority. The Bureau relies on 

its authority pursuant to section 

6(k)(1)(E) of RESPA to require servicers 

to comply with any obligation found by 

the Bureau to be appropriate to carry out 

the consumer protection purposes of 

RESPA. The Bureau further has 

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

RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority under section 

19(a) of RESPA to prescribe such rules 

and regulations and to make such 

interpretations as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

38(b)(2) Evaluating Loss Mitigation 

Options 

Proposed § 1024.38(b)(2) would 

mandate that a servicer’s policies and 

procedures for maintaining and 

managing information and documents 

must be designed to enable the servicer 

to (1) provide accurate information to 

borrowers regarding loss mitigation 

options, (2) identify all loss mitigation 

options for which a borrower may be 

eligible, (3) provide prompt access to all 

documents and information submitted 

by a borrower in connection with a loss 

mitigation option, (4) identify 

documents and information that a 

borrower is required to submit to make 

a loss mitigation application complete, 

and (5) evaluate borrower applications, 

and any appeals, as appropriate. 

The Bureau believes that requiring 

servicers to have reasonable policies 

and procedures to maintain and manage 

information and documents that are 

designed to enable the servicer to 

evaluate borrower’s for loss mitigation 

options facilitates compliance with 

proposed § 1024.41. Further, such 

policies and procedures will lead to 

processes that are more protective of 

consumers by requiring servicers to 

consider, in advance of the potential 

delinquency of a particular mortgage 

loan, the loss mitigation options that are 

generally available to borrowers. 


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114Levitin and Twomey, 28 Yale J. on Reg. 69 

(2011). 115Robert W. Lee, Presentation, MBA’s 

Accounting, Tax and Financial Analysis Conference 

2008 Mortgage Servicing Rights Discussion, 

available at: http://www.mortgagebankers.org/files/

Conferences/2008/2008Accounting,Tax&Financial

AnalysisConference/2008Accounting,

Tax&FinancialAnalysisConferenceR.Lee12-17- 

08.pdf 

116Federal Reserve System, Office of the 

Comptroller of the Currency, and Office of Thrift 

Supervision, Interagency Review of Foreclosure 

Policies and Practices, at 5 (April 2011), available 

at: http://www.occ.gov/news-issuances/newsreleases/2011/nr-occ-2011-47a.pdf. 

117 Id. at 9. 

118 Id. at 10. 

119 Problems in Mortgage Servicing From 

Modification to Foreclosure: Hearings Before the 

Senate Comm. on Banking, Housing and Urban 

Affairs, S. Hrg. 111–987, 111th Cong. 360 (2010) 

(statement of Daniel K. Tarullo, Board of Governors, 

Federal Reserve System), available at: http://www.

federalreserve.gov/newsevents/testimony/

tarullo20101201a.htm. 

Loss mitigation options for which 

borrowers may be eligible. In order to 

meet the objectives, a servicer will have 

to determine, on a loan by loan basis, 

which loss mitigation options offered by 

the servicer are available to borrowers. 

The Bureau anticipates that for servicers 

that service mortgage loans held by the 

servicer or an affiliate in portfolio, this 

determination will not present 

significant burdens with respect to such 

mortgage loans as any such policies 

likely will be uniformly set forth by the 

servicer or affiliate. Similarly, the 

Bureau anticipates that servicers that 

service mortgage loans that are included 

in securitizations guaranteed by Fannie 

Mae, Freddie Mac, or Ginnie Mae, or 

insured by FHA or other government 

sponsored insurance programs, will be 

familiar with policies that will be set 

forth by those entities regarding the 

requirements for loss mitigation options. 

Servicers that service mortgage loans 

that are securitized through private label 

securities will be required to undertake 

more burdensome efforts to identify 

which, if any, loss mitigation programs 

offered by the servicer are available to 

mortgage loan borrowers whose 

mortgage loans are owned by the 

securitization trust pursuant to the 

terms of any servicing agreement. 

Servicer failures to achieve optimal 

loss mitigation efforts. The Bureau 

believes that regulations relating to the 

evaluation of borrowers for loss 

mitigation options, including the 

requirements of proposed 

§ 1024.38(b)(2) and proposed § 1024.41 

are necessary in light of the current 

servicing industry structure. 

Servicing industry compensation is 

not structured to incentivize servicers to 

engage in loss mitigation efforts. In that 

regard, ‘‘the servicing industry‘s 

combination of two distinct business 

lines— transaction processing and 

default management—encourage 

servicers to underinvest in default 

management capabilities, leaving them 

with limited ability to mitigate 

losses.’’ 114 Direct servicing 

compensation is generally fixed per 

loan. A servicer of a prime mortgage 

loan may earn 25 basis points for 

servicing that loan, whereas a servicer of 

a subprime mortgage loan may earn 50 

basis points for servicing that loan.115

The increased fee for servicing a loan 

with a lower credit quality should 

reflect the increased cost a servicer may 

incur to service the loans because of the 

higher default or cash flow advance 

assumptions related to those loans. 

However, the Bureau’s outreach with 

consumers, servicers, GSEs, investors, 

and other federal regulators indicates 

that servicers have failed to invest in 

systems and processes necessary to 

undertake the work necessary to service 

mortgage loans that are not performing. 

Further, mortgage servicing cash 

flows, including servicer expenses like 

advances to investors, incentivize 

servicers to pursue foreclosure. 

Servicers are required to advance 

payments to investors so long as a 

mortgage loan has not been ‘‘charged 

off.’’ When a servicer modifies a 

mortgage loan on behalf of an investor, 

it is sometimes unclear how the 

modified payment amounts should be 

treated and whether a servicer must 

continue to advance funds to the 

investor to make up for any deficiency 

between a borrower’s modified payment 

and the scheduled payment owed to an 

investor. 

The Bureau observes that servicers 

have begun to alter the manner in which 

they invest in infrastructure and are 

changing their approach to default 

management. Notwithstanding these 

developments, reasonable policies and 

procedures to maintain and manage 

information and documents that are 

designed to enable a servicer to evaluate 

loss mitigation options impose a 

reasonable burden on servicers that will 

benefit borrowers in future years as 

servicers transition from reacting to the 

current crisis to a more steady market 

punctuated by regional spikes in 

delinquencies and foreclosures. 

Servicers that have not invested in 

improving loss mitigation functions may 

find less incentivize to do so as housing 

markets recover, leading to continued 

inadequate infrastructure during future 

regional or national housing downturns, 

which may lead to future borrower 

harm. 

The Bureau requests comment 

regarding whether the Bureau had 

identified the appropriate objectives and 

whether objectives should be removed, 

or other objectives included, in the 

requirements. 

Legal authority. The Bureau relies on 

its authority pursuant to section 

6(k)(1)(E) of RESPA to require servicers 

to comply with any obligation found by 

the Bureau to be appropriate to carry out 

the consumer protection purposes of 

RESPA. The Bureau further has 

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

RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority under section 

19(a) of RESPA to prescribe such rules 

and regulations and to make such 

interpretations as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

38(b)(3) Facilitating Oversight of, and 

Compliance by, Service Providers 

Proposed § 1024.38(b)(3) would 

mandate that a servicer’s policies and 

procedures for maintaining and 

managing information and documents 

must be designed to enable the servicer 

to provide appropriate servicer 

personnel with accurate and current 

information reflecting actions performed 

by service providers, facilitate periodic 

reviews of service providers, and 

facilitate the sharing of accurate and 

current information among servicer 

personnel and service providers. 

Recent evaluations of mortgage 

servicer practices have found that some 

major servicers ‘‘did not properly 

structure, carefully conduct, or 

prudently manage their third-party 

vendor relationships[.]’’ 116 For 

example, certain servicers supervised by 

the Board of Governors of the Federal 

Reserve System and the Office of the 

Comptroller of the Currency did not 

monitor third-party vendor foreclosure 

law firms compliance with the servicer’s 

standards, did not retain copies of 

documents maintained by third-party 

law firms, and did not provide formal 

guidance, policies, or procedures 

governing the selection, ongoing 

management, and termination of law 

firms used to manage foreclosures.117

Similar failures were present in 

connection with servicer relationships 

with default management service 

providers and Mortgage Electronic 

Registration Systems, Inc. (MERS).118

The Federal Reserve Board stated to 

Congress that federal regulatory 

agencies identified significant 

‘‘shortcomings in staff training, 

coordination among loan modification 

and foreclosure staff, and management 

and oversight of service providers, 

including legal services.’’ 119 These 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57250 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

failures have manifested in significant 

harms for borrowers, including 

imposing unwarranted fees on 

borrowers and harms relating to socalled ‘‘dual tracking’’ from 

miscommunications between service 

providers and servicer loss mitigation 

personnel. 

The Bureau requests comment 

regarding whether the Bureau had 

identified the appropriate objectives and 

whether objectives should be removed, 

or other objectives included, in the 

requirements. 

Legal authority. The Bureau relies on 

its authority pursuant to section 

6(k)(1)(E) of RESPA to require servicers 

to comply with any obligation found by 

the Bureau to be appropriate to carry out 

the consumer protection purposes of 

RESPA. The Bureau further has 

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

RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority under section 

19(a) of RESPA to prescribe such rules 

and regulations and to make such 

interpretations as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

38(b)(4) Facilitating Servicing Transfers 

Proposed § 1024.38(b)(4) would 

mandate that a servicer’s policies and 

procedures for maintaining and 

managing information and documents 

must be designed to ensure the timely 

transfer of all information and 

documents relating to a transferred 

mortgage loan to a transferee servicer in 

a form and manner that enables the 

transferee servicer to comply with the 

requirements of subpart C and the terms 

of the transferee servicer’s contractual 

obligations to owners or assignees of the 

mortgage loans. Further, proposed 

§ 1024.38(b)(4) provides that a transferee 

servicer shall have documents and 

information regarding the status of 

discussions with a borrower regarding 

loss mitigation options, any agreements 

with a borrower for a loss mitigation 

option, and any analysis be a servicer 

with respect to potential recovery from 

a non-performing mortgage loan, as 

appropriate (typically called a final 

recovery determination). 

Servicing transfers give rise to 

potential harms to consumers. Servicers 

may experience problems relating to 

inaccurate transfer of past payment 

information, failures to transfer 

documents provided to a transferor 

servicer, and inaccurate transfer of 

information relating to loss mitigation 

discussions with borrowers. Borrowers 

engaged in loss mitigation efforts may 

be transferred to transferee servicers 

who had no knowledge of the existence 

or status of the loss mitigation efforts. 

The Bureau believes it is a typical 

servicer duty for servicers to be able to 

effectuate sales, assignments, and 

transfers of mortgage servicing in a 

manner that does not adversely impact 

mortgage loan borrowers. Servicers 

generally should expect that servicing 

may be sold, assigned, or transferred for 

certain loans they service. Servicers owe 

a duty to investors to ensure that 

mortgage servicing can be transferred 

without adversely impacting the value 

of the investor’s asset. 

The Bureau believes it is appropriate 

for servicers to implement reasonable 

information management policies and 

procedures to ensure that in the event 

of any such transfer, documents and 

information regarding mortgage loan 

accounts are identified and transferred 

to a transferee servicer in a manner that 

permits the transferee servicer to 

continue providing appropriate service 

to the borrower. 

The Bureau requests comment 

regarding whether the Bureau had 

identified the appropriate objectives and 

whether objectives should be removed, 

or other objectives included, in the 

requirements. 

Legal authority. The Bureau relies on 

its authority pursuant to section 

6(k)(1)(E) of RESPA to require servicers 

to comply with any obligation found by 

the Bureau to be appropriate to carry out 

the consumer protection purposes of 

RESPA. The Bureau further has 

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

RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority under section 

19(a) of RESPA to prescribe such rules 

and regulations and to make such 

interpretations as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

38(c) Standard Requirements 

In addition to the objectives set forth 

in proposed § 1024.38(b), proposed 

§ 1024.38(c) sets forth two standard 

requirements that servicers must 

include in the required policies and 

procedures. These include provisions 

for record retention and identification of 

a servicing file. With respect to record 

retention, proposed § 1024.38(c)(1) 

would require a servicer to retain 

documents and information relating to a 

mortgage file until one year after a 

mortgage loan is paid in full or servicing 

of a mortgage loan was transferred to a 

successor servicer. The Bureau observes 

that proposed §§ 1024.35 and 1024.36 

require servicers to respond to notices of 

error and information requests provided 

up to one year after a mortgage loan is 

paid in full or servicing of a mortgage 

loan was transferred to a successor 

servicer and the Bureau believes the 

record retention requirement is 

necessary for servicer compliance with 

obligations set forth in §§ 1024.35 and 

1024.36. Further, the Bureau observes 

that servicers will require accurate 

information for the life of the mortgage 

loan in order to provide accurate payoff 

balances to borrowers or to exercise a 

right to foreclose for a mortgage loan 

account. 

The Bureau requests comment 

regarding whether servicers should be 

required to retain documents and 

information relating to a mortgage file 

until one year after a mortgage loan is 

paid in full or servicing of a mortgage 

loan was transferred to a successor 

servicer and the potential burden of this 

requirement. 

Proposed § 1024.38(c)(2) would 

require a servicer to provide a borrower 

upon request a servicing file, which 

shall contain a schedule of all payments 

credited or debited to the mortgage loan 

account, including any escrow account 

as defined in § 1024.17(b) and any 

suspense account; a copy of the 

borrower’s mortgage note; a copy of the 

borrower’s deed of trust; any collection 

notes created by servicer personnel 

reflecting communications with 

borrowers about the mortgage loan 

account; a report of any data fields 

relating to a borrower’s mortgage loan 

account created by a servicer’s 

electronic systems in connection with 

collection practices, including records 

of automatically or manually dialed 

telephonic communications; and copies 

of any information or documents 

provided by a borrower to a servicer in 

accordance with the procedures set 

forth in §§ 1024.35 or 1024.41. 

While document and information 

management practices vary among 

servicers, many large servicers maintain 

documents and information relating to a 

borrower’s mortgage loan account in 

many different places and forms, 

including on separate electronic 

systems. The Bureau understands that 

in the absence of a required convention 

for storage of servicing related 

documents and information, servicers 

have difficulty identifying a central file 

containing all necessary information 

regarding a borrower’s mortgage loan 

account, including collector’s notes, 

payment histories, note and deed of 

trust documents, and account debit and 

credit information, including escrow 

account information. Proposed 

§ 1024.38(c)(2) would require servicers, 

as part of the reasonable information 

management policies and procedures to 

adopt practices to provide an accurate, 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57251 

120See Diane Thompson, Foreclosure 

Modifications: How Servicer Incentives Discourage 

Loan Modifications, 86 Wash. L. Rev. 755, 768 

(2011); Kristopher Gerardi & Wenli Li, Mortgage 

Foreclosure Prevention Efforts, 95 Fed. Reserve 

Bank of Atlanta Econ. Rev. 1, 8–9 (Nov. 2, 2010); 

Michael A. Stegman et al., Preventative Servicing is 

Good for Business and Affordable Homeownership 

Policy, 18 Housing Pol’y Debate 243, 274 (2007). 

121See, e.g., The Need for National Mortgage 

Servicing Standards: Hearing Before the Subcomm. 

on Housing, Transportation, and Community 

Affairs of the Senate Comm. on Banking and Urban 

Affairs, S. Hrg. 112–139, 112th Cong. 122 (2011) 

(statement of Laurie Goodman). 

122See, e.g., The Need for National Mortgage 

Servicing Standards: Hearing Before the Subcomm. 

on Housing, Transportation, and Community 

Affairs of the Senate Comm. on Banking and Urban 

Affairs, S. Hrg. 112–139, 112th Cong. 72–73 (2011) 

(statement of Diane Thompson); see generally 

Thompson, 86 Wash. L. Rev. 755 (2011). The 

Bureau is aware that the GSEs and other programs, 

such as HAMP, align servicer incentives to 

encourage early intervention. See, e.g., Fannie Mae 

Single-Family Servicing Guide, Part VII § 602.04.05 

(2012); Freddie Mac Single-Family Seller/Servicing 

Guide, Volume 2, Ch. 65.42 (2012); Making Home 

Affordable Program Handbook, v3.4, at 106 

(December 15, 2011). Through this rulemaking, the 

Bureau is proposing to make early intervention a 

uniform minimum national standard and part of 

established servicer practice. 

123See, e.g., Are There Government Barriers to 

the Housing Recovery?: Hearing Before the 

Subcomm. on Insurance, Housing, and Community 

Opportunity of the House Comm. on Financial 

Services, No. 112–7, 112th Cong. 50–51 (2011) 

(statement of Phyllis Caldwell, Chief, 

Homeownership Preservation Office, U.S. Dept. of 

the Treasury); Freddie Mac, Foreclosure Avoidance 

Research II: A Follow-Up to the 2005 Benchmark 

Study 8 (2008), available at: 

http://www.freddiemac.com/service/msp/pdf/

foreclosure_avoidance_dec2007.pdf; Freddie Mac, 

Foreclosure Avoidance Research (2005), available 

at: http://www.freddiemac.com/service/msp/pdf/

foreclosure_avoidance_dec2005.pdf. 

124See Office of the Comptroller of the Currency, 

Foreclosure Prevention: Improving Contact with 

Borrowers, Insights (June 2007), available at: http:// 

www.occ.gov/topics/community-affairs/

publications/insights/insights-foreclosureprevention.pdf. 

125See, e.g., John C. Dugan, Comptroller, Office 

of the Comptroller of the Currency, Remarks Before 

the NeighborWorks America Symposium on 

Promoting Foreclosure Solutions (June 25, 2007), 

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

speeches/2007/pub-speech-2007-61.pdf, at 2–3; 

Laurie S. Goodman et al., Modification 

Effectiveness: The Private Label Experience and 

Their Public Policy Implications, Amherst Mortgage 

Insight (Amherst Securities Group LP, June 19, 

2012), at 5–6; Stegman et al., Preventative Servicing, 

18 Housing Pol’y Debate 245; Amy Crews Cutts & 

William A. Merrill, Interventions in Mortgage 

Default: Policies and Practices to Prevent Home 

Loss and Lower Costs 11–12 (Freddie Mac, Working 

Paper No. 08–01, Mar. 2008). 

126HUD and the VA have promulgated 

regulations and issued guidance on servicing 

practices for loans guaranteed or insured by their 

programs. See 24 CFR 203 subpart C (HUD); HUD 

Handbook 4330.1 rev-5, Chapter 7; 38 CFR 36 

subpart A (VA). Fannie Mae and Freddie Mac have 

established recommended servicing practices for 

delinquent borrowers in their servicing guidelines 

and align their modification incentives with the 

number of days the mortgage loan is delinquent 

when the borrower enters a trial period plan. See 

Fannie Mae Single-Family Servicing Guide, Part VII 

(2012); Fannie Mae, Outbound Call Attempts 

Guidelines (Oct. 1, 2011), available at: https://www.

efanniemae.com/home/index.jsp; Fannie Mae, 

Letters and Notice Guidelines (Apr. 25, 2012), 

available at: https://www.efanniemae.com/home/

index.jsp; Freddie Mac Single-Family Seller/ 

Servicing Guide, Volume 2, Chapters 64–69 (2012). 

complete, and defined ‘‘servicing file’’ 

to a borrower upon request and would 

create a commonly understood industry 

convention. 

The Bureau requests comment 

regarding whether servicers should be 

required to adopt reasonable 

information management policies and 

procedures that facilitate providing a 

defined servicing file to a borrower 

upon request. The Bureau requests 

comment on the burden of adopting this 

requirement. Further, the Bureau 

requests comment regarding whether 

the Bureau has identified the 

appropriate components of a servicing 

file and whether certain categories of 

documents and information should be 

included or removed from the proposed 

requirement. 

Legal authority. The Bureau relies on 

its authority pursuant to section 

6(k)(1)(E) of RESPA to require servicers 

to comply with any obligation found by 

the Bureau to be appropriate to carry out 

the consumer protection purposes of 

RESPA. The Bureau further has 

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

RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority under section 

19(a) of RESPA to prescribe such rules 

and regulations and to make such 

interpretations as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

Section 1024.39 Early Intervention 

Requirements for Certain Borrowers 

Background. How a servicer manages 

a borrower’s delinquency plays a 

significant role in whether the borrower 

cures the delinquency or ends up in 

foreclosure.120 However, for a variety of 

reasons, servicers have not been 

consistent in managing delinquent 

accounts to provide borrowers with an 

opportunity to avoid foreclosure. At the 

outset of the recent financial crisis, 

many servicers had not developed the 

institutional capacity to manage 

delinquent accounts.121 While servicers 

have gained some experience managing 

loss mitigation programs, incentives 

remain that may discourage servicers 

from addressing a delinquency quickly, 

and in some cases may even cause them 

to favor foreclosure.122

For their part, delinquent borrowers 

may not make contact with servicers to 

discuss their options because they may 

be unaware that they have options 123 or 

that their servicer is able to assist 

them.124 As a result of these 

impediments to borrower-servicer 

communication, many borrowers are not 

informed of their options to avoid 

foreclosure at the early stages of a 

delinquency, when it can be most 

critical for them to reach out. There is 

significant risk to consumers as a result 

of this delay because the longer a 

borrower remains delinquent, the more 

difficult it can be to avoid 

foreclosure.125

Private lenders and investors, Fannie 

Mae and Freddie Mac, and Federal 

agencies, such as FHA and VA, already 

have early intervention servicing 

standards in place for delinquent 

borrowers.126 However, there are 

currently no uniform minimum national 

standards for all servicers of federally 

related mortgage loans. In order to 

ensure that servicers are providing 

delinquent borrowers with information 

about their options at the early stages of 

delinquency, the Bureau is proposing to 

establish minimum early intervention 

requirements under RESPA. 

Proposed section 1024.39 would 

require servicers to provide delinquent 

borrowers with two notices. First, 

proposed § 1024.39(a), would require 

servicers to notify or make good faith 

efforts to notify a borrower orally that 

the borrower’s payment is late and that 

loss mitigation options may be 

available, if applicable. Servicers would 

be required to take this action 30 days 

after the payment due date, unless the 

borrower satisfies the payment during 

that period. Second, proposed 

§ 1024.39(b) would require servicers to 

provide a written notice with 

information about the foreclosure 

process, housing counselors and the 

borrower’s State housing finance 

authority, and, if applicable, 

information about loss mitigation 

options that may be available to the 

borrower. The servicer would be 

required to provide the written notice 

not later than 40 days after the payment 

due date, unless the borrower satisfies 

the payment during that period. These 

two notices are designed primarily to 

encourage delinquent borrowers to work 

with their servicer to identify their 

options for avoiding foreclosure. The 

Bureau recognizes that not all 

delinquent borrowers who receive these 

notices may respond to the servicer and 

pursue available loss mitigation options. 

However, the Bureau believes that the 

notices will ensure, at a minimum, that 

all borrowers have an opportunity to do 

so at the early stages of a delinquency. 

39(a) Oral Notice 

If a borrower is late in making a 

payment sufficient to cover principal, 


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127See Small Business Review Panel Report at 25. 

128The Bureau’s 2012 TILA Mortgage Servicing 

Proposal would redesignate this provision as 

§ 1026.36(c)(2). 

129See 73 FR 44522, 44569 (July 30, 2008). 

interest, and, if applicable, escrow, 

proposed § 1024.39(a) would require the 

servicer to notify or make good faith 

efforts to notify the borrower orally of 

that late payment and that loss 

mitigation options, if applicable, may be 

available. The term ‘‘loss mitigation 

options’’ is defined in proposed 

§ 1024.31 and is discussed in more 

detail above. The Bureau is proposing 

this requirement because, as discussed 

above, evidence suggests that one of the 

barriers to communication between 

borrowers and servicers is that 

borrowers do not know that servicers 

may be helpful or that they have options 

to avoid foreclosure. By notifying 

borrowers through live contact that loss 

mitigation options may be available, 

servicers would be able to begin 

working with the borrower to develop 

appropriate relief. 

Proposed § 1024.39(a) would require 

servicers to notify borrowers about loss 

mitigation options ‘‘if applicable.’’ 

Thus, servicers that do not make any 

loss mitigation options available to 

borrowers would not be required to 

notify borrowers that loss mitigation 

options may be available. In addition, 

proposed comment 39(a)–1.ii explains 

that the servicer would not be required 

to describe any particular option, but 

instead would need only inform the 

borrower that loss mitigation options 

may be available. The Bureau is not 

proposing that servicers provide 

borrowers detailed information because 

not all borrowers may benefit from such 

a conversation at the time of this 

contact. However, as explained in 

proposed comment 39(a)–1.ii, nothing 

would preclude the servicer from 

providing more detailed information 

that the servicer believes would assist 

the borrower. 

During the Small Business Panel 

Review process, small servicer 

representatives explained that they are 

able to distinguish between borrowers 

who had simply forgotten to mail in a 

payment from borrowers who were 

actually having trouble making a 

payment.127 The Bureau recognizes that 

not all borrowers may require 

information about loss mitigation 

options in order to become current on 

their payments, but the Bureau also 

understands that not all borrowers may 

be forthcoming regarding the reasons for 

a delinquency. The Bureau is concerned 

that these borrowers may not learn 

about loss mitigation options unless the 

servicer indicates that help may be 

available at the time of the proposed 

oral notice. The Bureau invites 

additional comment on how servicers 

typically determine whether and at 

what stage a borrower should be 

informed that loss mitigation options 

may be available. 

Proposed comment 39(a)–1.i explains 

that the oral notice would have to be 

made through live contact with the 

borrower, such as by telephoning or 

meeting in-person with the borrower, 

and that oral contact does not include 

a recorded message delivered by phone. 

The Bureau has included this comment 

because the Bureau believes that 

servicers are likely to learn about the 

circumstances surrounding a borrower’s 

delinquency through an interactive 

conversation and thus, for example, 

would be better able to help the 

borrower identify an appropriate loss 

mitigation option. 

Proposed § 1024.39(a) would also 

require the servicer to notify or make 

good faith efforts to provide the oral 

notice that the borrower is late in 

making a payment. This oral notice is 

intended to work in concert with the 

written periodic statement proposed in 

the Bureau’s 2012 TILA Mortgage 

Servicing Proposal, which would inform 

the borrower of any late fees that the 

borrower faces due to a delinquency. A 

servicer could, for example, use the oral 

notice to explain any late charge 

appearing on the periodic statement the 

borrower would receive. In addition, by 

providing this notice through live 

contact, a servicer could learn about the 

circumstances of the borrower’s 

delinquency and the borrower’s ability 

to self-cure without the assistance of a 

loss mitigation option. 

Late payment. Proposed § 1024.39(a) 

would require the servicer to provide 

the oral notice, or make good faith 

efforts to do so, if the borrower is late 

in making ‘‘a payment sufficient to 

cover principal, interest, and, if 

applicable, escrow.’’ Thus, a servicer 

would not be required to provide the 

oral notice if a borrower is late only 

with respect to paying a late fee for a 

given billing cycle. The Bureau is 

proposing this trigger because the 

Bureau believes there is low risk that 

borrowers will default solely because of 

accumulated late charges if they are 

otherwise current with respect to 

principal, interest, and escrow 

payments. 

Regulation Z § 1026.36(c)(1)(ii) 

generally prohibits servicers from 

‘‘pyramiding’’ late fees—i.e., imposing a 

late fee or delinquency charge in 

connection with a payment, when the 

only delinquency is attributable to late 

fees or delinquency charges assessed on 

an earlier payment, and the payment is 

otherwise a full payment.128

‘‘Pyramiding’’ late fees can result in 

future payments being deemed late even 

if they are paid in full within the 

required time period, thus permitting 

the servicer to charge additional late 

fees. This practice can cause an account 

to appear to be in default, and thus can 

give rise to charging excessive or 

unwarranted fees to borrowers who may 

be unable to catch up on payments.129

However, because this practice is 

prohibited under Regulation Z and other 

regulations, the Bureau does not expect 

that borrowers would be likely to be 

pushed into foreclosure solely because 

of accumulated late charges if they are 

otherwise current on their payment. The 

Bureau has taken the same approach 

with respect to the written notice that 

would be required by proposed 

§ 1024.39(b)(1). See the section-bysection analysis below of proposed 

§ 1024.39(b)(1). 

Proposed comment 39(a)–3 explains 

that, for purposes of proposed 

§ 1024.39(a), a payment would be 

considered late the day after a payment 

due date, even if the borrower is 

afforded a grace period before the 

servicer assesses a late fee. Thus, for 

example, if a payment due date is 

January 1, the servicer would be 

required to notify or make good faith 

efforts to notify the borrower not later 

than 30 days after January 1 (i.e., by 

January 31) if the borrower has not fully 

paid the amount owed as of January 1 

and the full payment remains due 

during that period. Proposed comment 

39(a)–3 contains a cross-reference to 

proposed comment 39(a)–4, which, as 

discussed in more detail below, 

addresses situations in which the 

borrower satisfies the payment during 

the 30-day period. 

The Bureau recognizes that certain 

borrowers may be temporarily 

delinquent because of an accidental 

missed payment, a technical error in 

transferring funds, a short-term payment 

difficulty, or some other reason. These 

borrowers may be able to cure a 

delinquency without a servicer’s efforts 

to make live contact. Thus, proposed 

§ 1024.39(a) provides that if the 

borrower fully satisfies the payment 

before the end of the 30-day period, the 

servicer would not be required to 

provide the notice under proposed 

§ 1024.39(a). Proposed comment 39(a)–4 

explains that a servicer would not be 

required to notify or make good faith 

efforts to notify a borrower unless the 


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130See appendix A of the Small Business Review 

Panel Report. 

131Freddie Mac recommends servicers contact 

borrowers within 3 days of a missed payment, 

unless the servicers uses a behavior modeling tool 

that would support an alternate approach. Fannie 

Mae recommends servicers contact ‘‘high risk’’ 

borrowers within 3 days of a missed payment; 

campaigns for non-high-risk borrowers should 

begin within 16 days of a missed payment. See 

Fannie Mae Single-Family Servicing Guide, Part VII 

(2012); Fannie Mae, Outbound Call Attempts 

Guidelines (Oct. 1, 2011), available at: https://www.

efanniemae.com/home/index.jsp; Fannie Mae, 

Letters and Notice Guidelines (Apr. 25, 2012), 

available at: https://www.efanniemae.com/home/

index.jsp; Freddie Mac Single-Family. 

132 24 CFR 203.600. 

133See HUD Handbook 4330.1 rev-5, 7–7(A). 

134Servicers of VA loans must have collection 

procedures that include ‘‘An effort, concurrent with 

the written delinquency notice [mailed no later 

than the 20th day of delinquency], to establish 

contact with the borrower(s) by telephone. When 

talking with the borrower(s), the holder should 

attempt to determine why payment was not made 

and emphasize the importance of remitting loan 

installments as they come due.’’ 38 CFR 

36.4278(g)(i) and (ii). 

135For example, the GSEs recommend that 

servicers begin calling borrowers considered to be 

at a high risk of default within three days of a 

missed payment. See Fannie Mae Single-Family 

Servicing Guide, Part VII (2012); Fannie Mae, 

Outbound Call Attempts Guidelines (Oct. 1, 2011), 

available at: https://www.efanniemae.com/home/

index.jsp; Freddie Mac Single-Family Seller/ 

Servicing Guide, Volume 2, Ch. 64.5 (2012). 

136See, e.g., Amy Crews Cutts & William A. 

Merrill, Interventions in Mortgage Default: Policies 

and Practices to Prevent Home Loss and Lower 

Costs 10 (Freddie Mac, Working Paper No. 08–01, 

Mar. 2008) (explaining that, in one study, there was 

a ‘‘significant cure rate out of the 30-day 

delinquency population without servicer 

intervention,’’ but that ‘‘as the time in delinquency 

increases so does the hurdle the borrower has to 

overcome to reinstate the loan and the importance 

of calling the servicer’’). 

137See Small Business Review Panel Report at 12. 

138 Id. at 24 and at appendix A. 

139 Id. at 25. 

140Small servicers, however, did express 

concerns about the written early intervention 

notice, as discussed more in the section-by-section 

analysis of proposed § 1024.39(b) below. 

borrower remains late in making a 

payment during the 30-day period after 

the payment due date. To illustrate, 

proposed comment 39(a)–4 provides an 

example in which a borrower is initially 

overdue on a payment due January 1 but 

satisfies the payment on January 20. In 

this case, the servicer would not be 

required to notify or make good faith 

efforts to notify the borrower by January 

31. 

Proposed comment 39(a)–6 clarifies 

that a servicer would not be required 

under § 1024.39(a) to notify a borrower 

who is performing as agreed under a 

loss mitigation option designed to bring 

the borrower current on a previously 

missed payment. The Bureau is 

proposing this clarification because the 

Bureau believes it would be 

unnecessary for a servicer to notify a 

borrower of a previously missed 

payment if the borrower is performing 

under a loss mitigation option designed 

to cure that delinquency. 

30-Day period. Proposed § 1024.39(a) 

would require servicers to provide the 

oral notice not later than 30 days after 

a payment due date. In developing the 

proposed 30-day time period, the 

Bureau sought to harmonize the timing 

of the oral notice with the timing of the 

periodic statement under the Bureau’s 

2012 TILA Mortgage Servicing Proposal, 

as noted above. During the Small 

Business Review Panel process, some 

small servicer representatives expressed 

concern that those servicing loans for 

agencies with more restrictive 

timeframes and collection requirements 

would incur costs if they had to meet 

duplicative requirements.130 To address 

this concern, the Bureau is proposing an 

outer bound timeframe for servicers to 

comply with the proposed oral notice. 

In particular, the Bureau sought to 

harmonize the timing of the oral notice 

with existing early intervention 

standards established by the GSEs, FHA, 

and VA so that servicers already 

complying with those standards that 

meet the Bureau’s proposed 

requirements could comply with 

proposed § 1024.39. 

Fannie Mae and Freddie Mac 

generally recommend that servicers 

initiate phone calls for borrowers who 

have missed a payment by the 16th day 

after a payment due date.131 Similarly, 

HUD generally requires that servicers of 

FHA loans take ‘‘prompt action’’ to 

collect on delinquent loans.132 Although 

servicers may satisfy the ‘‘prompt 

action’’ requirement through a variety of 

means, HUD recommends that servicers 

that choose to contact borrowers by 

telephone begin efforts by the 17th day 

of a borrower’s delinquency and 

complete them by the end of the 

month.133 Servicers of VA loans are 

generally required to commence efforts 

to contact borrowers by phone 

concurrent with sending a written 

delinquency notice by the 20th day of 

a borrower’s delinquency.134

In order to provide servicers with 

flexibility in contacting borrowers who 

may have different default risk profiles, 

the Bureau’s proposal would provide 

servicers with discretion to make the 

contact at any time during the 30-day 

period. Thus, servicers who are already 

providing an oral notice with the 

information required in proposed 

§ 1024.39(a) sooner than 30 days after a 

missed payment would be in 

compliance with the Bureau’s proposal. 

Although some servicers may choose to 

contact borrowers at a high risk of 

default within several days after a 

borrower misses a payment due date,135

there are drawbacks to requiring 

servicers to contact all borrowers too 

soon. Borrowers may not think of 

themselves as being delinquent until 

after the expiration of a grace period, 

which may occur on the 10th or the 

15th of the month, and they may 

consider contact by the servicer before 

the grace period unwarranted. As noted 

above, certain borrowers may be 

temporarily delinquent because of an 

accidental missed payment, a technical 

error in transferring funds, a short-term 

payment difficulty, or some other 

reason. The Bureau believes these 

borrowers frequently would be able to 

self-cure within 30 days of a missed 

payment.136

At the time the Bureau proposed its 

early intervention requirements for the 

Small Business Panel, the Bureau 

considered requiring servicers to contact 

a delinquent borrower 45 days after the 

borrower misses a payment.137 The 

Bureau is not proposing a 45-day period 

as the deadline for the oral notice 

because the Bureau is concerned that 

allowing servicers to wait this long after 

a borrower misses a payment to provide 

initial notice of loss mitigation options 

may not afford the borrower sufficient 

time to consider and pursue loss 

mitigation options. In addition, by 45 

days after a payment due date, a 

borrower may have become late on a 

second missed payment. The Bureau is 

concerned that delaying the time in 

which a servicer must make initial live 

contact with the borrower may make it 

more difficult for borrowers to cure their 

delinquency. 

Moreover, based on feedback received 

from small servicer representatives 

during the Small Business Panel Review 

process, the Bureau does not believe a 

30-day deadline for the proposed oral 

notice will present a significant burden. 

During the Small Business Panel Review 

process, small servicer representatives 

explained that they are often in touch 

with delinquent borrowers well before 

the 45-day period initially considered 

by the Bureau,138 and often within the 

first ten days of a delinquency.139 Based 

on this feedback, the Bureau believe 

that, with respect to the timeframe in 

which the Bureau is proposing for 

servicers to make initial contact,140 a 30- 

day deadline for the oral notice would 

not require small servicers to change 

their early intervention practices. 

The Bureau invites comment on 

whether the proposed 30-day time 

period provides borrowers with 

adequate notice of loss mitigation 

options while providing servicers 


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sufficient flexibility in managing 

delinquent borrowers with different risk 

profiles. The Bureau also invites 

comment on whether the 30-day 

requirement would pose a substantial 

conflict with existing servicer practices. 

The Bureau invites comment on 

whether servicers should provide the 

oral notice by some deadline before or 

after the proposed 30-day period. 

Borrower contacts the servicer about a 

late payment. To account for situations 

in which a borrower proactively 

contacts the servicer about a late 

payment, proposed comment 39(a)–5 

explains that, if the borrower contacts 

the servicer at any time prior to the end 

of the 30-day period to explain that the 

borrower expects to be late in making a 

payment, the servicer could provide the 

oral notice under proposed § 1024.39(a) 

by informing the borrower at that time 

that loss mitigation options, if 

applicable, may be available. The 

Bureau recognizes that borrowers may 

contact the servicer proactively to 

explain that the borrower expects to 

become overdue on a payment or to 

acknowledge an ongoing delinquency. 

In such cases, it would not be necessary 

for the servicer to notify the borrower of 

the delinquency. However, the Bureau 

believes that borrowers who contact the 

servicer proactively would benefit from 

knowing about loss mitigation options 

for the reasons discussed above. 

Proposed comment 39(a)–5.i provides 

two examples to clarify how servicers 

would comply with proposed 

§ 1024.39(a) for borrowers who contact 

the servicer about a late payment. In the 

example in proposed comment 39(a)– 

5.i.A, a borrower contacts a servicer on 

January 25 to explain that he expects to 

miss a payment due February 1. The 

borrower satisfies the payment on 

February 8 and the servicer had not yet 

notified or made good faith efforts to 

notify the borrower that loss mitigation 

options may be available. In this case, 

the servicer would not be required to 

notify or make good faith efforts to 

notify the borrower that loss mitigation 

options may be available during the 30 

days after February 1 because the 

borrower was able to satisfy the 

payment within the 30-day period after 

the payment due date. The proposed 

comment includes a cross-reference to 

proposed comment 39(a)–4, which 

addresses situations in which the 

borrower satisfies the payment within 

the 30-day period. The Bureau has 

included this example because many 

borrowers are only delinquent for short 

periods and may be able to self-cure 

within 30 days after a payment due 

date. In these cases, the Bureau does not 

believe it would be necessary to explain 

that loss mitigation options may be 

available. 

In the example in proposed comment 

39(a)–5.i.B, the borrower in the example 

at proposed comment 39(a)–5.i.A 

subsequently misses a payment due 

March 1. However, the borrower does 

not contact the servicer to explain the 

March 1 missed payment and the 

borrower remains late on that payment 

during the 30 days after March 1. In this 

case, not later than 30 days after March 

1, the servicer would be required to 

notify or make good faith efforts to 

notify the borrower orally that he is 

overdue on the March 1 payment and 

that loss mitigation options, if 

applicable, may be available. This 

comment is intended to clarify that the 

servicer’s obligations to notify a 

borrower of a late payment is tied to the 

30-day period commencing on the date 

of the late or missed payment. The 

servicer in the example in proposed 

comment 39(a)–5.i.B would be required 

to notify the borrower of the March 1 

late payment because the borrower has 

not contacted the servicer about that 

payment. 

Good faith efforts. The Bureau 

recognizes that servicers may not always 

be able to reach a borrower despite the 

servicer’s good faith efforts to make 

contact. Thus, under proposed 

§ 1024.39(a), if a borrower is late in 

making a payment, not later than 30 

days after the payment due date, the 

servicer would be required to notify or 

‘‘make good faith efforts to notify’’ the 

borrower. Proposed § 1024.39(a) also 

provides that if the servicer attempts to 

notify the borrower by telephone, good 

faith efforts would require calling the 

borrower on at least three separate days 

in order to reach the borrower. Proposed 

comment 39(a)–2 clarifies that, in order 

to make a good faith effort by telephone, 

the servicer must complete the three 

phone calls attempting to reach the 

borrower by the end of the 30-day 

period after the payment due date. The 

proposed comment also explains that a 

servicer attempting to reach the 

borrower by telephone should make the 

first call not later than the 28 days after 

the payment due date, in order to make 

three phone call attempts by the 30th 

day, because each phone call would be 

required to occur on a separate day, 

assuming the first two are unsuccessful. 

The Bureau believes servicers 

attempting to contact a borrower by 

phone should be required to make 

several attempts because of the 

importance of making contact. The 

Bureau is proposing to define good faith 

efforts as requiring that each attempt by 

phone occur on a different day because 

the Bureau does not believe that 

contacting an absent borrower in quick 

succession on the same day would 

constitute good faith efforts. 

The Bureau is proposing requirements 

for good faith efforts by telephone 

because it understands this is a common 

method by which servicers attempt to 

reach delinquent borrowers. However, 

this is not the only way to notify the 

borrower under proposed § 1024.39(a). 

Servicers may also provide the oral 

notice through a live, in-person meeting. 

The Bureau is interested in whether 

there are forms of communication other 

than oral contact that would promote a 

dialogue between the borrower and the 

servicer regarding the borrower’s 

delinquency and any appropriate loss 

mitigation options. For example, the 

Bureau invites comment on whether 

text messages or email are as or more 

effective in communicating with a 

delinquent borrower and, if so, whether 

such communications should be 

required to meet any particular 

standards to satisfy a good faith effort. 

Legal authority. As discussed above, 

the Bureau has authority to implement 

requirements for servicers to provide 

information about borrower options 

pursuant to section 6(k)(1)(E) of RESPA. 

As set forth above, the Bureau has 

determined that providing borrowers 

with timely information about loss 

mitigation options and encouraging 

servicers to work with borrowers to 

identify any appropriate loss mitigation 

options are necessary to provide 

borrowers a meaningful opportunity to 

avoid foreclosure. Proposed § 1024.39(a) 

would provide borrowers information 

about their options by requiring 

servicers to notify or make good faith 

efforts to notify borrowers that loss 

mitigation options, if applicable, may be 

available to assist them. Accordingly, 

the Bureau proposes to implement 

proposed § 1024.39(a) pursuant to its 

authority under section 6(k)(1)(E) of 

RESPA. The Bureau further has 

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

RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority under section 

19(a) of RESPA to prescribe such rules 

and regulations, to make such 

interpretations, and to grant such 

reasonable exemptions for classes of 

transactions, as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

39(b) Written Notice 

39(b)(1) In General 

Proposed § 1024.39(b)(1) would 

require the servicer to provide 

borrowers who are late in making a 

payment with a written notice 


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141See appendix A of the Small Business Review 

Panel Report. Other small SERs, however, that they 

provide some form of written notice to delinquent 

borrowers. 

142 Id. 

143See 24 CFR 203.602; HUD Handbook 4330.1 

rev-5, 7–7(G). 

144 ‘‘This letter should emphasize the seriousness 

of the delinquency and the importance of taking 

prompt action to resolve the default. It should also 

notify the borrower(s) that the loan is in default, 

state the total amount due and advise the 

borrower(s) how to contact the holder to make 

arrangements for curing the default.’’ 38 CFR 

36.4278(g)(iii). 

145See Fannie Mae, Letters and Notice Guidelines 

(Apr. 25, 2012), available at: https:// 

www.efanniemae.com/home/index.jsp; Freddie 

Mac Single-Family Seller/Servicing Guide, Volume 

2, Chapter 64.5 (2012). During the Small Business 

Panel Review outreach, SERs that service for Fannie 

Mae and Freddie Mac generally described strict 

rules and tight timeframes in dealing with 

delinquent borrowers. See Small Business Review 

Panel Report at 25. 

containing information about the 

foreclosure process, contact information 

for housing counselors and the 

borrower’s State housing finance 

authority, and, if applicable, loss 

mitigation options. This notice would 

be required to be provided not later than 

40 days after the payment due date. The 

proposed content requirements are 

discussed in more detail below in the 

discussion of proposed § 1024.39(b)(2). 

Proposed comment 39(b)(1)–1 

explains that the written notice would 

be required even if the servicer provided 

information about loss mitigation and 

the foreclosure process previously 

during the oral notice under proposed 

§ 1024.39(a). The Bureau is proposing to 

require a written disclosure because 

borrowers may be unable to adequately 

assess and recall detailed information 

provided orally. In addition, a written 

disclosure would provide borrowers 

with the ability to review the 

information or discuss it with a housing 

counselor or other advisor. 

Based on feedback received during 

the Small Business Review Panel 

outreach, the Bureau understands that 

some small servicers may not provide a 

written notice to delinquent 

borrowers.141 The Bureau recognizes 

that not all servicers may provide 

written information to borrowers 

because each borrower may present 

unique situations. However, as 

discussed in more detail below, the 

Bureau believes borrowers would 

benefit from receiving written 

information about loss mitigation 

options, if applicable, and the 

foreclosure process. To address 

concerns about requiring an overlyprescriptive written notice that may not 

account for the variety of situations 

posed by delinquent borrowers, the 

Bureau has proposed generally 

applicable minimum content 

requirements that can be tailored to 

specific situations, as discussed in more 

detail in the section-by-section analysis 

of proposed § 1024.39(b)(2) below. 

In addition, during the Small 

Business Review Panel outreach, some 

small servicers indicated they may face 

costs in developing and providing the 

written notice.142 To assist servicers in 

complying with the written notice, the 

Bureau has developed proposed model 

clauses, referenced in proposed 

§ 1024.39(b)(3). The model clauses are 

discussed in the section-by-section 

analysis of appendix MS–4. The Bureau 

also notes that under proposed 

§ 1024.32, discussed above, servicers 

would be permitted to provide the 

written notice to borrowers in electronic 

form, subject to compliance with the 

consent and other provisions of the ESign Act. 

Late payment. Similar to the oral 

notice under proposed § 1024.39(a), 

proposed § 1024.39(b) would require the 

servicer to provide the written notice if 

a borrower is late in making a payment 

sufficient to cover principal, interest, 

and, if applicable, escrow. However, 

unlike the oral notice, the written notice 

would be required to be provided not 

later than 40 days after the payment due 

date. Proposed comment 39(b)(1)–2 

includes a cross-reference to proposed 

comment 39(a)–3 to clarify that, for 

purposes of calculating when the 

written notice must be provided, 

servicers should consider a payment 

late in the same manner as would they 

would for purposes of calculating when 

the oral notice must be provided. 

Proposed comment 39(b)(1)–2 also 

provides an example in which a 

borrower misses a payment due date of 

January 1 and the payment remains due 

during the 40-day period after January 1. 

In this case, the servicer would be 

required to provide the written notice 

not later than 40 days after January 1— 

i.e., by February 10. 

40-Day time period. As with the oral 

notice, the Bureau is proposing to 

permit servicers to provide the written 

notice at any time during the 40-day 

period. Some servicers may choose to 

provide the written notice earlier for 

borrowers who pose a high risk of 

default. The Bureau is proposing a 

deadline that occurs after the 30-day 

deadline for the proposed oral notice 

under § 1024.39(a) to provide servicers 

an opportunity to tailor the written 

notice and other information to the 

borrower’s individual circumstances 

following the oral notice. Some 

servicers may choose to provide the 

written notice prior to the oral notice. 

The Bureau believes servicers should 

retain flexibility in determining when to 

provide the written notice. 

In addition, the Bureau has selected a 

40-day time period to provide borrowers 

with a reasonable opportunity to cure 

the delinquency within ten days after 

servicers would be required to provide 

the oral notice under proposed 

§ 1024.39(a). Accordingly, proposed 

comment 39(b)(1)–3 explains that a 

servicer would not be required to 

provide the written notice unless the 

borrower is late in paying the amount 

owed in full during the 40 days after the 

payment due date. Proposed comment 

39(b)(1)–3 provides an example in 

which a borrower who is contacted by 

a servicer on January 20 regarding a 

missed January 1 payment later satisfies 

the payment by January 30. In this case, 

the servicer would not be required to 

provide the written notice 40 days after 

January 1—i.e., by February 10. In 

addition, proposed comment 39(b)(1)–5 

clarifies that a servicer would not be 

required under § 1024.39(b)(1) to notify 

a borrower who is performing as agreed 

under a loss mitigation option designed 

to bring the borrower current on a 

previously missed payment. See the 

section-by-section analysis of comment 

39(a)–6 (borrower performing under a 

loss mitigation option) in the discussion 

of proposed § 1024.39(a) above. 

In developing the proposed 40-day 

time period, the Bureau sought to 

harmonize the timing of the written 

notice with the recommended timing for 

the delivery of similar written notices 

under standards for servicers of FHA, 

VA, and GSE loans. HUD generally 

requires servicers of FHA-insured loans 

to provide each mortgagor in default 

HUD’s ‘‘Avoiding Foreclosure’’ 

pamphlet, or a form developed by the 

mortgagee and approved by HUD, not 

later than the 60th day of delinquency, 

although HUD recommends sending the 

form by the 32nd day of delinquency in 

order to prevent foreclosures from 

proceeding where avoidable.143

Servicers of VA loans generally must 

provide borrowers with a letter if 

payment has not been received within 

30 days after it is due and telephone 

contact could not be made.144 Servicers 

of GSE loans are expected to send a 

written package soliciting delinquent 

borrowers to apply for loss mitigation 

options 31 to 35 days after a payment 

due date, unless the servicer has made 

contact with the borrower and received 

a promise to cure the delinquency 

within 30 days,145 although GSE 

servicers have additional flexibility in 

providing the solicitation package to 

certain lower-risk borrowers as late as 


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146The GSEs allow servicers to rely on the results 

of a behavioral modeling tool to evaluate a 

borrower’s risk profile. Id. 147See Small Business Review Panel Report at 12. 148See Small Business Review Panel Report at 25 

and at appendix A. 149See Small Business Review Panel Report at 12. 150See Small Business Review Panel Report at 25. 

the 65th day of their delinquency.146

The Bureau also understands that 

section 106(c)(5) of the Housing and 

Urban Development Act of 1968, as 

amended, generally requires creditors to 

provide notice of homeownership 

counseling to eligible delinquent 

borrowers not later than 45 days after a 

borrower misses a payment due date. 12 

U.S.C. 1701x(c)(5)(B). Similar to the 

information required under section 

106(c)(5) of the Housing and Urban 

Development Act, the written notice in 

proposed § 1024.39(b)(2)(vi) would 

include contact information for housing 

counselors and the borrower’s State 

housing finance authority, although 

servicers would be required to provide 

the written notice not later than 40 days 

after a borrower misses a payment due 

date. 

At the time the Bureau proposed its 

early intervention requirements for the 

Small Business Panel, the Bureau 

considered requiring servicers to 

provide delinquent borrowers with 

written information not later than 45 

days after the borrower misses a 

payment.147 The Bureau is not 

proposing a 45-day period for the 

deadline for the written notice in 

proposed § 1024.39(a) because, as noted 

above, the Bureau intended to provide 

borrowers with a reasonable 

opportunity to cure a delinquency after 

receiving the oral notice (which, 

pursuant to proposed § 1024.39(a), 

would be required by the 30th day of 

the borrower’s delinquency). The 

Bureau is aware that some borrowers 

may be able to self-cure even after they 

become 30 days delinquent. In light of 

this, the Bureau invites comment on 

how far the deadline for the written 

notice could be extended to permit a 

borrower to self-cure, while still 

providing delinquent borrowers with 

adequate notice of loss mitigation 

options. 

Based on feedback provided during 

the Small Business Review Panel 

outreach, the Bureau does not believe a 

40-day timeframe for providing the 

written notice would impose a 

significant burden for small servicers; 

small servicer representatives explained 

that they are generally in touch with 

delinquent borrowers well ahead of the 

45-day time period initially considered 

by the Bureau.148

During informal consultation, some 

commenters expressed concern that 

servicers may have difficulty complying 

with the Bureau’s proposed 40-day 

deadline in light of existing servicer 

requirements. The Bureau understands 

that a single deadline for sending the 

written notice may require some 

servicers to change their practices with 

respect to certain borrowers, such as 

GSE servicers servicing loans for 

borrowers determined to be at lower risk 

for foreclosure. To the extent 

requirements proposed by Bureau 

overlap with standards imposed by 

Federal agencies, the GSEs, or others 

parties, the Bureau expects servicers 

would abide by stricter standard in 

order to comply with all requirements. 

The Bureau, however, continues to 

consider how it may align its 

requirements with best practices that 

help borrowers avoid foreclosure. 

Some commenters recommended that 

the Bureau could address a compliance 

conflict by extending the deadline for 

sending the notice. The Bureau is 

concerned that extending the deadline 

for the written notice too far into a 

borrower’s delinquency may not 

provide borrowers sufficient time to 

process loss mitigation applications 

before the foreclosure process begins. In 

addition, there is some risk that 

borrowers could fall further behind on 

their payments without knowing how to 

pursue loss mitigation options. The 

Bureau recognizes that providing the 

written notice to all delinquent 

borrowers within a 40-day period may 

be unnecessary for some borrowers, 

such as those who present a low risk of 

default. To mitigate this potential for 

unnecessary burden, the Bureau is 

proposing that the written notice be 

provided to delinquent borrowers only 

once every 180-day period, as discussed 

below in the paragraph heading, 

‘‘Frequency of the notice.’’ The Bureau 

invites comment on whether extending 

the 40-day deadline for the written 

notice to 45 days, 65 days, or longer 

would provide borrowers with sufficient 

notice of loss mitigation options before 

a servicer begins the foreclosure 

process. 

In developing the proposed 40-day 

deadline, the Bureau also considered 

whether to require servicers to provide 

the written notice not later than five 

days after a borrower contacts the 

servicer about the borrower’s 

anticipated difficulty with making a 

payment.149 The Bureau has not 

proposed this requirement but instead is 

proposing a single 40-day deadline in 

order to balance the need to provide 

borrowers with assistance at the early 

stages of a delinquency with the need to 

provide clear and enforceable standards. 

The Bureau is concerned that it may be 

difficult to enforce a requirement to 

provide the written notice based on 

borrowers’ explaining that they may 

have difficulty making a payment, 

particularly because such a 

communication may be subject to 

interpretation. A single 40-day deadline 

would ensure servicers are accountable 

to a clear standard that avoids the 

question of whether borrowers had, in 

fact, communicated that they expect to 

have difficulty making payment. In 

addition, as previously noted, the single 

40-day deadline is intended to provide 

servicers with flexibility to determine 

the most appropriate time to provide the 

written notice and to provide borrowers 

with the opportunity to self-cure. 

Finally, the Bureau believes that 

proposed § 1024.36, which would 

require servicers to respond to 

information requests, will address 

situations in which borrowers request 

information about loss mitigation and 

foreclosure. 

Frequency of the notice. Proposed 

comment 39(b)(1)–4 explains that a 

servicer would not be required to 

provide the written notice under 

§ 1024.39(b) more than once during any 

180-day period beginning on the date on 

which the disclosure is provided. 

Proposed comment 39(b)(1)–4 further 

explains that, notwithstanding this 

limitation, a servicer would still be 

required to provide the oral notice 

required under § 1024.39(a) for each 

payment that is overdue. Proposed 

comment 39(b)(1)–4 provides an 

example in which a borrower misses a 

payment due March 1 and the borrower 

remains late on that payment during the 

40 days after March 1. As would be 

required under § 1024.39(b)(1), the 

servicer provides the written disclosure 

40 days after March 1—i.e., by April 10. 

If the borrower subsequently misses 

another payment due April 1 and 

remains late on that payment during the 

40 days after April 1, the servicer would 

not be required to provide the written 

notice again for the 180-day period 

beginning on April 10, the date the 

servicer last provided the written notice. 

However, because the borrower missed 

payments due on March 1 and April 1, 

the servicer would be required to 

provide the oral notice under 

§ 1024.39(a) within the 30-day periods 

beginning on March 1 and April 1. 

During the Small Business Panel 

Review outreach, a SER expressed 

concern about sending a written notice 

each month for borrowers who are 

consistently behind on their 

payments.150 The Bureau does not 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
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151See 24 CFR 203.602; HUD Handbook 4330.1 

rev–5, 7–7(G). 

152See 24 CFR 203.602; HUD Handbook 4330.1 

rev–5, 7–7(G). 

153See Small Business Review Panel Report at 31. 154 Id. 

believe that borrowers who are 

consistently delinquent would benefit 

from receiving the same written notice 

every month. The Bureau expects 

borrowers would be able to retain the 

disclosure because, as discussed above, 

proposed § 1024.32 would require that 

the disclosure be provided in a form the 

borrower may keep. However, the 

Bureau does not believe servicers 

should only be permitted to provide the 

written notice once because the content 

in the written notice may be updated 

over time. The Bureau notes that 

providing the written disclosure once 

during any six-month period is 

generally consistent with HUD’s 

requirements for servicers of FHAinsured loans. HUD’s regulations 

provide that if an account is brought 

current and then again becomes 

delinquent, the ‘‘Avoiding Foreclosure’’ 

pamphlet must be sent again unless the 

beginning of the new delinquency 

occurs less than six months after the 

pamphlet was last mailed.151 The 

Bureau solicits comment on whether 

providing the written disclosure once 

during any 180-day period is sufficient 

to provide borrowers with meaningful 

information. 

Legal authority. As discussed above, 

the Bureau has authority to implement 

requirements for servicers to provide 

information about borrower options 

pursuant to section 6(k)(1)(E) of RESPA. 

As set forth above, the Bureau has 

determined that providing borrowers 

with timely information about loss 

mitigation options and the foreclosure 

process, and encouraging servicers to 

work with borrowers to identify any 

appropriate loss mitigation options, are 

necessary to provide borrowers a 

meaningful opportunity to avoid 

foreclosure. Proposed § 1024.39(b)(1) 

sets forth the general requirement that 

servicers provide borrowers with a 

written notice about their options by 

requiring servicers to provide them with 

a written notice about loss mitigation 

options and the foreclosure process. 

Proposed § 1024.39(b)(1) also sets forth 

timing requirements for the written 

notice. Accordingly, the Bureau 

proposes to implement proposed 

paragraph 39(b)(1) pursuant to its 

authority under section 6(k)(1)(E) of 

RESPA. The Bureau further has 

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

RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority pursuant to 

section 19(a) of RESPA to prescribe such 

rules and regulations, to make such 

interpretations, and to grant such 

reasonable exemptions for classes of 

transactions, as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

39(b)(2) Content of the Written Notice 

Proposed § 1024.39(b)(2) sets forth 

information that servicers would be 

required to include in the written 

notice. Under paragraphs (b)(2)(i) and 

(b)(2)(ii) of proposed § 1024.39, the 

servicer would be required to include a 

statement encouraging the borrower to 

contact the servicer, along with the 

servicer’s mailing address and 

telephone number. Under paragraphs 

(b)(2)(iii) and (b)(2)(iv) of proposed 

§ 1024.39, the servicer would be 

required, if applicable, to include a 

statement providing a brief description 

of examples of loss mitigation options 

that may be available, as well as a 

statement explaining how the borrower 

can obtain additional information about 

those options. Proposed 

§ 1024.39(b)(2)(v) would require the 

servicer to include a statement 

explaining that foreclosure is a process 

to end the borrower’s ownership of the 

property. Proposed § 1024.39(b)(2)(v) 

would also require servicers to provide 

an estimate for when the servicer may 

start the foreclosure process. This 

estimate would be required to be 

expressed in a number of days from the 

date of a missed payment. Finally, 

proposed § 1024.39(b)(iv) would require 

servicers to include contact information 

for any State housing finance 

authorities, as defined in FIRREA 

section 1301, for the State in which the 

property is located, and either the 

Bureau or HUD list of homeownership 

counselors or counseling organizations. 

The Bureau recognizes that some of 

the proposed content may not appear on 

forms currently used by servicers. For 

example, the estimated foreclosure 

timeline in proposed § 1024.39(b)(3)(v), 

does not appear on the HUD ‘‘Avoiding 

Foreclosure’’ brochure that servicers of 

FHA loans are required to send by end 

of the second month of a borrower’s 

delinquency.152 Additionally, during 

the Small Business Panel Review 

outreach, SERs expressed concern that 

the information contained in the written 

notice may differ from written 

information they currently provide to 

delinquent borrowers.153 Small 

servicers representatives were generally 

concerned that overly-prescriptive early 

intervention requirements would 

interfere with ‘‘high-touch’’ engagement 

with delinquent borrowers, which they 

explained was frequently tailored to 

borrowers’ particular circumstances; 

thus, the Small Business Review Panel 

recommended that the Bureau consider 

flexible early intervention requirements 

for small servicers in light of their 

existing practices.154

To accommodate existing servicer 

requirements and practices, proposed 

comment 39(b)(2)–1 explains that a 

servicer may provide additional 

information beyond the proposed 

content requirements that the servicer 

determines would be beneficial to the 

borrower. In addition, proposed 

comment 39(b)(2)–2 explains that any 

color, number of pages, size and quality 

of paper, type of print, and method of 

reproduction may be used so long as the 

disclosure is clearly legible. The Bureau 

has attempted to propose a minimum 

amount of content in the proposed 

notice that will provide delinquent 

borrowers with helpful information. The 

Bureau solicits comments on whether 

the content requirements in proposed 

§ 1024.39(b)(2) would pose a substantial 

conflict with existing disclosure 

standards established by Federal 

agencies, the GSEs, or other existing 

servicer practices. To the extent the 

proposed the written notice would 

provide information not currently being 

provided by the Federal agencies or the 

GSEs, the Bureau solicits comment on 

whether such information would be 

beneficial to delinquent borrowers. The 

Bureau solicits comment on the 

proposed content requirements, 

described below, and whether 

alternative or additional content would 

be beneficial to borrowers. 

Content requirements. Proposed 

§ 1024.39(b)(2)(i) would require the 

written notice to include a statement 

encouraging the borrower to contact the 

servicer. The Bureau believes that a 

statement informing borrowers that the 

servicer can provide assistance with 

respect to their delinquency is necessary 

in order to facilitate a discussion 

between the borrower and the servicer 

at the early stages of delinquency. As 

noted above, many borrowers do not 

know that their servicer can help them 

avoid foreclosure if they are having 

trouble make their monthly payments. 

The Bureau believes a statement 

encouraging the borrower to call would 

remove this barrier to borrower-servicer 

communication. The Bureau recognizes 

that not every loss mitigation option 

may be available or appropriate for 

every borrower. Therefore, the Bureau is 

not proposing to require servicers to 

emphasize any particular loss mitigation 

option over another. Accordingly, 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57258 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

155See appendix C of the Small Business Review 

Panel Report. 

156See appendix C of the Small Business Review 

Panel Report. 

proposed comment 39(b)(2)(i)–1 

explains that the servicer would not be 

required, for example, to specifically 

request the borrower to contact the 

servicer regarding any particular loss 

mitigation option. 

Contact information for the servicer. 

To facilitate a dialogue between the 

servicer and the borrower, proposed 

§ 1024.39(b)(2)(ii) would require the 

written notice to include the servicer’s 

mailing address and telephone number. 

Pursuant to proposed § 1024.40(a), a 

servicer would be required to make 

available direct access to servicer 

personnel for assistance with curing a 

delinquency or avoiding a delinquency, 

default, or foreclosure for any borrower 

whom a servicer is required to notify 

that loss mitigation options may be 

available under proposed § 1024.39(a). 

Thus, proposed comment 39(b)(2)(ii)–1 

explains that, if applicable, a servicer 

should provide contact information that 

would put a borrower in touch with 

servicer personnel under proposed 

§ 1024.40. 

Brief description of loss mitigation 

options. Proposed § 1024.39(b)(2)(iii) 

would require that the written notice 

include a statement, if applicable, 

providing a brief description of 

examples of loss mitigation options that 

may be available from the servicer. 

Proposed comment 39(b)(2)(iii)–1 

explains that proposed 

§ 1024.39(b)(2)(iii) does not mandate 

that a specific number of examples be 

disclosed, but explains that borrowers 

are likely to benefit from examples that 

permit them to remain in their homes 

and examples of options that would 

require that borrowers end their 

ownership of the property in order to 

avoid foreclosure. The Bureau is not 

proposing a minimum number of 

examples because of the difficulty in 

identifying a minimum number given 

the variety of loss mitigation options 

offered by servicers. 

At the time the Bureau proposed its 

early intervention requirements for the 

Small Business Panel, the Bureau 

considered requiring servicers to 

provide a brief description of any loss 

mitigation programs available to the 

borrower.155 However, the Bureau is not 

proposing that servicers list all of the 

loss mitigation options they offer 

because the Bureau is concerned that 

servicers may have difficulty providing 

an accurate disclosure if the number of 

loss mitigation options they offer 

changes over time. In addition, the 

Bureau is concerned that a lengthy 

written notice would undermine the 

intended effect of encouraging 

borrowers to contact their servicer to 

discuss their options. To address the 

limitation of providing borrowers with 

information about every option, the 

Bureau is proposing that the written 

notice contain contact information for 

housing counselors and the borrower’s 

State housing finance authority. 

Housing counselors and State housing 

finance authorities may be able to 

provide the borrowers with information 

about other loss mitigation options that 

may not be listed on the written notice. 

Proposed comment 39(b)(2)(iii)–1 

explains that a servicer may include a 

generic list of loss mitigation options 

that it offers to borrowers, and that it 

may include a statement that not all 

borrowers will qualify for the listed 

options. Different loss mitigation 

options may be available to borrowers 

depending on the borrower’s 

qualifications or other factors. To avoid 

confusing borrowers, the Bureau 

believes servicers should be able to 

clarify that not all of the enumerated 

loss mitigation options will necessarily 

be available. 

Proposed comment 39(b)(2)(iii)–2 

explains that an example of loss 

mitigation option may be described in 

one or more sentences. Proposed 

comment 39(b)(2)(iii)–2 also explains 

that if a servicer offers several loss 

mitigation programs, the servicer may 

provide a generic description of each 

option instead of providing detailed 

descriptions of each program. For 

example, if a servicer provides several 

loan modification programs, it may 

simply provide a generic description of 

a loan modification. The Bureau 

recognizes that loss mitigation options 

are complex and providing 

comprehensive explanations to 

borrowers about each option may 

overwhelm a delinquent borrower with 

information. Thus, the Bureau does not 

believe that borrowers would benefit 

from a disclosure with voluminous 

detail at the early stage of exploring the 

options. Instead, the Bureau believes 

that servicers should provide borrowers 

with a brief explanation and encourage 

the borrower to contact the servicer to 

discuss whether any options may be 

appropriate. The Bureau solicits 

comment on whether the level of detail 

that would be required to describe loss 

mitigation options would be helpful to 

delinquent borrowers, and if more detail 

would be valuable, what specific 

information should be required. 

Explanation of how the borrower may 

apply for loss mitigation options. 

Proposed § 1024.39(b)(2)(iv) would 

require the written notice to include an 

explanation of how the borrower may 

obtain more information about loss 

mitigation options, if applicable. 

Proposed comment 39(b)(2)(iv)–1 

explains that, at a minimum, a servicer 

could comply with this requirement by 

directing the borrower to contact the 

servicer for more information, such as 

through a statement like, ‘‘contact us for 

instructions on how to apply.’’ 

Proposed comment 39(b)(2)(iv)–1 

explains that, to expedite the borrower’s 

timely application for any loss 

mitigation options, servicers may wish 

to provide more detailed instructions on 

how a borrower could apply, such as by 

listing representative documents the 

borrower should make available to the 

servicer, such as tax filings or income 

statements, and by providing estimates 

for when the servicer expects to make a 

decision on a loss mitigation option. 

Proposed comment 39(b)(2)(iv)–1 also 

provides that servicers may supplement 

the written notice with a loss mitigation 

application form. At the time the Bureau 

proposed its early intervention 

requirements for the Small Business 

Panel, the Bureau considered requiring 

servicers to provide a brief outline of the 

requirements for qualifying for any 

available loss mitigation programs, 

including documents and other 

information the borrower must provide, 

and any timelines that apply.156

However, the Bureau is not proposing to 

require servicers to provide this level of 

detail in order to comply with proposed 

§ 1024.39(b)(2)(iv). Each loss mitigation 

option may have its own specific 

documentation requirements and 

deadlines, and servicers may be unable 

to provide comprehensive application 

instructions generally applicable to all 

options. Additionally, because the 

Bureau is proposing that servicers only 

provide examples of loss mitigation 

options in the written notice, detailed 

instructions for only the listed options 

may not be useful for all borrowers. 

Foreclosure statement. Proposed 

§ 1024.39(b)(2)(v) would require that the 

written notice include a statement 

explaining that foreclosure is a legal 

process to end the borrower’s ownership 

of the property. Proposed 

§ 1024.39(b)(2)(v) would also require 

that the notice include an estimate of 

how many days after a missed payment 

the servicer makes the referral to 

foreclosure. Proposed comment 

39(b)(2)(v)–1 clarifies that the servicer 

may explain that the foreclosure process 

may vary depending on the 

circumstances, such as the location of 

the borrower’s property that secures the 

loan, whether the borrower is covered 


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157See Small Business Review Panel Report at 31. 

158At the time of publishing, the Bureau list was 

not yet available and the HUD list was available at 

http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm 

(HUD Approved Housing Counseling Agencies). 

159See proposed Regulation Z §§ 1026.20(d) and 

1026.41(d)(7) in the Bureau’s 2012 TILA Mortgage 

Servicing Proposal. 

160Some servicers have found that borrowers may 

trust independent counseling agencies more than 

they trust servicers. See OCC, Foreclosure 

Prevention: Improving Contact with Borrowers, at 6 

(June 2007). 

161See Freddie Mac, Foreclosure Avoidance 

Research (2005). 

162See 2012 HOEPA Proposal, available at 

http://files.consumerfinance.gov/f/ 

201207_cfpb_proposed-rule_high-cost-mortgageprotections.pdf, at 29–35. 

163The list provided by the lender pursuant to 

proposed requirement in the 2012 HOEPA Proposal 

would include only homeownership counselors or 

counseling organizations from either the most 

current list of homeownership counselors or 

counseling organizations made available by the 

Bureau, or the most current list maintained by HUD 

of homeownership counselors or counseling 

organizations certified by HUD, or otherwise 

approved by HUD. The 2012 HOEPA Proposal 

proposed that the list include five homeownership 

counselors or counseling organizations located in 

the zip code of the loan applicant’s current address, 

or, if there are not the requisite five counselors or 

counseling organizations in that zip code, then 

counselors or organizations within the zip code or 

zip codes closest to the loan applicant’s current 

address. To facilitate compliance with the proposed 

list requirement, the Bureau is expecting to develop 

a Web site portal that would allow lenders to type 

in the loan applicant’s zip code to generate the 

requisite list, which could then be printed for 

distribution to the loan applicant. See 2012 HOEPA 

Proposal at 31–32 (discussing proposed Regulation 

X § 1024.20(a)). 

by the Servicemembers Civil Relief Act 

(50 U.S.C. App. 501 et seq.), and the 

requirements of the owner or assignee of 

the borrower’s loan. Proposed comment 

39(b)(2)(v)–2 clarifies that the servicer 

may qualify its estimates with a 

statement that different timelines may 

vary depending on the circumstances, 

such as those listed in comment 

39(b)(2)(v)–1. Proposed comment 

39(b)(2)(v)–2 also explains that the 

servicer may provide its estimate as a 

range of days. 

During the Small Business Review 

Panel outreach, some small servicer 

representatives explained that 

information about foreclosure is 

typically not provided until after loss 

mitigation options have been 

explored.157 The Bureau believes 

borrowers would benefit from receiving 

information about the foreclosure 

process at the same time the borrower 

receives information about loss 

mitigation options. In order for 

borrowers to understand the choices 

they face at the early stages of 

delinquency, the Bureau believes they 

would benefit from understanding what 

foreclosure is and approximately when 

it may begin at the same time that they 

receive information about loss 

mitigation options. The Bureau invites 

comment on this expectation and 

whether borrowers would benefit from 

receiving information about foreclosure 

after servicers provide information 

about loss mitigation options. 

In addition, the Bureau is not 

proposing that servicers provide 

detailed information about foreclosure 

because the Bureau recognizes that 

foreclosure processes are complex and 

vary by jurisdiction. The Bureau 

questions whether borrowers are likely 

to benefit from detailed information, 

particularly if they are experiencing 

financial distress. Nonetheless, the 

Bureau believes that borrowers should 

be informed about foreclosure to some 

degree. The Bureau invites comment on 

whether borrowers would benefit from 

knowing when the servicer may begin 

the foreclosure process and whether 

servicers anticipate difficulty complying 

with this requirement. 

Contact information for housing 

counselors and State housing finance 

authorities. Proposed § 1024.39(b)(vi) 

would require the written notice to 

include contact information for any 

State housing finance authority for the 

State in which the borrower’s property 

is located, and contact information for 

either the Bureau list or the HUD list of 

homeownership counselors or 

counseling organizations.158 The Bureau 

is proposing to include information 

about housing counselors to provide 

delinquent borrowers with additional 

resources to understand their loss 

mitigation options. The Bureau is 

proposing to require similar information 

pertaining to housing counseling 

resources that would be required on the 

ARM interest rate adjustment notice and 

the periodic statement, as provided in 

the Bureau’s 2012 TILA Mortgage 

Servicing Proposal.159

The Bureau is proposing to require 

that servicers include housing counselor 

contact information because borrowers 

may be more willing to contact a 

housing counselor than their servicer to 

discuss their options.160 In addition, a 

housing counselor could also provide a 

borrower with additional information 

about loss mitigation options that a 

servicer may not have listed on the 

written notice. However, distressed 

borrowers may be unaware that they can 

talk to a housing counselor.161 The 

Bureau believes that including housing 

counseling contact information on the 

written notice will assist borrowers in 

learning more about their options and, 

in turn, help them engage in a 

constructive dialogue with their 

servicer. 

On July 9, 2012, the Bureau released 

proposed rules to implement DoddFrank Act requirements expanding 

protections for ‘‘high-cost’’ mortgage 

loans under HOEPA, including a 

requirement that borrowers receive 

housing counseling (2012 HOEPA 

Proposal).162 The 2012 HOEPA Proposal 

also proposed to implement other 

homeownership-counseling-related 

requirements that are not amendments 

to HOEPA, including a proposed 

amendment to Regulation X that lenders 

provide a list of five homeownership 

counselors or counseling organizations 

to applicants for a federally related 

mortgage loan.163

In connection with the written notice 

for delinquent borrowers, however, the 

Bureau is not proposing to require that 

servicers include a list of specific 

housing counseling programs or 

agencies (other than the State housing 

finance authority, discussed below), but 

instead that servicers provide contact 

information for either the Bureau list or 

the HUD list of homeownership 

counselors or counseling organizations. 

During informal outreach, some 

commenters observed that delinquent 

borrowers may be confused by being 

directed to contact several different 

parties in the proposed § 1024.39(b) 

written notice—the servicer, housing 

counselors, and the State housing 

finance authority. As previously noted, 

the Bureau believes that delinquent 

borrowers would benefit from knowing 

how to access housing counselors 

because they may be more comfortable 

discussing their options with a thirdparty. However, the Bureau also 

understands that there is a benefit to 

providing distressed borrowers with a 

clear and concise notice. Providing 

contact information to access a list of 

counselors and counseling organizations 

would reduce the likelihood of 

information overload while still 

providing borrowers with access to 

assistance. 

In addition to information about 

accessing housing counselors, the 

Bureau is proposing to require that the 

proposed § 1024.39(b) written notice 

include contact information for the State 

housing finance authority located in the 

State in which the property is located. 

The Bureau is proposing this because 

the Bureau believes borrowers are likely 

to benefit from knowing how to contact 

their State housing finance authority in 

the context of receiving information 

from their servicer about loss mitigation 

options. The Bureau is proposing that 

the § 1024.39(b) written notice include 

contact information for the State 


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57260 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

164See proposed Regulation Z § 1026.20(d) in the 

Bureau’s 2012 TILA Mortgage Servicing Proposal. 

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

periodic statement proposed in the Bureau’s 2012 

TILA Mortgage Servicing Proposal, the periodic 

statement would require servicers to include 

contact information for the State housing finance 

authority for State in which the property is located. 

Id. at proposed § 1026.41(d)(7). 

165See Small Business Review Panel Report at 31 

(recommending that the Bureau consider flexible 

early intervention requirements for small servicers). 

housing finance authority for the State 

in which the borrower’s property is 

located. The proposed § 1024.39(b) 

written notice would be required for 

delinquent borrowers of federally 

related mortgages, which are not limited 

to loans secured by the borrower’s 

principal dwelling. Thus, it is possible 

that the property securing the federally 

related mortgage may be located in a 

different state than the state in which 

the borrower resides. Accordingly, 

borrowers who are delinquent with 

respect to a federally related mortgage 

secured by a non-residential property 

may benefit from knowing how to 

access the State housing finance 

authority for the State in which the 

property is located, rather than the State 

in which the borrower resides. 

The Bureau notes that the ARM initial 

interest rate adjustment notification in 

the 2012 TILA Mortgage Servicing 

Proposal would require the contact 

information for the state housing 

finance authority for the state in which 

the consumer resides (as opposed to the 

State in which the property is 

located).164 While the Bureau expects 

the State in which the property is 

located will most often be the State 

where the consumer resides, there may 

be circumstances in which that is not 

the case. Additionally, the Bureau 

understands that a difference in 

requirements for different disclosures 

may increase compliance costs for 

servicers. The Bureau invites comment 

on how the Bureau can best mitigate any 

compliance difficulties. 

More generally, the Bureau solicits 

comment on the costs and benefits of 

the provision of information about 

housing counselors and State housing 

finance authorities to delinquent 

borrowers in the proposed notice at 

§ 1024.39(b). The Bureau also solicits 

comment on the potential effect of the 

Bureau’s proposal on access to 

homeownership counseling generally by 

borrowers, and the effect of increased 

borrower demand for counseling on 

existing counseling resources, including 

demand on State housing finance 

authorities. In particular, the Bureau 

solicits comment on whether the 

proposed notice at § 1024.39(b) should 

include a generic list to access 

counselors or counseling organizations, 

as proposed here, or a list of specific 

counselors or counseling organizations, 

as was proposed in the 2012 HOEPA 

Proposal. The Bureau also invites 

comment on whether including the 

State housing finance authority would 

be a helpful additional resource. 

Legal authority. As discussed above, 

the Bureau has authority to implement 

requirements for servicers to provide 

information about borrower options 

pursuant to section 6(k)(1)(E) of RESPA. 

As set forth above, the Bureau has 

determined that providing borrowers 

with timely information about housing 

counselors and State housing finance 

authorities, information about loss 

mitigation options and the foreclosure 

process, and disclosures encouraging 

servicers to work with borrowers to 

identify any appropriate loss mitigation 

options, are necessary to provide 

borrowers a meaningful opportunity to 

avoid foreclosure. Proposed 

§ 1024.39(b)(2) would provide 

borrowers with information about their 

options by setting forth the content 

requirements of the written notice about 

loss mitigation options and the 

foreclosure process that would be 

required under proposed 

§ 1024.39(b)(1). Accordingly, the Bureau 

proposes to implement proposed 

paragraph 39(b)(2) pursuant to its 

authority under section 6(k)(1)(E) of 

RESPA. The Bureau further has 

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

RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority pursuant to 

section 19(a) of RESPA to prescribe such 

rules and regulations, to make such 

interpretations, and to grant such 

reasonable exemptions for classes of 

transactions, as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

39(b)(3) Model Clauses 

Proposed § 1024.39(b)(3) contains a 

reference to proposed model clauses 

that servicers may use to comply with 

the proposed written notice 

requirement. The proposed model 

clauses are contained in appendix MS– 

4. For more detailed discussion of the 

proposed model clauses, see the sectionby-section analysis of appendix MS 

below. 

Legal authority. As discussed above, 

the Bureau has authority to implement 

requirements for servicers to provide 

information about borrower options 

pursuant to section 6(k)(1)(E) of RESPA. 

As set forth above, the Bureau has 

determined that providing borrowers 

with timely information about housing 

counselors and State housing finance 

authorities, information about loss 

mitigation options and the foreclosure 

process, and disclosures encouraging 

servicers to work with borrowers to 

identify any appropriate loss mitigation 

options, are necessary to provide 

borrowers a meaningful opportunity to 

avoid foreclosure. Proposed 

§ 1024.39(b)(3) contains a reference to 

model clauses that provide borrowers 

with information about their options as 

required under paragraphs (b)(1) and 

(b)(2) of proposed § 1024.39. 

Accordingly, the Bureau proposes to 

implement proposed paragraph 39(b)(3) 

pursuant to its authority under section 

6(k)(1)(E) of RESPA. The Bureau further 

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

of RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA and has authority pursuant to 

section 19(a) of RESPA to prescribe such 

rules and regulations, to make such 

interpretations, and to grant such 

reasonable exemptions for classes of 

transactions, as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

Small Servicers 

As discussed above, through outreach 

with servicers and servicing industry 

representatives, small servicers 

expressed concern that compliance with 

the information request provisions for 

oral information requests would require 

small servicers to invest in systems and 

processes at substantial costs. However, 

many small servicers generally 

explained that they did not expect the 

Bureau’s proposed early intervention 

requirements would impose significant 

burden because they were already 

providing early intervention for 

delinquent borrowers. Accordingly, the 

Bureau is not proposing to provide 

small servicers with an exemption from 

the proposed notice requirements under 

proposed § 1024.39. However, in light of 

the feedback provided by SERs during 

the Small Business Panel Review 

outreach, as reflected in the Panel 

Report of the Small Business Panel, the 

Bureau solicits comment on whether the 

Bureau should consider alternative 

means of compliance with proposed 

§ 1024.39 that would provide small 

servicers with additional flexibility, 

such as by permitting small servicers to 

develop a more streamlined written 

notice under proposed § 1024.39(b).165

Relationship With Other Applicable 

Laws 

The Bureau understands that servicers 

may be subject to State and Federal laws 

related to debt collection practices, such 


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166See, e.g., Are There Government Barriers to 

the Housing Market Recover?: Hearings Before the 

Subcomm. on Insurance, Housing, and Community 

Opportunity of the House Comm. on Financial 

Services, No. 112–7, 112th Cong. 51 (February 16, 

2011) (statement of Phyllis Caldwell, Chief, 

Homeownership Preservation Office, U.S. 

Department of the Treasury), available at http:// 

financialservices.house.gov/media/pdf/ 

021611caldwell.pdf; see also Maryland Foreclosure 

Task Force, Report, at 22 (January 11, 2012) 

(describing that consumers continue to face 

problems of lost documentation, expired 

authorizations and confusing responses to requests 

for loss mitigation from multiple representatives 

within a given servicer) (Maryland Foreclosure Task 

Force Report), available at: http:// 

www.mdhousing.org/Website/commTaskForce/ 

documents/ 

Foreclosure_Task_Force_Report_2012.pdf; see also, 

Peter S. Goodman, A Plan to Stem Foreclosures, 

Buried in a Paper Avalanche, New York Times 

(June 29, 2009) (reporting on a number of borrower 

frustrations with the loan modification process, 

such as getting transferred from call center to call 

center and, having to repeatedly resubmit loan 

modification applications because the servicer 

could not locate them in its system). 

167Making Home Affordable, Supplemental 

Directive 11–04 (May 18, 2011), available at: 

https://hmpadmin.com/portal/programs/docs/ 

hamp_servicer/sd1104.pdf. 168National Mortgage Settlement, at A–21–23. 169See Freddie Mac, Servicing Alignment 

Initiative: Borrower Contact and Delinquency 

Management Practices (May 16, 2011), available at: 

http://www.freddiemac.com/singlefamily/news/ 

2011/0516_servicing.html; see also Fannie Mae, 

Servicing Alignment Initiative—Overview for 

Fannie Mae Servicers (April 28, 2011), available at: 

https://www.efanniemae.com/sf/servicing/pdf/ 

saioverview.pdf. 

170See Cal SB–900, available at: http:// 

www.leginfo.ca.gov/pub/11–12/bill/sen/sb_0851– 

0900/sb_900_bill_20120711_chaptered.html. 

as the Fair Debt Collection Practices 

Act, 15 U.S.C. 1692. In addition, the 

Bankruptcy Code’s automatic stay 

provisions generally prohibit, among 

other things, actions to collect, assess, or 

recover a claim against a debtor that 

arose before the debtor filed for 

bankruptcy. The Bureau invites 

comment on whether servicers may 

reasonably question how they could 

comply with Bureau’s proposal in light 

of these laws. 

Section 1024.40 Continuity of Contact 

Background. As discussed in part II, 

above, the onset of the mortgage crisis 

revealed that many servicers did not 

have the infrastructure needed to handle 

the high volumes of delinquent 

mortgages, loan modification requests, 

and foreclosures they faced. Reports of 

servicers confusing delinquent 

borrowers with conflicting or 

misleading information, losing or 

mishandling borrower-provided 

documents supporting loan 

modifications requests, failing to 

respond to borrowers’ inquiries about 

loss mitigation in a timely manner, and 

transferring borrowers seeking 

assistance with loss mitigation from 

department to department made it 

apparent that many servicers did not 

provide appropriately-trained staff to 

assist delinquent borrowers.166

Regulators, both Federal and State, 

and the GSEs have responded by 

establishing staffing standards for 

servicers to meet when they assist 

delinquent borrowers. For example, in 

May of 2011, Treasury issued 

Supplemental Directive 11–04 to require 

qualifying servicers participating in the 

Making Home Affordable Program to 

assign potentially eligible borrowers 

with a member of the servicer’s staff to 

assist such borrowers throughout their 

delinquency once a servicer has made a 

successful effort to communicate with 

such borrowers about resolution of their 

delinquency. The staff member assigned 

to the borrower would have primary 

responsibility for coordinating the 

servicer’s actions to resolve the 

borrower’s delinquency or default and 

must perform certain functions with 

respect to the borrower, such as 

providing information to the borrower 

about loss mitigation programs available 

to the borrower, explaining the 

requirements of the various programs, 

notifying a borrower of the need for 

additional or missing information, being 

knowledgeable about the borrower’s 

mortgage loan account, and 

communicating the servicer’s decision 

regarding a borrower’s loan 

modification application.167 The 

National Mortgage Settlement, 

discussed in part II.C, above, establishes 

similar staffing requirements for 

servicers to follow 168 As part of the GSE 

Servicing Alignment Initiative, Fannie 

Mae and Freddie Mac also established 

guidelines for servicer to follow when 

responding to delinquent borrowers to 

promote consistent borrower 

communications throughout 

delinquency.169 In July 2012, the State 

of California amended its laws to 

require servicers to designate personnel 

on their staff to assist borrowers who are 

potentially eligible for a federal or 

proprietary loan modification 

application.170

Similar to the early intervention 

servicing standards discussed 

previously, however, there are currently 

no minimum uniform national 

standards that apply across the mortgage 

servicing industry. Proposed § 1024.40, 

discussed in detail below, would 

establish minimum staffing 

requirements that would apply to all 

mortgage servicers. The proposal is built 

around three obligations. First, servicers 

would be required to assign personnel 

to delinquent borrowers. Second, the 

servicers would be required to provide 

delinquent borrowers with live, 

telephonic responses to inquiries and, 

as applicable, assist the borrower with 

loss mitigation options. Third, servicers 

must establish policies and procedures 

reasonably designed to ensure that 

servicer personnel available to the 

borrower can perform an enumerated 

list of functions where applicable. 

40(a)(1) In General 

Proposed § 1024.40(a)(1) provides that 

no later than five days after a servicer 

has notified or made a good faith effort 

to notify a borrower to the extent 

required by § 1024.39(a), the servicer 

must assign personnel to respond to the 

borrower’s inquiries, and as applicable, 

assist the borrower with loss mitigation 

options. If a borrower has been assigned 

personnel as required by § 1024.40(a)(1) 

and the assignment has not ended when 

servicing for the borrower’s mortgage 

loan has transferred to a transferee 

servicer, subject to § 1024.40(c)(1)–(4), 

the transferee servicer must assign 

personnel to respond to the borrower’s 

inquiries, and as applicable, assist the 

borrower with loss mitigation options, 

within reasonable time of the transfer of 

servicing for the borrower’s mortgage 

loan. 

Proposed comment 40(a)–1 explains 

that for purposes of responding to 

borrower inquiries and assisting the 

borrower with loss mitigation options as 

required pursuant to § 1024.40, the term 

‘‘borrower’’ includes a person the 

borrower has authorized to act on behalf 

of the borrower (a borrower’s agent), 

which may include, for example, a 

housing counselor or attorney. Servicers 

may undertake reasonable procedures to 

determine if such person has authority 

from the borrower to act on the 

borrower’s behalf. Proposed comment 

40(a)–2 clarifies that for purposes of 

§ 1024.40(a)(1), a reasonable time for a 

transferee servicer to assign personnel to 

a borrower is by the end of the 30-day 

period of the transfer of servicing for the 

borrower’s mortgage loan. 

Proposed comment 40(a)–3.i. explains 

that a servicer has discretion to 

determine the manner by which 

continuity of contact is implemented. 

For purposes of § 1024.40(a)(1), a 

servicer may assign a single person or a 

team of personnel to respond to a 

borrower. Proposed comment 40(a)–3.ii. 

explains that § 1024.40(a)(1) requires 

servicers to assign personnel to 

borrowers whom servicers are required 

to notify pursuant to § 1024.39(a). If a 

borrower whom a servicer is not 

required to notify pursuant to 

§ 1024.39(a) contacts the servicer to 

explain that he or she expects to make 

be late in making a particular payment, 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57262 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

171See part II, above. 

172Small Business Review Panel Report, at 31. 

the servicer, at its election, may assign 

personnel to the borrower. Proposed 

comment 40(a)–4 explains that 

§ 1024.40(a)(1) does not permit or 

require a servicer to take any action 

inconsistent with applicable bankruptcy 

law or a court order in a bankruptcy 

case. 

The Bureau intends § 1024.40 to work 

with proposed § 1024.39 (Early 

Intervention for Requirement for Certain 

Borrowers) and, as discussed below, 

with proposed § 1024.41 (Loss 

Mitigation Procedures). Proposed 

§ 1024.40(a)(1) builds on proposed 

§ 1024.39(a). As discussed previously, 

the Bureau believes that the borrowers 

that servicers are required to provide 

oral notice pursuant to § 1024.39(a) are 

at high risk of becoming delinquent. As 

discussed above, common reported 

frustrations of delinquent borrowers 

include having to deal with servicers 

who would transfer them from 

department to department, getting 

confusing responses to loss mitigation 

requests from multiple representatives 

within a given servicer, and having to 

resubmit documents that they have 

previously submitted. By requiring 

servicers to assign the responsibility to 

assist delinquent borrowers to specific 

individuals, the Bureau believes that 

proposed § 1024.40(a)(1) would bring a 

more streamlined approach to how 

servicers communicate with delinquent 

borrowers. The streamlined approach 

would be responsive to the most 

common problems delinquent 

borrowers have reportedly faced in 

recent years. 

Proposed § 1024.40(a)(1) allows for 

five days to pass before a servicer makes 

the assignment. A servicer may find 

itself faced with a high number of 

borrowers who are late with respect to 

making their mortgage payments. The 

Bureau believes it is appropriate to 

provide a servicer with some time to 

make the personnel assignment. 

Additionally, there could be situations 

where the servicer complies with the 

oral notification requirement with 

respect to a borrower, even though the 

servicer is not required to do so. For 

example, a borrower could miss his or 

her payment due on February 1. On 

February 29, the end of the month, 

payment has not been received. The 

servicer may choose to orally notify the 

borrower pursuant to proposed 

§ 1024.39(a) on February 29. But so long 

as the borrower makes his payment by 

March 1, then pursuant to § 1024.39(a), 

the borrower would not be a borrower 

that the servicer is required to notify or 

make good faith efforts to notify 

pursuant to proposed § 1024.39(a). 

Hence the Bureau believes it is 

appropriate to provide servicers five 

days to make the personnel assignment. 

The Bureau invites comment on 

whether a longer time frame is 

appropriate. 

Proposed comment 40(a)–1, discussed 

above, reflects that some delinquent 

borrowers may authorize third parties to 

assist them as they pursue alternatives 

to foreclosure. Accordingly, the Bureau 

seeks to clarify that a servicer’s 

obligation in proposed § 1024.40 

extends to persons authorized to act on 

behalf of the borrower. 

Proposed comment 40(a)–2, discussed 

above, reflects the Bureau’s belief that a 

transferee servicer may require some 

time after the transfer of servicing to 

identify delinquent borrowers who had 

personnel assigned to them by the 

transferor servicer. The Bureau believes 

that 30 days is a reasonable amount of 

time for a transferee servicer to assign 

personnel to a borrower whose mortgage 

loan has been transferred to the servicer 

through a servicing transfer. The Bureau 

invites comments on whether a longer 

time frame is appropriate. 

Proposed comment 40(a)–3.i. 

discussed above, is consistent with the 

Bureau’s recognition that a one-size-fitsall approach to regulating the mortgage 

servicing industry may not be 

optimal,171 and thus servicers should be 

given flexibility to implement proposed 

§ 1024.40. It also reflects the 

recommendation of the Small Business 

Review Panel that the Bureau should 

provide sufficient discretion such that 

current, successful practices with 

respect to assisting delinquent 

borrowers could continue to exist.172

Proposed comment 40(a)–3.ii explains 

that if a borrower whom a servicer is not 

required to notify pursuant to 

§ 1024.39(a) contacts the servicer to 

explain that he or she expects to be late 

in making a particular payment, the 

servicer, at its election, may assign 

personnel to the borrower. As discussed 

above in the Bureau’s discussion of 

proposed comment 39(a)–5, many 

borrowers are delinquent for short 

periods of time and may be able to selfcure. The Bureau believes that servicers 

would incur significant cost if they were 

required to assign personnel to every 

borrower who contacts the servicer 

about a possible late payment. The 

Bureau further believes that the cost of 

assigning personnel to all such 

borrowers would be unduly 

burdensome to the servicer, while 

yielding little benefit to some of these 

borrowers. If the borrower who contacts 

the servicer about a possible late 

payment still has not made the payment 

within 30 days of the payment due date, 

then § 1024.39(a) would require the 

servicer to make oral contact with the 

borrower. As discussed previously, no 

later than five days after a servicer has 

notified or made a good faith effort to 

notify a borrower to the extent required 

by § 1024.39(a), the servicer must assign 

personnel to respond to the borrower. 

For these reasons, the Bureau believes it 

is appropriate to give servicers 

discretion when deciding whether or 

not to assign personnel to a borrower 

whom a servicer is not required to 

notify pursuant to § 1024.39(a). 

Proposed comment 40(a)(1)–4 

explains that § 1024.40(a) does not 

permit or require a servicer to take any 

action inconsistent with applicable 

bankruptcy law or a court order in a 

bankruptcy case. During outreach, the 

Bureau learned that once a borrower 

files for bankruptcy, servicers typically 

transfer the borrower’s file to a separate 

unit of personnel (i.e., personnel who 

are not part of the servicer’s loss 

mitigation unit), or to outside 

bankruptcy counsel to comply with 

bankruptcy law. The Bureau believes a 

clarification should be provided with 

respect to the relationship between 

proposed § 1024.40 and bankruptcy law. 

The Bureau, however, invites comment 

on whether servicers should be required 

to continue providing borrowers with 

access to personnel assigned to the 

borrowers to address borrower inquiries 

and loss mitigation options after 

borrowers have filed for bankruptcy. 

Legal authority. The Bureau proposes 

to exercise its authority under section 

6(k)(1)(E) of RESPA to add new 

§ 1024.40(a)(1) to Regulation X. For 

reasons previously discussed, the 

Bureau believes that proposed 

§ 1024.40(a)(1) would bring a more 

streamlined approach to how servicers 

communicate with delinquent 

borrowers. The streamlined approach 

would be responsive to the most 

common problems delinquent 

borrowers have reportedly faced in 

recent years. Section 6(k)(1)(E) of 

RESPA authorizes the Bureau to 

prescribe regulations that are 

appropriate to carry out the consumer 

protection purpose of RESPA. 

Accordingly, the Bureau proposes to 

exercise its authority under section 

6(k)(1)(E) of RESPA to add new 

§ 1024.40(a)(1) to Regulation X. The 

Bureau further has authority under to 

section 6(j)(3) of RESPA to establish any 

requirements necessary to carry out 

section 6 of RESPA, and under section 

19(a) of RESPA to prescribe such rules 

and regulations, and to make such 

interpretations as may be necessary to 


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achieve the consumer protection 

purposes of RESPA. 

40(a)(2) Access to Assigned Personnel 

Proposed § 1024.40(a)(2) would 

require a servicer to make access to the 

assigned personnel available via 

telephone. If a borrower contacts the 

servicer and does not receive a live 

response from the assigned personnel, 

the borrower must be able to record his 

or her contact information. The servicer 

must respond to the borrower within a 

reasonable time. Proposed comment 

40(a)(2)–1 provides that for purposes of 

§ 1024.40(a)(2), three days (excluding 

legal public holidays, Saturdays, and 

Sundays) is a reasonable time to 

respond. 

The Bureau previously discussed the 

importance of interactive conversations 

with delinquent borrowers in the 

discussion of proposed § 1024.39(a). For 

similar reasons, the Bureau is requiring 

servicers to provide telephone access 

where the borrower can receive live 

responses. The Bureau understands that 

some servicers may have the capacity to 

engage with borrowers in person. But 

the Bureau believes that in-person 

interactions are not practicable for the 

majority of mortgage servicers. 

Accordingly, the Bureau is proposing to 

require live, telephonic access instead. 

The Bureau, however, recognizes that it 

is possible that when a borrower calls 

the servicer, the borrower may not 

always reach a live person. 

Additionally, the Bureau does not 

believe it is necessary to require 

servicers to make access to a live person 

available 24 hours a day, seven days a 

week. Accordingly, the Bureau is 

proposing to provide servicers with a 

reasonable time to respond to a 

borrower if the borrower does not 

receive a live response. As discussed 

above, proposed comment 40(a)(2)–1 

provides that for purposes of 

§ 1024.40(a)(2), three days (excluding 

legal public holidays, Saturdays, and 

Sundays) is a reasonable time to 

respond. The Bureau invites comments 

on whether the Bureau should provide 

for a longer response time. 

Legal authority. The Bureau proposes 

to exercise its authority under section 

6(k)(1)(E) of RESPA to add new 

§ 1024.40(a)(2) to Regulation X. The 

Bureau has previously discussed its 

belief in the importance of interactive 

conversations with delinquent 

borrowers. At the same time, the Bureau 

recognizes that it is not always possible 

that when a borrower calls the servicer, 

the borrower reaches a live person. 

Section 6(k)(1)(E) of RESPA authorizes 

the Bureau to prescribe regulations that 

are appropriate to carry out the 

consumer protection purpose of RESPA. 

Accordingly, the Bureau proposes to 

exercise its authority under section 

6(k)(1)(E) of RESPA to add new 

§ 1024.40(a)(2) to Regulation X. The 

Bureau further has authority under 

section 6(j)(3) of RESPA to establish any 

requirements necessary to carry out 

section 6 of RESPA, and under section 

19(a) of RESPA to prescribe such rules 

and regulations, and to make such 

interpretations as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

40(b) Functions of Servicer Personnel 

40(b)(1) In General 

Proposed § 1024.40(b)(1) would 

require servicers to establish policies 

and procedures reasonably designed to 

ensure that the servicer personnel it 

makes available to the borrower 

pursuant to § 1024.40(a) perform an 

enumerated list of functions where 

applicable. The functions include: (1) 

Providing a borrower with accurate 

information about loss mitigation 

options offered by the servicer and 

available to the borrower based on 

information in the servicer’s possession, 

actions a borrower must take to be 

evaluated for loss mitigation options, 

including what the borrower must do to 

submit a complete loss mitigation 

application, as defined in § 1024.41, and 

if applicable, what the borrower must 

do to appeal the servicer’s denial of the 

borrower’s application, the status of the 

borrower’s already-submitted loss 

mitigation option, the circumstances 

under which a servicer must make a 

foreclosure referral, and loss mitigation 

deadlines the servicer has established; 

(2) accessing complete record of the 

borrower’s payment history in the 

servicer’s possession, all documents the 

borrower has submitted to the servicer 

in connection with the borrower’s 

application for a loss mitigation option 

offered by the servicer, and if 

applicable, documents the borrower has 

submitted to prior servicers in 

connection with the borrower’s 

application for loss mitigation options 

offered by those servicers, to the extent 

that those documents are in the 

servicer’s possession; (3) providing the 

documents in § 1024.40(b)(2)(ii)(B)–(C) 

to persons authorized to evaluate a 

borrower for loss mitigation options 

offered by the servicer if the servicer 

personnel assigned to the borrower is 

not authorized to evaluate a borrower 

for loss mitigation options; and (4) 

within a reasonable time after a 

borrower request, provide the 

information to the borrower or inform 

the borrower of the telephone number 

and address the servicer has established 

for borrowers to assert an error pursuant 

to § 1024.35 or make an information 

request pursuant to § 1024.36. 

Proposed comment 40(b)(1)(iv) 

clarifies that for purposes of 

§ 1024.40(b)(1)(iv), three days 

(excluding legal public holidays, 

Saturdays, and Sundays) is a reasonable 

time to provide the information the 

borrower has requested or inform the 

borrower of the telephone number and 

address the servicer has established for 

borrowers to assert an error pursuant to 

§ 1024.35 or make an information 

request pursuant to § 1024.36. The 

Bureau invites comment on whether the 

Bureau should permit servicer a longer 

time frame to respond. 

Proposed § 1024.40(b)(1) reflects the 

Bureau’s belief that having staff 

available to help delinquent borrowers 

is necessary, but not sufficient, to 

ensure that when a borrower at a high 

risk of default reaches out to a servicer 

for assistance, the borrower is connected 

to personnel who can address the 

borrower’s inquiries or loss mitigation 

requests adequately. The Bureau 

believes proposed § 1024.40(b)(1) would 

require servicers to provide 

appropriately-trained staff to assist 

delinquent borrowers. Further, as 

discussed previously, § 1024.40 is 

intended to work together with 

proposed § 1024.41 as well as proposed 

§ 1024.39. For example, under proposed 

§ 1024.41, a servicer is required to notify 

a borrower if the borrower has 

submitted an incomplete loss mitigation 

application. Section § 1024.40(b)(1) 

addresses this duty by requiring the 

personnel assigned to the borrower to 

inform a borrower about the steps the 

borrower must take to complete his or 

her loss mitigation application. 

Another example of how proposed 

§ 1024.40(b)(1) would work with 

proposed § 1024.41 is that the assigned 

personnel must provide a borrower with 

accurate information about any loss 

mitigation deadlines established by the 

servicer in accordance with § 1024.41. 

Proposed § 1024.41 also requires 

servicers to evaluate borrowers for loss 

mitigation options if loss mitigation 

options is offered in the ordinary course 

of a servicer’s business. Section 

1024.40(b)(1)(iii), discussed above, 

would require assigned personnel to 

provide borrower-submitted documents 

in support of loss mitigation to other 

persons authorized to make loss 

mitigation evaluations. As discussed 

above, the Bureau believes it is 

appropriate to provide servicers with 

discretion on how they assist delinquent 

borrowers. The Bureau understands that 

for some servicers, especially servicers 


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57264 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

that have a small mortgage servicing 

portfolio of mortgage loans they 

originated, the personnel such servicers 

assign to work with delinquent 

borrowers typically have authority to 

evaluate borrowers’ loss mitigation 

applications. But other servicers, 

especially large servicers or those whose 

servicing portfolios are made of loans 

owed by mortgage investors, the process 

of evaluating borrowers for loss 

mitigation involves multiple parties. For 

these servicers, the personnel they 

assign to a delinquent borrower to 

provide live, telephonic responses to the 

borrower’s inquiries may not have the 

authority to evaluate the borrower’s loss 

mitigation application. Pursuant to 

proposed § 1024.40(b)(1)(iii), the 

servicer would nonetheless have to 

ensure that the assigned personnel can 

provide borrower-submitted 

documentation to other persons with 

such authority. 

As previously discussed, the Bureau 

recognizes that mortgage investors and 

other regulators have responded with 

requiring servicers to adopt staffing 

standards. The Bureau proposes the list 

of functions with an eye to harmonize 

the various staffing standards that exist. 

The Bureau believes proposed 

§ 1024.40(b)(1) would complement 

existing standards. The Bureau also 

invites comments on whether the 

Bureau should add additional functions 

to its proposed list of functions. 

Proposed § 1024.40(b)(1)(iv) reflects 

the Bureau’s belief that even if servicers 

implement policies and procedures that 

would address staffing failures in 

mortgage servicing practices, borrowers 

may seek information that is 

temporarily unavailable to the servicer. 

For example, a borrower’s most current 

payment information may not be 

immediately available because it takes 

time for the payment to post to the 

borrower’s account. Another example is 

that documents a borrower has 

submitted to the servicer in connection 

with the borrower’s loss mitigation 

application may not be immediately 

available because it takes the servicer 

time to process them. Additionally, 

proposed § 1024.40(b)(1)(iv) indicates 

the Bureau’s belief that the assigned 

personnel may receive borrower 

requests that are more appropriately 

addressed through proposed §§ 1024.35 

(Error Resolution Procedures) or 

1024.36 (Requests for Information). The 

Bureau proposes to provide servicers 

with the discretion to make that 

determination. But the Bureau notes 

that even when a borrower request is 

addressed through proposed §§ 1024.35 

or 1024.36, the personnel the servicer 

assigned to the borrower pursuant to 

proposed § 1024.40(a) would remain 

available to the borrower until an event 

described in § 1024.40(c), discussed 

below, occurs. 

Legal authority. The Bureau proposes 

to exercise its authority under section 

(k)(1)(E) of RESPA to add new 

§ 1024.40(b)(1) to Regulation X. As 

discussed above, proposed 

§ 1024.40(b)(1) reflects the Bureau’s 

belief that having staff available to help 

delinquent borrowers is necessary, but 

not sufficient, to ensure that when a 

borrower at a high risk of default 

reaches out to a servicer for assistance, 

the borrower is connected to personnel 

who can address the borrower’s 

inquiries or loss mitigation requests 

adequately. The Bureau believes 

proposed § 1024.40(b)(1) would require 

servicers to provide appropriatelytrained staff to assist delinquent 

borrowers. The Bureau further has 

authority under section 6(j)(3) of RESPA 

to establish any requirements necessary 

to carry out section 6 of RESPA, and 

under section 19(a) of RESPA to 

prescribe such rules and regulations, 

and to make such interpretations as may 

be necessary to achieve the consumer 

protection purposes of RESPA. 

40(b)(2) Safe Harbor 

Proposed § 1024.40(b)(2) provides that 

a servicer’s policies and procedures 

satisfy the requirements in 

§ 1024.40(b)(1) if servicer personnel do 

not engage in a pattern or practice of 

failing to perform the functions set forth 

in § 1024.40(b)(1) where applicable. 

Proposed comment 40(b)(2)–1.i. 

provides that for purposes of 

§ 1024.40(b)(2), a servicer exhibits a 

pattern or practice of failing to perform 

such functions, with respect to a single 

borrower, if servicer personnel assigned 

to the borrower fail to perform any of 

the functions listed in § 1024.40(b)(1) 

where applicable on multiple occasions, 

such as, for example, repeatedly 

providing the borrower with inaccurate 

information about the status of the loss 

mitigation application the borrower has 

submitted. Proposed comment 40(b)(2)– 

1.ii. explains that a servicer exhibits a 

pattern or practice of failing to perform 

such functions, with respect to a large 

number of borrowers, if servicer 

personnel assigned to the borrowers fail 

to perform any of the functions listed in 

§ 1024.40(b)(1) where applicable in 

similar ways, such as, for example, 

providing a large number of borrowers 

with inaccurate information about the 

status of the loss mitigation applications 

the borrowers have submitted. 

As discussed above, proposed 

§ 1024.40(b)(1) would establish a new 

servicer obligation that requires 

servicers to establish policies and 

procedures reasonably designed to 

ensure that the servicer personnel it 

makes available to a borrower pursuant 

to § 1024.40(a) perform an enumerated 

list of functions where applicable. The 

Bureau recognizes that servicers, after 

complying with the servicer obligation 

(i.e., established policies and 

procedures that are reasonably designed 

to ensure the personnel they make 

available borrowers perform the 

functions listed under proposed 

§ 1024.40(b)(1)), the personnel may 

occasionally make a mistake and fail to 

perform an enumerated function. 

Proposed § 1024.40(b)(2) reflects the 

Bureau’s belief that the occasional 

mistake is not necessarily indicative of 

servicers not complying with the 

servicing obligation in proposed 

§ 1024.40(b)(1). 

Legal authority. The Bureau relies on 

its authority under section 6(k)(1)(E) of 

RESPA to add new § 1024.40(b)(2) to 

Regulation X. Section 6(k)(1)(E) of 

RESPA authorizes the Bureau to 

prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA. As 

discussed above, the Bureau recognizes 

that even if a servicer has established 

policies and procedures that are 

reasonably designed to ensure that the 

servicer personnel it makes available to 

borrowers perform the functions listed 

under proposed § 1024.40(b)(1), such 

personnel may occasionally make a 

mistake. The Bureau believes that an 

occasional mistake is not necessarily 

indicative of a servicer’s failure to 

comply with proposed § 1024.40(b)(1). 

The Bureau further has authority 

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

establish any requirements necessary to 

carry out section 6 of RESPA, and under 

section 19(a) of RESPA to prescribe such 

rules and regulations, and to make such 

interpretations as may be necessary to 

achieve the consumer protection 

purposes of RESPA. 

40(c) Duration of Continuity of Contact 

Proposed § 1024.40(c) provides that a 

servicer shall ensure that the personnel 

it assigns and makes available to a 

borrower pursuant to § 1024.40(a) 

remains assigned and available to the 

borrower until any of the following 

occurs: (1) The borrower refinances the 

mortgage loan; (2) the borrower pays off 

the mortgage loan; (3) a reasonable time 

has passed since (i) the borrower has 

brought the mortgage loan current by 

paying all amounts owed in arrears, or 

(ii) the borrower and the servicer have 

entered into a permanent loss mitigation 

agreement in which the borrower keeps 

the property securing the mortgage loan; 


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173Making Home Affordable Program Handbook, 

v3.4, at 89 (December 15, 2011); see also Fannie 

Mae Single Family Servicing Guide, Ch. 6, § 602 

(2012). 

174www.makinghomeaffordable.gov. 

175Federal Housing Finance Agency, Press 

Release: Fannie Mae and Freddie Mac to Align 

Guidelines for Servicing Delinquent Mortgages 

(April 28, 2011), available at http://www.fhfa.gov/ 

webfiles/21190/SAI42811.pdf. 

176OCC Press Release, OCC Takes Enforcement 

Action Against Eight Servicers for Unsafe and 

Unsound Foreclosure Practices (April 13, 2011), 

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

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

Reserve Board of Governors Press Release (April 13, 

2011), available at http://federalreserve.gov/ 

newsevents/press/enforcement/20110413a.htm. 

177www.nationalmortgagesettlement.com. 

(4) title to the borrower’s property has 

been transferred to a new owner 

through, for example, a deed-in-lieu of 

foreclosure, a sale of the borrower’s 

property, including, as applicable, a 

short sale, or a foreclosure sale; or (5) if 

applicable, a reasonable time has passed 

since servicing for the borrower’s 

mortgage loan was transferred to a 

transferee servicer. 

Proposed comment 40(c)(3)–1 

provides that for purposes of 

§ 1024.40(c)(3), a reasonable time has 

passed when the borrower has made ontime mortgage payments for three 

consecutive months. The Bureau notes 

the ability of a borrower to make ontime mortgage payments for three 

consecutive months has gained wide 

acceptance as an appropriate indicator 

of whether a previously-delinquent 

borrower could succeed in keeping his 

or her mortgage loan current. For 

example, under Treasury’s HAMP 

program, a borrower is put in a trial 

modification period lasting three 

months. The borrower must have made 

all trial period payments to qualify for 

a permanent loan modification.173 The 

Bureau seeks comment on whether 

criteria other than a borrower making 

on-time mortgage payments for three 

consecutive months should be used to 

determine what is a ‘‘reasonable time’’ 

for purposes of § 1024.40(c)(3). 

Proposed comment 40(c)(5)–1 provides 

that for purposes of § 1024.40(c)(5), a 

reasonable time has passed when 

servicing for the borrower’s mortgage 

loan was transferred to a transferee 

servicer 30 days ago. As discussed 

above in the discussion of proposed 

comment 40(a)–2, the Bureau believes 

that the transferee servicer may require 

up to 30 days from the date of transfer 

of servicing to identify borrowers who 

had personnel assigned to them by the 

transferor servicer. Accordingly, the 

Bureau believes that it is appropriate to 

require the transferor servicer to 

continue providing such borrower with 

continuity of contact for 30 days 

following the transfer of servicing. The 

Bureau, however, seeks comment on 

whether a longer time period is 

reasonable. 

Legal authority. As discussed above, 

the Bureau is proposing to establish 

minimum staffing requirements with 

respect to how servicers assist 

delinquent borrowers. The Bureau 

believes that servicers should be 

required to provide delinquent 

borrowers with access to assigned 

personnel until events occur that 

indicate assistance is no longer needed 

or practicable. The events listed in 

proposed § 1024.40(c)(1)–(4) reflects the 

Bureau’s belief of when assistance is no 

longer needed. The events listed in 

proposed § 1024.40(c)(5) indicates when 

assistance is no longer practicable. As 

discussed above, section 6(k)(1)(E) of 

RESPA authorizes the Bureau to 

prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA. The 

Bureau proposes to add new 

§ 1024.40(c) to Regulation X pursuant to 

its authority under section 6(k)(1)(E) of 

RESPA. The Bureau further has 

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

RESPA to establish any requirements 

necessary to carry out section 6 of 

RESPA. The Bureau has additional 

authority under section 19(a) of RESPA 

to prescribe such rules and regulations, 

and to make such interpretations as may 

be necessary to achieve the consumer 

protection purposes of RESPA. 

40(d) Conditions Beyond a Servicer’s 

Control 

Proposed § 1024.40(d) provides that a 

servicer has not violated § 1024.40 if the 

servicer’s failure to comply with this 

section is caused by conditions beyond 

a servicer’s control. Proposed comment 

40(d)–1 explains that ‘‘conditions 

beyond a servicer’s control’’ include 

natural disasters, wars, riots or other 

major upheaval, delays or failures 

caused by third parties, such as a 

borrower’s delay or failure to submit 

any requested information, disruptions 

in telephone service, computer system 

malfunctions, and labor disputes, such 

as strikes. Proposed § 1024.40(d) reflects 

the Bureau’s belief that even if servicers 

implement processes that would 

address staffing failures that had a 

significant adverse impact on borrowers 

seeking alternatives to foreclosure, 

circumstances beyond a servicer’s 

control may occasionally occur that 

could adversely affect a servicer’s ability 

to provide adequate and appropriate 

staff to assist delinquent borrowers. 

Legal authority. The Bureau proposes 

to use its authority under RESPA 

section 6(k)(1)(E) to add new 

§ 1024.40(d) to Regulation X. Section 

6(k)(1)(E) of RESPA authorizes the 

Bureau to prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of RESPA. As 

discussed above, proposed § 1024.40(d) 

reflects the Bureau’s belief that even if 

servicers implement processes that 

would address staffing failures that had 

a significant adverse impact on 

borrowers seeking alternatives to 

foreclosure, circumstances beyond a 

servicer’s control may occasionally 

occur that could adversely affect a 

servicer’s ability to provide adequate 

and appropriate staff to assist 

delinquent borrowers. The Bureau 

additionally relies on its authority 

under section 6(j)(3) of RESPA to 

establish any requirements necessary to 

carry out the purposes of REPSA, and 

under section 19(a) of RESPA to make 

such rules and regulations and to make 

such interpretations as may be 

necessary to achieve the purposes of 

RESPA. 

Section 1024.41 Loss Mitigation 

Background. As discussed above, 

there has been widespread concern 

among mortgage market participants, 

consumer advocates, and policymakers 

regarding servicers’ performance of loss 

mitigation activity in connection with 

the mortgage market crisis. In response, 

servicers, investors, guarantors, and 

State and Federal regulators have 

undertaken efforts to adjust servicer loss 

mitigation and foreclosure practices to 

address problems relating to evaluation 

of loss mitigation options. For example: 

• Treasury and HUD sponsored the 

Making Home Affordable program, 

which established guidelines for Federal 

government sponsored loss mitigation 

programs such as HAMP 174; 

• The Federal Housing Finance 

Agency (FHFA) directed Fannie Mae 

and Freddie Mac to align their 

guidelines for servicing delinquent 

mortgages they own or guarantee to 

improve servicing practices 175; 

• Prudential regulators, including the 

Board and the OCC undertook 

enforcement actions against major 

servicers, resulting in consent orders 

imposing requirements on servicing 

practices 176; 

• The recent national mortgage 

settlement agreement imposes 

obligations on servicers, including on 

the conduct of loss mitigation 

evaluations 177; 

• States have begun to adopt 

regulations relating to mortgage 

servicing and foreclosure processing, 


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57266 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

178See, e.g., N.Y. Comp. Codes R. & Regs. tit. 3, 

§ 419.1 et seq.; 2012 Cal. Legis. Serv. Ch. 86 (A.B. 

278) (WEST) amending Cal. Civ. Code § 2923.6. 

179See e.g., National Mortgage Settlement at 

Appendix A, at A–26, available at http:// 

nationalmortgagesettlement.com; Freddie Mac 

Single Family Seller/Servicer Guide, Vol. 2 

§ 64.6(d)(5) (2012); Fannie Mae Single Family 

Servicing Guide § 205.08 (2012); HAMP Guidelines, 

Ch. 6 (2011). 

180See Patricia A. McCoy, Barriers to Home 

Mortgage Modifications During the Financial Crisis, 

at 4 (May 31, 2012). 

181Evidence exists that for certain investors and 

servicers loss mitigation activities may not actually 

mitigate losses from an investor’s perspective when 

the impact across an entire portfolio is considered. 

Actions that impose additional costs on loss 

mitigation activities further incentives not to offer 

such programs. See Christopher Foote, et al., 

Reducing Foreclosures: No Easy Answers (Federal 

Reserve Bank of Atlanta Working Paper No. 2009– 

15 (May 2009), available at http:// 

www.frbatlanta.org/filelegacydocs/wp0915.pdf. 

182Although efforts to gather reliable data about 

the prevalence of problems resulting from 

proceeding with a foreclosure sale while loss 

mitigation discussion are ongoing, the Federal 

Reserve identified anecdotal evidence of these 

problems as far back as 2008. See Larry Cordell et 

al., The Incentives of Mortgage Servicers: Myths and 

Realities, at 9 (Federal Reserve Board, Working 

Paper No. 2008–46, Sept. 2008). Anecdotal 

evidence continues to accumulate. See, e.g., 

Haskamp, et al. v. Federal National Mortgage 

Assoc., et al., No. 11–cv–2248, Plaintiff’s 

Memorandum of Law In Support of Their Motion 

For Partial Summary Judgment (D. Minn. June 14, 

2012); Stovall v. Suntrust Mortgage, Inc., No. 10– 

2836, 2011 U.S. Dist. LEXIS 106137 (D. Md. 

September 20, 2011); Debra Gruszecki, REAL 

ESTATE: Homeowner Protests ‘‘Dual Tracking,’’ 

Press-Enterprise (June 19, 2012), available at: http:// 

www.pe.com/local-news/local-news-headlines/ 

20120619-real-estate-homeowner-protests-dualtracking.ece. The NCLC conducted a survey of 

consumer attorneys to identify instances of 

foreclosure sales occurring while loss mitigation 

discussions were on-going. Per that survey, 80% of 

surveyed consumer attorneys surveyed reported an 

including requiring evaluation of loss 

mitigation options.178

Many of these requirements have 

coalesced around a common set of best 

practices for servicing. For example, the 

FHFA servicing alignment initiative, the 

National Mortgage Settlement, and 

HAMP all require servicers to review 

loss mitigation applications within 30 

days.179 While these various initiatives 

are starting to bring standardization to 

significant portions of the market, none 

of them to date have set a consistent 

national set of procedures and 

expectations regarding loss mitigation 

procedures. The Bureau believes that 

because so much loss mitigation activity 

is ongoing, and because that activity has 

such potentially significant impacts on 

both individual consumers and the 

health of the larger housing market and 

economy, consistent uniform minimum 

regulations would be appropriate and 

useful to set borrower and servicer 

expectations and provide necessary 

consumer protections. 

The Bureau has considered a number 

of different options for addressing 

consumer harms relating to loss 

mitigation. In general, the Federal 

government has at least three 

approaches to addressing loss 

mitigation: (1) Establishing processes to 

facilitate compliance by market 

participants; (2) mandating outcomes of 

loss mitigation process (implicitly 

raising costs to market participants of 

pursuing actions in violation of the 

mandated outcomes); or (3) providing 

subsidies to incentivize the desired 

outcomes.180 Only options (1) and (2) 

were considered by the Bureau in light 

of the authorities available to the 

Bureau. Options (1) and (2) present a 

stark choice: Whether to mandate 

processes that provide consumer 

protections without mandating specific 

outcomes or whether to mandate 

specific outcomes by establishing 

criteria. For example, a requirement that 

a servicer review a completed loss 

mitigation application establishes 

process requirements but does not 

impose requirements on the substance 

of the servicers review. In contrast, a 

requirement that a servicer provide a 

loan modification when an evaluation of 

a loss mitigation application indicates 

that a loan modification may be net 

present value positive would impose an 

outcome on the process. 

At the outset, it is worth noting that 

the Bureau’s goal is not to achieve any 

particular target with respect to the 

number or speed of foreclosures. The 

Bureau’s goal rather is to ensure that 

borrowers are protected from harm in 

connection with the process of 

evaluating a borrower for a loss 

mitigation option and proceeding to 

foreclosure. For instance, a borrower 

should not be misled about the options 

available to the borrower or the steps 

necessary to seek evaluation for those 

options. Further, servicers should 

review complete loss mitigation 

applications and make appropriate 

decisions with respect to those 

submissions. 

Evaluating the options available to the 

Bureau requires comparison across 

multiple dynamics, including, among 

others, whether the Bureau has properly 

identified consumer harm, whether the 

proposed solutions will effectively 

address the identified consumer harm, 

the risk of unintended market 

consequences and costs, and the 

appropriate scope of authorities 

available to the Bureau. By establishing 

appropriate loss mitigation procedures, 

the Bureau can ensure that borrowers 

receive information about loss 

mitigation options available to them and 

the process for applying for those 

options. Further, borrowers should be 

protected by ensuring that borrowers 

receive an evaluation for all options for 

which they may be eligible, have an 

opportunity to appeal decisions by the 

servicer regarding loan modification 

options, and are protected from 

foreclosure until the process of 

evaluating the borrower’s complete loss 

mitigation application has ended. 

At the same time, the Bureau is 

concerned that going beyond process 

rights to give borrowers the ability to 

file suit over the merits of individual 

loss mitigation options could have 

negative effects on the availability and 

structure of loss mitigation programs 

and, indeed, of mortgage credit 

generally. The Bureau is concerned that 

investors and guarantors could either 

eliminate loss mitigation efforts 

altogether or structure them as vague, 

formless discretionary activities rather 

than risk significant delays in 

foreclosure or incur potential liability 

over the structure and administration of 

the programs.181 Alternatively, the 

prospect of delays and litigation risk 

might cause in a certain investors and 

guarantors to significantly reduce 

mortgage market activity, thus 

potentially curtailing general access to 

credit. The Bureau acknowledges the 

deep frustration and desperate 

circumstances that record numbers of 

borrowers face as they struggle to keep 

their loans current in this difficult 

economy, and believes that a solution 

that eliminates or severely restricts the 

recent increase in loss mitigation 

initiatives and current access to credit 

may not be in consumers’ best interest 

or the best interest of the broader market 

and economy. 

Accordingly, proposed § 1024.41 

requires servicers that make loss 

mitigation options available to 

borrowers in the ordinary course of 

business to undertake certain duties in 

connection with the evaluation of 

borrower applications for loss 

mitigation options. Proposed § 1024.41 

is designed to achieve three main goals: 

First, proposed § 1024.41 provides 

protections to borrowers to ensure that, 

to the extent a servicer offers loss 

mitigation options, borrowers will 

receive timely information about how to 

apply and that a complete application 

will be evaluated in a timely manner. 

Second, proposed § 1024.41 prohibits a 

servicer from proceeding with the end 

of the foreclosure process—that is, the 

scheduled foreclosure sale—until a 

borrower and a servicer have terminated 

discussions regarding loss mitigation 

options.182 Third, proposed § 1024.41 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57267 

instance of an attempted foreclosure sale while 

awaiting a loan modification. National Consumer 

Law Center & National Association of Consumer 

Bankruptcy Attorneys, Servicers Continue to 

Wrongfully Initiate Foreclosures: All Types of Loans 

Affected (Feb. 2012), available at http:// 

www.nclc.org/images/pdf/foreclosure_mortgage/ 

mortgage_servicing/wrongful-foreclosure-surveyresults.pdf. 

183With respect to investor or guarantor 

requirements that do not constitute Federal or State 

law, such as requirements of Fannie Mae, Freddie 

Mac, or Ginnie Mae requirements, or requirements 

of federal or state agencies that serve as guarantors 

of mortgage loans, the Bureau observes that such 

entities may need to review and adjust their 

requirements in light of the consumer protections 

set forth in the proposed rules. 

sets timelines that are designed to be 

completed without requiring a 

suspension of the foreclosure sale date 

to avoid strategic use of these 

procedures to extend foreclosure 

timelines and delay investor recovery 

through foreclosure. 

Although the proposed rule would 

prohibit a servicer from proceeding with 

a foreclosure sale while a complete and 

timely application for loss mitigation is 

pending, the proposal would not 

prohibit a servicer from taking other 

steps in the foreclosure process. The 

Bureau believes that addressing the 

problems associated with concurrent 

loss mitigation application and 

evaluation and foreclosure proceedings 

requires a balanced approach that 

considers the needs of consumers, 

servicers, and mortgage loan investors. 

This balance considers the interest of 

consumers in having servicers provide 

good faith evaluations and 

implementation of loss mitigation 

options as well as the interests of 

investors in obtaining timely recovery 

on assets for which losses cannot be 

mitigated consistent with investor 

requirements. 

The Bureau believes that the proposed 

rule will require servicers to invest in 

processes to accomplish the regulatory 

requirements. 

The Bureau notes that the steps prior 

to the scheduled foreclosure sale can 

vary by servicer, by jurisdiction, by type 

of proceeding, including judicial and 

non-judicial foreclosure. Some steps 

may be internal to an individual 

servicer, such as referring a case to a 

foreclosure department. The timing for 

other steps may be controlled by State 

law or court rules, which vary among 

jurisdictions. In some instances, there 

may be filing deadlines established for 

a particular matter. The Bureau 

recognizes that concerns can arise when 

a servicer proceeds on loss mitigation 

and foreclosure proceeding tracks 

simultaneously. At the same time, the 

Bureau believes that by creating 

obligations on servicers to provide 

prompt notice of what is needed to 

complete a loss mitigation application 

and prompt decisions on completed 

applications—and by prohibiting 

servicers from proceeding to a 

foreclosure sale while a complete and 

timely loss mitigation application is 

pending the proposed rule will address 

the most problematic issues posed by 

concurrent evaluation of loss mitigation 

options and foreclosure proceedings. 

The Bureau notes that the protections 

provided in proposed § 1024.41 will be 

further augmented by protections in 

other parts of the servicing proposals 

that address loss mitigation issues. In 

proposed § 1024.39, for instance, the 

Bureau proposes to implement 

obligations on servicers to contact 

borrowers early in the delinquency 

process and to provide information to 

borrowers regarding loss mitigation 

options. In proposed § 1024.40, the 

Bureau proposes to require servicers to 

provide borrowers with contact 

personnel to assist the borrower with 

the process of applying for a loss 

mitigation option. Such personnel must 

have access to, among other things, 

information regarding loss mitigation 

options available to the borrower, 

actions the borrower must take to be 

evaluated for such loss mitigation 

options, and the status of any loss 

mitigation application submitted by the 

borrower. Further, in proposed 

§ 1024.38, the Bureau proposes to 

require that servicers implement 

policies and procedures that achieve the 

objective of reviewing borrowers for loss 

mitigation options. Finally, in proposed 

§ 1024.35, the Bureau proposes to 

permit a borrower to assert an error as 

a result of a servicer’s failure to 

postpone a scheduled foreclosure sale 

when a servicer has failed to comply 

with the requirements for proceeding 

with a foreclosure sale pursuant to 

proposed § 1024.41(g). All of these 

protections should be considered 

together and these protections, when 

implemented together, will have a 

substantial impact on reducing 

consumer harm. 

In order to reduce burden to servicers 

and costs to borrowers, the Bureau has 

sought to maintain consistency among 

proposed § 1024.41, the national 

mortgage settlement, FHFA’s servicing 

alignment initiative, Federal regulatory 

agency consent orders, and State law 

mortgage servicing statutory 

requirements. In certain instances, each 

of these other sources of servicing 

requirements may be more restrictive or 

prescriptive than proposed § 1024.41. 

That is intentional. Proposed § 1024.41 

establishes a floor of minimum 

consumer protections and provides 

flexibility for Federal regulatory agency 

requirements, State law, or investor and 

guarantor requirements to impose 

obligations that may be more restrictive 

on servicers. 

The Bureau requests comment on all 

aspects of the proposal, and, in 

particular, whether focusing on the 

provision of procedural rights would be 

sufficient to significantly improve the 

efficiency and fairness of loss mitigation 

processing. The Bureau seeks comment 

on whether there are additional 

appropriate measures within the 

authority of the Bureau, or the Federal 

agencies collectively, that could be 

taken to improve loss mitigation 

outcomes for all parties. The Bureau 

seeks comment on whether the 

proposed requirements strike the 

appropriate balance between ensuring 

that consumers’ timely and complete 

applications receive fair and full 

consideration and ensuring 

predictability of outcomes for investors 

and guarantors. Finally, and as 

discussed further below, the Bureau 

seeks comment on whether the 

requirements of proposed § 1024.41 

would require servicers to undertake 

practices that conflict with other 

Federal regulatory agency requirements 

or State law or may cause servicers to 

undertake practices that may reduce the 

value to investors or guarantors of 

offering loss mitigation options.183

41(a) Scope 

Proposed § 1024.41(a) provides that 

the requirements in proposed § 1024.41 

apply to any servicer that offers loss 

mitigation options in the ordinary 

course of business. The purpose of this 

provision is to clarify that the 

requirements in proposed § 1024.41 are 

applicable only to those servicers that 

are engaged in a practice in the ordinary 

course of business of evaluating loss 

mitigation options for their own 

portfolios or pursuant to duties owed to 

investors or guarantors of mortgage 

loans. These include servicers that 

participate in the HAMP program 

sponsored by HUD and Treasury, as 

well as servicers subject to investor or 

guarantor requirements, including 

requirements imposed by Fannie Mae, 

Freddie Mac, Ginnie Mae, private 

investors, or government or private 

guarantors of mortgage loans to evaluate 

loss mitigation options for nonperforming mortgage loans. 

Proposed comment 41(a)–1 clarifies 

that nothing in proposed § 1024.41 is 

intended to impose a duty on a servicer 

to offer loss mitigation options to 

borrowers generally or to offer or 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57268 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

184See United States of America et al. v. Bank of 

America Corp. et al., at Appendix A, at A–26, 

available at http://nationalmortgagesettlement.com; 

Freddie Mac Single Family Seller/Servicer Guide, 

Vol. 2 § 64.6(d)(4) (2012); Fannie Mae Single Family 

Servicing Guide § 205.07 (2012). 

approve any particular borrower for a 

loss mitigation option. As set forth 

above, the Bureau does not intend to 

create a right for borrowers to enforce in 

private litigation requirements that are 

imposed by investors or guarantors on 

servicers to take steps to protect the 

investors or guarantors from losses that 

can be avoided. The Bureau believes it 

is appropriate to clarify in proposed 

comment 41(a)–1 that the rules do not 

impose a duty on a servicer to offer loss 

mitigation or to approve any particular 

borrower for a loss mitigation option 

and that the rules should not be 

construed to impose liability on a 

servicer, or any other party, for any 

failure to offer a loss mitigation option, 

so long as the servicer complies with the 

procedural requirements of proposed 

§ 1024.41. 

Certain servicers that do not evaluate 

borrowers for loss mitigation options in 

the ordinary course of business would 

not be subject to proposed § 1024.41. In 

proposed comment 41(a)–2, the Bureau 

sets forth examples of practices that 

should not be considered, by 

themselves, considered indicia that a 

servicer had opted to offer loss 

mitigation options in the ordinary 

course of business. For example, it is 

not the Bureau’s intention to impose the 

requirements in proposed § 1024.41 on 

servicers that agree to limit adverse 

consequences to borrowers for making 

late payments, including by waiving late 

fees or declining to furnish negative 

information to a consumer reporting 

agency or on servicers that have decided 

to engage in a temporary or pilot 

program to explore the feasibility of 

offering certain loss mitigation options. 

Proposed comment 41(a)–2 clarifies that 

such practices, which may be the 

economic equivalent of a loss mitigation 

option, such as a forbearance plan, 

should not indicate by themselves that 

a servicer offers loss mitigation options 

to borrowers in the ordinary course of 

business. 

41(b) Loss Mitigation Application 

Proposed § 1024.41(b)(1) provides that 

a complete loss mitigation application 

includes all the information the servicer 

regularly obtains and considers in 

evaluating loss mitigation applications. 

This provision provides each servicer 

with flexibility to establish 

requirements regarding the type of 

information that the servicer deems 

necessary to determine whether a 

borrower is eligible for a loss mitigation 

option based on differing investor or 

guarantor guidelines. 

Upon receipt of an incomplete loss 

mitigation application, proposed 

§ 1024.41(b)(2) requires servicers to 

exercise reasonable diligence to obtain 

the additional information required to 

make a loss mitigation application 

complete. To that end, a servicer that 

receives an incomplete loss mitigation 

application earlier than 5 days before 

the timeline established for proposed 

§ 1024.41(f) shall within a reasonable 

time, but in no event later than 5 days 

(excluding legal public holidays, 

Saturdays, or Sundays) provide a notice 

to a borrower. The notice must state that 

the application is incomplete, identify 

the additional information or 

documents necessary to make the 

application complete, and provide a 

deadline by which the borrower must 

submit the additional information or 

documents. 

The Bureau believes it is appropriate 

to require that servicers provide the 

notice within a reasonable time, but in 

no event later than 5 days (excluding 

legal public holidays, Saturdays, or 

Sundays) after receiving the incomplete 

application. Fannie Mae and Freddie 

Mac guidelines, as well as the national 

mortgage settlement, require servicers to 

provide a substantially similar but, in 

some cases more prescriptive, notice 

within 5 business days of receipt of an 

incomplete application.184 When a 

servicer receives an application more 

than 5 days before the deadline the 

servicer has established for submitting a 

complete application, the servicer has 

sufficient opportunity to review the loss 

mitigation application, determine the 

information or documents that have not 

been provided and provide that 

information to the borrower. Further, 

even when a loss mitigation application 

is submitted less than 5 days (excluding 

legal public holidays, Saturdays, or 

Sundays) before the applicable 

deadline, a servicer must undertake 

reasonable diligence to obtain the 

information even if the servicer is not 

required to provide the notice 

contemplated by proposed 

§ 1024.41(b)(2). 

Proposed § 1024.41(b) does not 

require a servicer to stop foreclosure 

proceedings when a borrower submits 

an incomplete loss mitigation 

application. Further, unless an 

incomplete loss mitigation application 

is made complete by the deadline 

established by the servicer pursuant to 

proposed § 1024.41(f), a servicer is not 

required to comply with the loss 

mitigation procedures for an incomplete 

loss mitigation application. The Bureau 

requests comment regarding whether 

servicers should be required to 

undertake any further obligations in 

connection with an incomplete or 

substantially complete loss mitigation 

application and what any further 

obligations should be. 

41(c) Review of Loss Mitigation 

Applications 

Proposed § 1024.41(c) states that, 

within 30 days of receiving a complete 

loss mitigation application, a servicer 

must evaluate the borrower for all loss 

mitigation options available from the 

servicer for which the borrower may 

qualify and provide the borrower with 

a written notice stating the servicer’s 

determination of whether it will offer 

the borrower a loss mitigation option. 

The Bureau believes that it is 

appropriate to require servicers to 

evaluate complete loss mitigation 

applications within 30 days, which is an 

industry standard, as discussed above. 

The Bureau further believes it is 

appropriate to require a servicer to 

evaluate a borrower for all loss 

mitigation options available from the 

servicer for which the borrower may 

qualify rather than to require borrowers 

to select options for which the borrower 

may be evaluated. A servicer is in a 

better position than a borrower to 

determine the loss mitigation programs 

for which a borrower may qualify. 

Currently, many investors and 

guarantors have established set priority 

orders for evaluating and offering loss 

mitigation options rather than requiring 

borrowers to select loss mitigation 

programs. While borrowers should not 

be required to select loss mitigation 

programs themselves for an evaluation, 

a consequence of ordering loss 

mitigation programs based on least cost 

to an investor is that a borrower that 

may qualify for a program farther down 

on the priority list may believe that the 

first option offered is the only option 

available to the borrower. This may lead 

to less effective programs, disparate 

outcomes for similarly situated 

borrowers, and longer timelines for 

effectuating loss mitigation options. 

The Bureau has proposed that a 

servicer evaluate a borrower for all loss 

mitigation programs offered by the 

servicer for which the borrower may be 

eligible. The Bureau believes that this 

will ensure that all borrowers receive 

fair evaluations for all options available 

to them and will be able to identify 

options. Further, servicers will not be 

required to evaluate borrowers for any 

programs for which a borrower does not 

qualify based on eligibility criteria 

established by investors or guarantors. 

In sum, investors, guarantors, and 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57269 

185See National Mortgage Settlement at Appendix 

A, at A–16, available at http:// 

nationalmortgagesettlement.com. 

186See United States of America et al. v. Bank of 

America Corp. et al., at Appendix A, at A–27, 

available at http://nationalmortgagesettlement.com. 

servicers retain the ability to manage 

loss mitigation programs to ensure that 

borrower eligibility and program 

administration is consistent with 

investor and guarantor requirements, 

while borrowers will be able to 

understand all potential options that 

may be available. 

The Bureau has received feedback 

that a requirement that servicers 

evaluate borrowers for all loss 

mitigation programs offered by the 

servicer will impact servicers’ ability to 

manage programs through priority 

ordering of loss mitigation options. The 

Bureau agrees that the proposed rules 

would impact the ability to manage 

programs through the use of a loss 

mitigation option priority order, as a 

servicer will be required to evaluate a 

borrower for all programs and provide a 

notice of the results of the evaluation for 

all programs. However, the Bureau 

believes that servicers will be able to 

achieve the similar controls through the 

use of more detailed and comprehensive 

evaluation criteria and that the 

requirement will not ultimately impair 

a servicer’s, investor’s, or guarantor’s 

ability to manage loss mitigation 

programs. The requirement that a 

servicer consider a borrower’s 

application for all loss mitigation 

programs for which a borrower may 

qualify is consistent with the national 

mortgage settlement, which states that 

‘‘[u]pon timely receipt of a complete 

loan modification application, Servicer 

shall evaluate borrowers for all available 

loan modification options for which 

they are eligible * * * .’’ 185 Further, the 

Bureau’s proposed requirement 

eliminates the need for borrowers to 

submit multiple applications for 

different loss mitigation options and, 

thus, provides for more efficient 

compliance by servicers with the 

requirements of the rules. 

Proposed comment 41(c)(1)–1 clarifies 

that the servicer’s evaluation of a 

borrower for a loss mitigation option is 

subject to the eligibility criteria for each 

loss mitigation option. For example, if a 

loss mitigation option is only available 

for military servicemembers, a servicer 

has conducted a proper evaluation if it 

determines that the borrower is not a 

servicemember and, therefore, as a 

threshold matter is ineligible for the 

program. Similarly, to the extent 

eligibility criteria for pilot programs, 

temporary programs, or programs that 

are limited by the number of 

participating borrowers, would exclude 

a borrower from eligibility, a servicer is 

not obligated to evaluate the borrower 

for any such loss mitigation option just 

as if the eligibility criteria did not exist. 

Because the requirements of proposed 

§ 1024.41 are not intended to require 

that a borrower have a right to a loss 

mitigation option, nothing in proposed 

§ 1024.41 should be construed to 

prohibit a servicer from imposing any 

eligibility criteria the servicer (or the 

investor or guarantor of a mortgage loan) 

determines is appropriate for a loss 

mitigation option. 

Proposed § 1024.41(c) requires 

servicers to notify borrowers of the 

outcome of the servicer’s evaluation of 

the borrower for a loss mitigation 

option. Notice from the servicer 

provides certainty to the borrower 

regarding the outcome and serves as a 

basis for a borrower to accept, reject, or, 

where permitted, appeal, the servicer’s 

determination. 

The Bureau requests comment 

regarding whether a servicer should be 

required to review a borrower for all 

loss mitigation options for which the 

borrower may be eligible. The Bureau 

further requests comment regarding 

what a servicer’s obligation to review a 

borrower’s complete application for a 

loss mitigation option should be if the 

obligation is not to review for all loss 

mitigation options for which the 

borrower may be eligible. 

41(d) Denial of Loan Modification 

Options 

Proposed § 1024.41(d) imposes 

additional obligations on servicers that 

deny borrower loss mitigation 

applications with respect to trial or 

permanent loan modifications. When a 

servicer determines that a borrower is 

not eligible for a loan modification as a 

loss mitigation option, the written 

notice provided by the servicer to the 

borrower must state the specific reasons 

for the determination and inform the 

borrower of the right to appeal the 

servicer’s determination pursuant to 

proposed § 1024.41(h). The notice must 

include the deadline for filing the 

appeal and any requirements, such as, 

for example, forms or documents the 

borrower must file in connection with 

the appeal process. 

Because the determination that a 

borrower does not qualify for a loan 

modification option has significant 

consequences, the Bureau believes that 

borrowers should receive accurate 

information regarding the basis for the 

servicer’s determination. In that regard, 

proposed comments 41(d)(1)–1 and 

41(d)(1)–2 provide examples regarding 

the information that should be included 

in the specific reasons provided to the 

borrower in the notice when a borrower 

is denied a loan modification on the 

basis of an investor requirement or a net 

present value calculation. The Bureau 

believes this information can assist 

borrowers in providing appropriate and 

relevant information to servicers in 

connection with the appeal process. 

Further, these requirements are 

consistent with the national mortgage 

settlement.186

The Bureau requests comment 

regarding whether servicers should 

provide the basis for the servicer’s 

determination that a borrower does not 

qualify for each loan modification 

program. The Bureau further requests 

comment on whether servicers should 

be required to provide the information 

set forth in proposed comments 

41(d)(1)–1 and 41(d)(1)–2 regarding 

investor requirements and net present 

value tests. In addition, the Bureau 

requests comment regarding whether 

servicers should be required to provide 

the basis for the servicer’s determination 

that a borrower does not qualify for each 

loss mitigation program, including nonloan modification programs. 

41(e) Borrower Response and 

Performance 

Proposed § 1024.41(e) sets forth 

standards for when a borrower is 

considered to have accepted or rejected 

a loss mitigation option offered by a 

servicer. Proposed § 1024.41(e) provides 

that a servicer may impose requirements 

on the manner in which a borrower 

must accept or reject a loss mitigation 

option, subject to standards for 

acceptance and rejection set forth in the 

rule. The proposed rule provides that if 

a borrower does not satisfy the servicer’s 

requirements for accepting a loss 

mitigation option, but submits the first 

payment that would be owed pursuant 

to any such loss mitigation option 

within the deadline established by the 

servicer, the borrower shall be deemed 

to have accepted the offer of a loss 

mitigation option. This presumption is 

consistent with the terms of the 

National Mortgage Settlement. The 

Bureau recognizes that this proposed 

standard would set forth a presumption 

with respect to the parties’ intent to 

enter into an agreement on a loss 

mitigation option and requests comment 

regarding whether the Bureau should 

implement a presumption to establish 

when parties should be considered to 

have entered into an agreement on a loss 

mitigation option. 

The Bureau further believes it is 

appropriate to allow a servicer that has 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57270 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

187See, e.g., National Mortgage Settlement, at 

Appendix A, at A–17, available at http:// 

nationalmortgagesettlement.com; Freddie Mac 

Single Family Seller/Servicer Guide § 64.6(d)(5) 

(2012); Fannie Mae Single Family Servicing Guide 

§ 103.04 (2012); 2012 Cal. Legis. Serv. Ch. 86 (A.B. 

278) (WEST) amending Cal. Civ. Code § 2923. 

Moreover, Fannie Mae servicing guidelines provide 

a servicer’s review of a borrower’s application for 

a loss mitigation option must not exceed 30 days 

and that if a servicer receives a borrower response 

package before 37 days prior to the foreclosure sale 

date, no delay in legal action is required, unless an 

offer is made and the foreclosure sale is within the 

borrower’s 14-day response period. See Fannie Mae 

Single Family Servicing Guide §§ 103.04, 107.01.02 

(2012). 

not received a response from a borrower 

to an offer of loss mitigation after 14 

days to deem the borrower’s lack of a 

response as a rejection of the loss 

mitigation option. A 14-day timeframe 

for a borrower to respond to an offer of 

a loss mitigation option is consistent 

with GSE requirements, the National 

Mortgage Settlement, State law, and 

Federal regulatory agency 

requirements.187

The Bureau requests comment on 

whether servicers should be required to 

allow borrowers to accept or reject offers 

of loss mitigation options orally, 

including any compliance burdens 

imposed as a result of any such 

requirement. 

41(f) Deadline for Loss Mitigation 

Applications 

Proposed § 1024.41(f) states that a 

servicer may set a deadline by which a 

borrower must submit a complete loss 

mitigation application, so long as any 

such deadline is no earlier than 90 days 

before a scheduled foreclosure sale. A 

90-day threshold appears to set an 

appropriate balance. A servicer that sets 

a deadline for complete loss mitigation 

applications of 90 days before a 

scheduled foreclosure sale will have 30 

days to review a borrower’s application 

for a loss mitigation option, will be able 

to provide the borrower with 14 days to 

respond to the servicer’s offer of a loss 

mitigation option and/or to file an 

appeal, will be able to consider any 

timely appeal during a subsequent 30 

day period, and will be able to provide 

the borrower with an additional 14 days 

to respond to any offer of a loss 

mitigation option after an appeal. A 

servicer’s decision on an appeal is not 

itself subject to appeal and a servicer is 

not required to consider any further 

appeals after the initial appeal. Thus, 

with the timeline set forth, a servicer 

must complete the entire process within 

88 days. Because a servicer has the 

flexibility to establish a deadline that is 

no earlier than 90 days before 

foreclosure sale, the process can be 

completed without rescheduling the 

foreclosure sale. 

Comment 41(f)–1 clarifies that where 

a foreclosure sale has not been 

scheduled, or where a foreclosure sale 

may occur less than 90 days after the 

sale is scheduled pursuant to State law, 

a servicer should establish a deadline 

that is no earlier than 90 days before the 

day that a servicer reasonably 

anticipates that a foreclosure sale will 

be scheduled. 

41(g) Prohibition on Foreclosure Sale 

Proposed § 1024.41(g) provides that if 

a servicer receives a complete loss 

mitigation application by the deadline 

established pursuant to proposed 

§ 1024.41(f), the servicer may not 

proceed to foreclosure sale unless: (1) 

The servicer denies the borrower’s 

application for a loss mitigation option 

and the appeal process is inapplicable, 

the borrower has not requested an 

appeal, or the time for requesting an 

appeal has expired; (2) the servicer 

denies the borrower’s appeal; (3) the 

borrower rejects a servicer’s offer of a 

loss mitigation option; or (4) a borrower 

fails to perform pursuant to the terms of 

a loss mitigation option. 

The Bureau believes it is appropriate 

to require that if a servicer offers loss 

mitigation options to borrowers in the 

ordinary course of business, and the 

borrower submits a complete 

application for a loss mitigation 

application by the deadline established 

by the servicer, a servicer should not 

proceed with a scheduled foreclosure 

sale until the servicer and borrower 

have terminated discussions regarding 

the loss mitigation option. The Bureau 

believes this point occurs when a 

borrower is denied for a loss mitigation 

option (and any appeal process has 

ended) or where a borrower rejects a 

servicer’s offer of a loss mitigation 

option. 

Further, the Bureau believes it is 

appropriate to suspend a scheduled 

foreclosure sale when a borrower is 

performing under an agreement on a 

loss mitigation option. A servicer’s basis 

for servicing a mortgage loan, and 

undertaking actions to collect on an 

unpaid obligation, emanates from the 

contractual relationship between the 

owner or assignee of the mortgage loan 

and the borrower. A servicer’s 

determination to hold a scheduled 

foreclosure sale when a borrower is 

performing under an agreement that 

forestalls foreclosure violates the 

agreement entered into with the 

borrower. Additionally, it is already 

standard industry practice for a servicer 

to suspend a scheduled foreclosure sale 

during any period where a borrower is 

making payments pursuant to the terms 

of the trial loan modification. 

In terms of workflow, when a servicer 

receives a complete loss mitigation 

application, it will either offer the 

borrower a loss mitigation option or 

deny the borrower’s request for a loss 

mitigation option. If the borrower’s 

request is denied, the borrower may file 

an appeal if the denial concerns a trial 

or permanent loan modification. Upon 

reviewing the appeal, a servicer will 

determine to either offer the borrower a 

loss mitigation option or, again, to deny 

the borrower’s request for a loss 

mitigation option. If the request is 

denied, then the servicer may proceed 

to a foreclosure sale. If a loss mitigation 

option is offered, either after the initial 

evaluation or after appeal, a borrower 

may either accept or reject the offer of 

the loss mitigation option. If the 

borrower rejects the loss mitigation 

option, the servicer may proceed to a 

foreclosure sale. If the borrower accepts 

the loss mitigation option, the borrower 

will either perform or fail to perform 

pursuant to the terms of the agreement 

on the loss mitigation option. If a 

borrower fails to perform pursuant to 

the terms of the agreement on the loss 

mitigation option, the servicer may 

proceed with the foreclosure sale. 

Proposed comments 41(g)–1 and 

41(g)–2 clarify the application of the 

borrower performance definitions with 

respect to short sales. Typically, a short 

sale will include a listing or marketing 

period during which a servicer will 

agree to postpone a foreclosure sale in 

order to allow a borrower to market a 

property for a short sale transaction. The 

proposed comments clarify that a 

borrower is performing under the terms 

of a short sale agreement or other 

similar loss mitigation agreement during 

the term of any such marketing or listing 

period, and any terms subsequent to 

such periods, if a short sale transaction 

is approved by all relevant parties, and 

the servicer has received proof of funds 

or financing. 

Further, a servicer’s failure to suspend 

a scheduled foreclosure sale when a 

servicer has failed to comply with the 

requirements of proposed § 1024.41(g) is 

defined as a covered error in proposed 

§ 1024.35(b)(9). A borrower will be able 

to assert this error and require a servicer 

to engage in the error resolution 

procedures to address this error. In 

order to avoid the use of this 

requirements, and the error resolution 

procedures, as a strategic tool to delay 

foreclosure, the Bureau has proposed 

§ 1024.35(f)(2), which provides that if an 

error relating to a servicer’s failure to 

suspend a foreclosure sale is asserted 

seven days or less before a scheduled 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
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188See National Mortgage Settlement, at 

Appendix A, at A–27, available at http:// 

nationalmortgagesettlement.com. 

189See 2012 Cal. Legis. Serv. Ch. 86 (A.B. 278) 

(WEST) amending Cal. Civ. Code § 2923.6. 

foreclosure sale, the servicer is not 

required to comply with the full error 

resolution procedures and may, 

alternatively, respond to the borrower 

orally or in writing in response to the 

notice of error. Because the 

requirements of proposed § 1024.41 are 

procedural in nature, the Bureau 

believes that servicers will be able to 

resolve and respond to any assertions of 

error on a very expedited basis by 

confirming that the appropriate 

procedure was followed. 

By prohibiting a servicer from 

proceeding with a scheduled foreclosure 

sale until termination of loss mitigation 

discussion, the Bureau proposes to 

eliminate the clearest harms on 

borrowers resulting from servicers 

pursuing loss mitigation and foreclosure 

proceedings concurrently. 

41(h) Appeal Process 

Proposed § 1024.41(h) would require 

servicers to establish an appeals process 

to review denials of complete loss 

mitigation applications for loan 

modifications. Limiting the appeals 

process only to denials of loan 

modifications reduces burdens on 

servicers and maintains consistency 

with existing appeals and escalation 

processes established under State law or 

Federal regulatory agency requirements. 

For example, the appeal process 

established by the national mortgage 

settlement relates to denials of first lien 

loan modification denials.188 Further, 

the recent California Homeowner Bill of 

Rights provides for an appeal process 

for denials of first lien loan 

modification.189 Moreover, loan 

modifications are some of the most 

complex loss mitigation programs with 

respect to the evaluation of borrowers, 

and the Bureau believes that loan 

modification provides an appropriate 

scope for an appeal process. 

Pursuant to proposed § 1024.41(h), if 

a servicer reviews an appeal and 

determines to offer a loss mitigation 

option, the servicer shall not foreclose 

on a borrower unless the borrower 

rejects the offer of the loss mitigation 

option or fails to comply with terms of 

the loss mitigation option. If a servicer 

denies a borrower’s appeal of a loss 

mitigation option, the servicer may 

proceed with a foreclosure sale. 

Proposed § 1024.41(h) would provide 

that an appeal must be reviewed by 

servicer personnel that were not directly 

involved in the initial evaluation. The 

Bureau believes that this basic safeguard 

would help to reduce the risk of bias in 

the appeals process, since the person 

who made the initial decision may have 

a particularly strong interest in 

upholding that decision. Proposed 

comment 41(h)(3)–1 clarifies that 

supervisory personnel that supervised 

the personnel that conducted the initial 

evaluation may conduct the appeal 

evaluation if they were not directly 

involved in the initial evaluation. 

Proposed § 1024.41(h)(4) provides for 

the servicer to provide a written notice 

to the borrower stating the servicer’s 

determination. 

The Bureau requests comment on 

whether to require servicers to engage in 

an appeals process. Further, the Bureau 

requests comment on whether the 

appeals process should be limited to 

denials of loan modifications and other 

similar loss mitigation options. Further, 

the Bureau requests comment regarding 

the impact on small servicers (as that 

term is defined in the 2012 TILA 

Servicing Proposal) of the requirement 

that the appeal must be evaluated by 

servicer personnel that were not directly 

involved in the initial loss mitigation 

application evaluation, and where such 

requirement should be modified or 

eliminated for small servicers. 

41(i) Duplicative Requests 

Proposed § 1024.41(i) provides that a 

servicer is only required to comply with 

the requirements of proposed § 1024.41 

if a borrower has not previously been 

evaluated for loss mitigation options for 

the borrower’s mortgage loan account by 

that servicer. Thus, a servicer is not 

required to apply the requirements of 

§ 1024.41 to a subsequent complete 

application for a loss mitigation option. 

In situations where servicing has 

transferred after the borrower received 

an evaluation on a complete loss 

mitigation application from the 

transferor servicer, the transferee 

servicer may be required to comply with 

the requirements of proposed § 1024.41. 

The Bureau believes that when an 

investor is transferring servicing to a 

new servicer, which may have been 

driven by owner or assignee’s 

determination that the new servicer can 

better achieve loss mitigation options 

with borrowers, borrowers should be 

able to renew an application for a loss 

mitigation option with the transferee 

servicer, subject to the applicable 

deadlines and requirements in proposed 

§ 1024.41. 

The Bureau requests comment 

regarding whether a borrower should be 

entitled to renewed evaluation for a loss 

mitigation option if an appropriate time 

period has passed since the initial 

evaluation or if there is a material 

change in the borrower’s circumstances. 

If so, the Bureau requests comment on 

what should constitute appropriate time 

periods and requirements applicable to 

such reviews. 

41(j) Other Liens 

Proposed § 1024.41(j) provides that 

any servicer that receives a complete 

loss mitigation application shall (1) 

within 5 days, determine if any other 

servicers service mortgage loans that 

have senior or subordinate liens 

encumbering the property that is the 

subjection of the loss mitigation 

application, and (2) provide the loss 

mitigation application received from the 

borrower to the other servicer. 

Loss mitigation applications for 

properties encumbered by multiple 

liens present some of the most difficult 

loss mitigation situations for investors 

and borrowers. The Bureau believes it is 

appropriate to impose on servicers the 

obligation (1) to identify other servicers 

that may be impacted by loss mitigation 

evaluation for a property and (2) to 

provide the loss mitigation application 

from the borrower to the other servicers. 

When the other servicer receives the 

loss mitigation application, that servicer 

shall be required to comply with the 

requirements of proposed § 1024.41 if 

the servicer offers loss mitigation 

options to borrowers in the ordinary 

course as required by proposed 

§ 1024.41(a). Further, the servicer that 

receives the loss mitigation application 

from another servicer shall be required 

to comply as if the servicer received the 

application from the borrower. For 

example, if the initial servicer passes an 

application to the other servicer that is 

incomplete under the other servicer’s 

guidelines, the other servicer would be 

required pursuant to proposed 

§ 1024.41(b)(2)(ii) to provide the 

borrower with the incomplete loss 

mitigation application notice. 

The Bureau notes that the GrammLeach-Bliley Act as implemented by 

Regulation P does not require provision 

of an initial notice and opt-out in 

connection with providing the loss 

mitigation application submitted by a 

borrow to another servicer under the 

exception set forth in 12 CFR 

1016.15(a)(7). 

Small servicers. The Bureau is 

conscious of the potential impacts of the 

loss mitigation requirements on small 

servicers. In order to gain feedback on 

small servicer impacts, the Bureau 

participated in a Small Business Review 

Panel and conducted outreach with 

SERs. At the time the Small Business 

Review Panel outreach was conducted, 

the Bureau had not decided to include 

a separate provision concerning loss 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
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190See Small Business Review Panel Report, 

appendix C at 19, 22, 24–26. 

191See Small Business Review Panel Report at 26. 

mitigation procedures. Rather, the 

Bureau solicited feedback from the SERs 

on many elements of the loss mitigation 

process in conjunction with other 

elements of the servicing proposals, 

including impacts on loss mitigation 

processes of small servicers from 

proposed rules relating to error 

resolution, reasonable information 

management policies and procedures, 

early intervention for troubled or 

delinquent borrowers, and continuity of 

contact. In particular, the Bureau 

requested feedback from small servicers 

on the following: (1) A duty to suspend 

a foreclosure sale while a borrower is 

performing as agreed under a loss 

mitigation option or other alternative to 

foreclosure; (2) the ability to adopt 

policies and procedures to facilitate 

review of borrowers for loss mitigation 

options; (3) the ability to provide 

information regarding loss mitigation 

early in the foreclosure process to 

borrowers; and (4) the ability to provide 

borrowers with the opportunity to 

discuss evaluations for loss mitigation 

options with designated servicer contact 

personnel.190

The SERs generally informed the 

Small Business Review Panel that they 

engaged in individualized contact with 

borrowers early in the foreclosure 

process, that some servicers completed 

discussions of loss mitigation options 

with borrowers prior to a point in time 

when borrowers should receiving 

significant foreclosure related 

information, and generally worked 

closely with foreclosure counsel such 

that foreclosure processes and loss 

mitigation could be easily conducted 

simultaneously without prejudice to the 

loss mitigation process. Further, the 

SERs explained that they were willing 

to communicate with borrowers about 

loss mitigation contemporaneously with 

the foreclosure process, and one small 

entity representative indicated that it 

would be willing to bring a mortgage file 

back to the servicer for consideration of 

a modification and halt the foreclosure 

process, if appropriate.191

Based in part on the outreach with the 

SERs on April 24, 2012, as well as other 

feedback obtained by the Bureau after 

that outreach meeting, the Bureau 

considered proposing clearer and more 

detailed requirements relating to loss 

mitigation practices. The Bureau 

determined, for the sake of clarity and 

consistency, to include loss mitigation 

obligations as a separate section, rather 

than embedding the requirements 

within the provisions relating to error 

resolution, reasonable information 

management policies and procedures, 

early intervention for troubled or 

delinquent borrowers, and continuity of 

contact. 

The Bureau believes that adding a 

separate section to address loss 

mitigation builds upon the feedback 

received by the Bureau as set forth in 

the Small Business Review Panel 

Report, although that report and the 

outreach meeting with SERs were not 

structured around the discussion of 

regulations relating to loss mitigation 

obligations as a separate section and did 

not focus in significant detail on some 

of the specific measures proposed here 

such as, for example, appeals of loss 

mitigation determinations. The Bureau 

also believes that adding a separate 

section to address loss mitigation 

provides greater regulatory clarity to 

servicers, including small servicers. 

Therefore, the Bureau specifically 

requests comment from small servicers 

(as that term is defined in the 2012 TILA 

Servicing Proposal) regarding the 

potential impacts of the loss mitigation 

requirements in proposed § 1024.41 on 

small servicers. Specifically, as set forth 

above, the Bureau requests comment of 

the requirement that an appeal must be 

evaluated by servicer personnel that 

were not directly involved in the initial 

loss mitigation application evaluation. 

Legal authority. In proposing 

§ 1024.41, the Bureau relies on its 

authority in section 6(k)(1)(E) of RESPA 

to set forth obligations appropriate to 

carry out the consumer protection 

purposes of RESPA and section 6(j)(3) of 

RESPA to set forth requirements 

necessary to carry out section 6 of 

RESPA. Further, proposed § 1024.41 

implements, in part, a servicer’s 

obligation to take timely action to 

correct errors relating to avoiding 

foreclosure in section 6(k)(1)(C) of 

RESPA by establishing servicer duties to 

avoid foreclosure that are the subject of 

the error resolution provisions in 

proposed § 1024.35. 

The Bureau further relies on its 

authority in section 19(a) of RESPA to 

make such rules and regulations and to 

make such interpretations as may be 

necessary to achieve the consumer 

protection purposes of RESPA. 

Appendix MS 

Appendix MS to part 1024 sets forth 

model forms, model clauses that 

servicers may use to comply with the 

mortgage servicing requirements of 

Regulation X. As discussed in detail 

below, the Bureau proposes to modify 

the model form applicable to servicing 

transfer disclosure requirements, to add 

a new model for force-placed insurance 

disclosure requirements, and to add 

new model clauses for early 

intervention notice requirements. The 

Bureau is proposing official 

commentary that would apply to 

existing model forms MS–1 and MS–2, 

as well as a proposed model form MS– 

3 for the proposed force-placed 

insurance disclosure and proposed 

model clauses at MS–4 for the proposed 

early intervention written notice. The 

Bureau is proposing these comments to 

provide guidance that would be 

generally applicable for the mortgage 

servicing model forms and clauses. The 

Bureau solicits comment on the 

appropriateness of this guidance for the 

mortgage servicing disclosures. 

Proposed comment MS–1 explains 

that appendix MS contains model forms 

and clauses for mortgage servicing 

disclosures. Each of the model forms is 

designated for use in a particular set of 

circumstances as indicated by the title 

of that model form or clause. Although 

use of the model forms and clauses is 

not required, servicers using them 

properly will be deemed to be in 

compliance with the regulations with 

regard to those disclosures. To use the 

forms appropriately, information 

required by regulation must be set forth 

in the disclosures. 

Proposed comment MS–2 explains 

that servicers may make certain changes 

to the format or content of the forms and 

clauses and may delete any disclosures 

that are inapplicable without losing the 

protection from liability so long as those 

changes do not affect the substance, 

clarity, or meaningful sequence of the 

forms and clauses. Servicers making 

revisions to that effect will lose their 

protection from civil liability. Except as 

otherwise specifically required, 

acceptable changes include, for 

example: (1) Use of ‘‘borrower’’ and 

‘‘servicer’’ instead of pronouns; (2) 

substitution of the words ‘‘lender’’ and 

‘‘servicer’’; and (3) addition of graphics 

or icons, such as the servicer’s corporate 

logo. 

Appendix MS–2—Model Form for 

Mortgage Servicing Transfer Disclosure 

Appendix MS–2 to part 1024 sets 

forth the format for the servicing 

transfer disclosure required pursuant to 

section 6(a)(3) of RESPA and proposed 

§ 1024.33(b)(5). The Bureau proposes to 

revise the model form in appendix MS– 

2 to significantly reduce the length of 

the require disclosure to borrowers in 

connection with mortgage servicing 

transfers. 

As a preliminary matter, the Bureau 

observes that unless a transferor and 

transferee servicer coordinate to provide 

a consolidated disclosure, a borrower 


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Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57273 

will receive substantially similar 

disclosures in the form of appendix 

MS–2 from both a transferor servicer 

and a transferee servicer. The Bureau is 

concerned that the volume of the 

disclosure may overwhelm borrowers, 

who will not focus on the information 

set forth in the form, while also 

imposing a burden on servicers to 

provide lengthy and unnecessary 

disclosures. 

The Bureau proposes to streamline 

the language of the model form to focus 

on only the elements of information that 

a borrower needs in connection with a 

mortgage servicing transfer, specifically 

(1) the date of the transfer, (2) contact 

information for the transferor servicer, 

(3) contact information for the transferee 

servicer, (4) applicable dates for when 

each of the servicers will begin or cease 

to accept payments, (5) the impact of the 

transfer on any insurance products and 

(6) a statement that the transfer does not 

otherwise affect the terms or conditions 

of the mortgage loan. 

The Bureau proposes to remove 

significant discussion in the model form 

regarding the availability of the 

qualified written request process and 

the borrower’s rights pursuant to 

RESPA. Information regarding the 

qualified written request process is 

likely to confuse borrowers in light of 

the proposed error resolution and 

information requirements set forth in 

this proposal. Further, the Bureau 

believes that error resolution and 

information request requirements are 

more effective by requiring servicers to 

respond to the notices of error and 

inquiries they receive as a result of 

having provided the appropriate contact 

information on the form. Further, the 

Bureau observes that this additional 

content is not required by section 6(a)(3) 

of RESPA. In light of these obligations, 

the Bureau does not believe the added 

discussion of the qualified written 

request process and RESPA provided 

additional practical value to consumers 

and detract from other important 

content of the form. 

The Bureau relies on its authority in 

sections 6(a)(3), 6(j)(3), and 19(a) of 

RESPA to set forth requirements on 

servicers with respect to providing the 

mortgage servicing transfer notices 

required by section 6(a)(3) of RESPA. 

Appendix MS–3—Model Force-Placed 

Insurance Notice Forms 

Appendix MS–3 to part 1024 sets 

forth model forms that mortgage 

servicers may use to comply with the 

Bureau’s force-placed insurance 

disclosure requirements. As discussed 

previously in the Bureau’s discussion of 

proposed appendix MS, servicers are 

not required to use model forms to 

comply with the mortgage servicing 

disclosures of Regulation X, including 

the disclosures set forth in proposed 

§ 1024.37. Using the model forms 

properly, however, will be deemed to be 

in compliance with regulation with 

regard to those disclosures. 

Proposed comment MS–3–1 provides 

that the model form MS–3(A) illustrates 

how a servicer may comply with 

§ 1024.37(c)(2). Proposed comment MS– 

3–2 provides that the model form MS– 

3(B) illustrates how a servicer may 

comply with § 1024.37(d)(2)(i). 

Proposed comment MS–3 provides that 

the model form MS–3(C) illustrates how 

a servicer may comply with 

§ 1024.37(d)(2)(ii). Proposed comment 

MS–3–4 provides that model MS–3(D) 

illustrates how a servicer may comply 

with § 1024.37(e)(2). Proposed comment 

MS–3–5 provides that where the model 

forms MS–3(A), MS–3(B), MS–3(C), and 

MS–3(D) use the term ‘‘hazard 

insurance,’’ the servicer may substitute 

‘‘hazard insurance’’ with, as applicable, 

‘‘homeowner’s insurance’’ or ‘‘property 

insurance.’’ The Bureau, however, notes 

that proposed MS–3–5 does not permit 

the servicer to use the term 

‘‘homeowner’s insurance’’ to describe 

force-placed insurance. 

As discussed previously, the Bureau 

believes that it is necessary and 

appropriate to carry out and achieve the 

purposes of RESPA section 6, and the 

consumer protections of RESPA, to 

facilitate compliance with the new 

Dodd-Frank Act requirements about 

advance notification before servicers 

charge borrowers for force-placed 

insurance. The Bureau’s proposed forceplaced insurance notice requirements 

are set forth in the model forms in 

proposed appendix MS–3. The Bureau 

proposes to exercise its authority under 

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

19(a) to add new appendix MS–3 to 

Regulation X. Also as discussed 

previously, the Bureau has additional 

authority pursuant to Dodd-Frank Act 

section 1032 to provide model forms by 

adding new appendix MS–3. 

Appendix MS–4—Model Clauses for the 

Written Early Intervention Notice 

Model clauses in proposed appendix 

MS–4 illustrate the disclosures that 

would be required under proposed 

§ 1024.39(b)(1). They encourage the 

borrower to contact the servicer and 

provide information about loss 

mitigation options, foreclosure, and 

housing counselors. Clauses in Model 

MS–4(A) illustrate how a servicer may 

provide its contact information and how 

a servicer may request that the borrower 

contact the servicer, as would be 

required under proposed 

§ 1024.39(b)(2)(i) and (ii). 

Clauses in Model MS–4(B) illustrate 

how the servicer may inform the 

borrower of loss mitigation options that 

may be available, as would be required 

under proposed § 1024.39(b)(2)(iii). 

Model MS–4(B) does not contain sample 

clauses for all loss mitigation options 

that may be available; they illustrate 

only four commonly offered examples: 

(1) Forbearance, (2) mortgage 

modification, (3) short-sale, and (4) 

deed-in-lieu of foreclosure. These 

examples of loss mitigation options may 

not necessarily accurately reflect the 

servicer’s loss mitigation programs. 

Thus, proposed comment MS–4–2 

explains that the language in proposed 

Model MS–4(B) is optional, and that a 

servicer may add or substitute any 

examples of loss mitigation options the 

servicer offers, as long as the 

information required to be disclosed is 

accurate and clear and conspicuous. 

Clauses in Model MS–4(C) illustrate 

how the servicer may inform the 

borrower how to obtain additional 

information about loss mitigation 

options, as would be required under 

proposed § 1024.39(b)(2)(iv). If the 

servicer offers no loss mitigation 

options, a servicer may not include 

Models MS–4(B) and MS–4(C) because 

including those statements would be 

misleading. The Bureau solicits 

comment on the examples of loss 

mitigation options and the descriptions 

of those examples in Model MS–4(B). 

The Bureau also solicits comment on 

whether alternate or additional model 

clauses would be helpful to borrowers 

and servicers. 

Clauses in Model MS–4(D) illustrate 

how a servicer may explain foreclosure 

and provide the estimated number of 

days in which the servicer may begin 

the foreclosure process, as would be 

required under proposed 

§ 1024.39(b)(2)(v). Clauses in Model 

MS–4(E) illustrate how the servicer may 

provide contact information for the 

State housing finance authority and 

housing counselors, as would be 

required under proposed 

§ 1024.39(b)(2)(vi). 

As discussed above, proposed 

comment MS–2 is intended to affirm 

that the servicer has flexibility in 

complying with the proposed disclosure 

requirement in proposed paragraphs 

(b)(1) and (b)(2) of § 1024.39. The 

servicer may comply by using language 

substantially similar to the language in 

the model clauses or by substituting 

applicable loss mitigation options not 

represented in the model clauses, as 

long as the information required to be 

disclosed is clear and conspicuous, as 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57274 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

192See 24 CFR 203.602; HUD Handbook 4330.1 

rev–5, 7–7(G). 

193Specifically, section 1022(b)(2)(A) of the 

Dodd-Frank Act calls for the Bureau to consider the 

potential benefits and costs of a regulation to 

consumers and covered persons, including the 

potential reduction of access by consumers to 

consumer financial products or services; the impact 

on depository institutions and credit unions with 

$10 billion or less in total assets as described in 

section 1026 of the Dodd-Frank Act; and the impact 

on consumers in rural areas. 

would be required by proposed 

§ 1024.32, discussed above. 

The Bureau developed the clauses in 

proposed MS–4(C), MS–4(D), and MS– 

4(E) based on its analysis and review of 

existing notices for delinquent 

borrowers, such as the HUD ‘‘Avoiding 

Foreclosure’’ pamphlet.192 The Bureau 

has not yet tested the clauses in 

proposed Models MS–4(A), MS–4(B), 

MS–4(C), MS–4(D), and MS–4(E) with 

borrowers. The Bureau requests 

comment on whether consumer testing 

of these clauses is necessary and 

whether the Bureau should consider 

modifying, deleting, or adding any 

proposed clauses for these models. The 

Bureau is also considering integrating 

these model clauses into a model form, 

and the Bureau requests comment on 

what format would most effectively 

convey the proposed content in 

proposed § 1024.39(b)(2). 

Legal authority. The Bureau proposes 

to exercise its authority under RESPA 

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

add new appendix MS–4 to Regulation 

X. 

VII. Section 1022(b)(2) Analysis 

In developing the proposed rule, the 

Bureau has considered potential 

benefits, costs, and impacts, and has 

consulted or offered to consult with the 

prudential regulators, HUD, the Federal 

Emergency Management Agency, FHFA, 

and the Federal Trade Commission, 

with respect to consistency with any 

prudential, market, or systemic 

objectives administered by such 

agencies.193 The Bureau also held 

discussions with or solicited feedback 

from the United States Department of 

Agriculture Rural Housing Service, the 

Farm Credit Administration, the Federal 

Housing Administration, Ginnie Mae, 

and the Department of Veterans Affairs 

regarding the potential impacts of the 

proposed rule on those entities’ loan or 

securitization programs. 

As discussed in greater detail 

elsewhere throughout this 

SUPPLEMENTARY INFORMATION, in this 

rulemaking, the Bureau proposes to 

amend Regulation X, which implements 

RESPA, as part of the Bureau’s 

implementation of the Dodd-Frank Act 

amendments to RESPA regarding 

mortgage loan servicing. The proposed 

amendments to Regulation X implement 

section 1463 of the Dodd-Frank Act, 

which imposes obligations on servicers 

with respect to resolving errors and 

responding to requests for information 

from mortgage loan borrowers, and to 

ensure that a reasonable basis exists to 

obtain force-placed insurance. 

In addition, the proposal includes 

additional amendments to Regulation X 

to impose servicer obligations the 

Bureau has found, pursuant to authority 

under RESPA section 6, as amended by 

the Dodd-Frank Act, to be appropriate to 

carry out the consumer protection 

purposes of RESPA. These additional 

amendments are not specifically 

required by the Dodd-Frank Act and 

consist of obligations to: Establish 

reasonable information management 

policies and procedures; undertake 

early intervention with delinquent 

borrowers; provide delinquent 

borrowers with continuity of contact 

with staff equipped to assist them; and 

follow certain procedures when 

evaluating loss mitigation applications. 

The proposal would also reorganize 

and amend the mortgage servicing 

related provisions of Regulation X, 

currently published in 12 CFR 1024.21. 

Such amendments relate to, for 

example, disclosures of mortgage 

servicing transfers and servicer 

obligations to borrowers, and a 

servicer’s obligation to manage escrow 

accounts, including the obligation to 

advance funds to an escrow account to 

maintain a borrower’s hazard insurance 

coverage and to return escrow balances 

when a mortgage loan is paid off in full. 

Further, the Bureau also proposes to set 

forth a commentary that includes 

official Bureau interpretations of 

Regulation X. 

Elsewhere in today’s Federal Register, 

the Bureau is also publishing a 

proposed rule under TILA to amend 

Regulation Z (12 CFR part 1026). The 

proposed amendments to Regulation Z 

implement the following sections of the 

Dodd-Frank Act: Section 1418 (initial 

rate-adjustment notice for adjustablerate mortgages (ARMs)), section 1420 

(periodic statement), and section1464 

(prompt crediting of mortgage payments 

and response to requests for payoff 

amounts). The proposed rule would also 

revise certain existing regulatory 

requirements in Regulation Z for 

disclosing rate and payment changes to 

ARMs in current § 1026.20(c). 

As discussed in greater detail 

elsewhere in this SUPPLEMENTARY

INFORMATION, the recent financial crisis 

exposed pervasive consumer protection 

problems across major segments of the 

mortgage servicing industry. As a result 

of these problems, Congress included in 

the Dodd-Frank Act the provisions that 

specifically address mortgage servicing. 

The new protections in the rules 

proposed under RESPA and TILA 

would significantly improve the 

transparency of mortgage loans after 

origination, provide substantive 

protections to consumers, enhance the 

ability of consumers to obtain 

information from and dispute errors 

with servicers, and provide consumers, 

particularly delinquent consumers, with 

better customer service when dealing 

with servicers. 

A. Provisions To Be Analyzed 

The analysis below considers the 

potential benefits, costs, and impacts of 

the following major proposed 

provisions: 

1. Requirements regarding obtaining 

force-placed insurance policies, 

including disclosures to borrowers. 

2. Procedures regarding error 

resolution and requests for information. 

3. Requirements to establish 

reasonable information management 

policies and procedures. 

4. Procedures for early intervention 

with delinquent borrowers. 

5. Procedures for continuity of contact 

with delinquent borrowers. 

6. Requirements regarding loss 

mitigation procedures. 

With respect to each major proposed 

provision, the analysis considers the 

benefits and costs to consumers and 

covered persons. The analysis also 

addresses certain alternative provisions 

that were considered by the Bureau in 

the development of the rule. The Bureau 

requests comment on the analysis of the 

potential benefits, costs, and impacts of 

the proposal. 

B. Baseline for Analysis 

The amendments to RESPA in section 

1463 of the Dodd-Frank Act take effect 

automatically on January 21, 2013, 

unless final rules are issued on or before 

that date. However, no additional 

obligations are imposed under section 

6(k)(1)(E) of RESPA, as amended by the 

Dodd-Frank Act, unless the Bureau 

adopts implementing regulations. 

Specifically, the provisions of the 

proposed rule that impose obligations 

on servicers to correct errors asserted by 

mortgage loan borrowers, to provide 

information requested by such 

borrowers, and to ensure that a 

reasonable basis exists to obtain forceplaced insurance implement statutory 

amendments to RESPA that take effect 

automatically. Thus, many costs and 

benefits of the provisions of the 

proposed rule with respect to these selfexecuting provisions would arise largely 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57275 

or entirely from the statute, and not 

from the Bureau’s proposed provisions. 

These provisions of the proposed rule 

would provide substantial benefits 

compared to allowing the RESPA 

amendments to take effect automatically 

by clarifying parts of the statute that are 

ambiguous. Greater clarity on these 

issues should reduce the compliance 

burdens on covered persons by, for 

example, reducing costs for attorneys 

and compliance officers as well as 

potential costs of over-compliance and 

unnecessary litigation. Moreover, the 

costs that these provisions would 

impose beyond those imposed by the 

statute itself are likely to be minimal. 

Section 1022 of the Dodd-Frank Act 

permits the Bureau to consider the 

benefits, costs and impacts of the 

proposed rule solely compared to the 

state of the world in which the statute 

takes effect without implementing 

regulations. To provide the public better 

information about the benefits and costs 

of the statute, however, the Bureau has 

chosen to consider the benefits, costs, 

and impacts of the major provisions of 

the proposed rule (i.e., the benefits, 

costs, and impacts of the relevant 

provisions of the Dodd-Frank Act and 

the regulation combined) against a prestatutory baseline. 

As discussed above, the Dodd-Frank 

Act also gives the Bureau discretionary 

authority to develop additional 

mortgage servicing rules in Regulation 

X, which the Bureau is relying on to 

propose to require servicers to: Establish 

reasonable information management 

policies and procedures; undertake 

early intervention with delinquent 

borrowers; provide delinquent 

borrowers with continuity of contact 

with staff equipped to assist them; and 

follow certain procedures when 

evaluating loss mitigation applications. 

Since section 1463 of the Dodd-Frank 

Act does not specifically impose these 

obligations on servicers, the pre-statute 

and post-statute baseline are the same. 

The Bureau has discretion in future 

rulemakings to choose the most 

appropriate baseline for that particular 

rulemaking. 

C. Coverage of the Proposal 

Each proposed provision covers 

certain closed-end mortgages, as 

described further in each section below. 

D. Data Limitations and Quantification 

of Benefits, Costs and Impacts 

The analysis relies on data that the 

Bureau has obtained from industry, 

other regulatory agencies, and publicly 

available sources. However, as 

discussed further below, the data are 

generally limited with which to quantify 

the potential costs, benefits, and 

impacts of the proposed rule. 

Regarding the costs to covered 

persons, the proposed rule generally 

establishes certain standards for servicer 

operations. In order to quantify the costs 

to covered persons, the Bureau would 

need representative data on the extent to 

which servicer operations currently do 

not comply with the proposed rule. The 

Bureau has little data on this issue, and 

does not believe that it is feasible to 

initiate a substantial collection of 

representative data in the time available 

for this rulemaking. However, the 

Bureau continues to seek data regarding 

the extent to which servicer operations 

currently do not comply with the 

proposed rule. Furthermore, even with 

this data, the Bureau would need 

information on the cost of changing 

current servicer practices in order to 

quantify the cost of closing any gaps 

between current practices and those 

mandated by the proposed rule. The 

Bureau has obtained some information 

about the cost of improving servicer 

operations, and the discussion below 

uses this information to quantify certain 

costs of the proposed rule, but these 

calculations do not fully quantify the 

costs to covered persons of the proposed 

rule. The Bureau continues to seek data 

from available sources regarding the 

costs of improving servicer operations, 

as specified by the proposed rule, in 

order to quantify the costs to covered 

persons of the proposed rule. 

The lack of data on the extent to 

which servicer operations currently do 

not comply with the proposed rule also 

makes it difficult to quantify the 

benefits of the proposed rule to 

consumers. However, quantifying 

benefits presents additional challenges. 

As discussed further below, certain 

proposed provisions may directly save 

consumers time and money but others 

may benefit consumers in a more 

indirect way, by, for example, 

facilitating household budgeting, 

supporting the consumer’s ability to 

obtain credit, and reducing default and 

avoidable foreclosure. Quantifying these 

benefits and monetizing them would 

require a wide range of data that cannot 

be collected in the time frame for this 

rulemaking. The Bureau continues to 

seek data from available sources 

regarding the benefits to consumers of 

the proposed rule. 

Similar issues to those just described 

arise in quantifying the benefits to 

covered persons of the proposed rule 

and in quantifying the costs to 

consumers. Certain benefits to covered 

persons are difficult to quantify. For 

example, as discussed in greater detail 

below in the discussion about forceplaced insurance, it is difficult to 

quantify the benefit servicers receive 

from reduced interest expenses when 

they advance their own funds to pay for 

force-placed insurance. Certain costs to 

consumers are difficult to quantify, such 

as the extent to which costs imposed on 

servicers may be passed through to 

consumers. 

In light of these data limitations, the 

analysis below generally provides a 

qualitative discussion of the benefits, 

costs, and impacts of the proposed rule. 

General economic principles, together 

with the limited data that are available, 

provide insight into these benefits, 

costs, and impacts. Where possible, the 

Bureau has made quantitative estimates 

based on these principles and the data 

that are available. 

E. Potential Benefits and Costs to 

Consumers and Covered Persons 

1. Requirements Regarding Obtaining 

Force-Placed Insurance Policies 

Dodd-Frank Act section 1463 amends 

RESPA to prohibit a servicer of a 

federally related mortgage from 

obtaining force-placed insurance unless 

there is a reasonable basis to believe the 

borrower has failed to comply with the 

loan contract’s requirements to maintain 

property insurance. In addition, the 

statute sets forth a mandatory process 

servicers must follow when they forceplace insurance. The process includes 

sending the borrower two written 

notices before imposing any charge on 

a borrower for force-placed insurance. 

The statute also provides process 

requirements for terminating forceplaced insurance and refunding forceplaced insurance premium charges and 

related fees paid during any period 

during which the borrower’s hazard 

insurance coverage and the force-placed 

insurance coverage were each in effect. 

The Bureau is proposing model forms 

for the force-placed insurance notices to 

be sent to borrowers. The Bureau is also 

proposing requirements concerning: 

Charges related to force-placed 

insurance, payment of the borrower’s 

hazard insurance premiums from 

escrow, and notice requirements when 

servicers renew existing force-placed 

insurance policies. 

Benefits and costs to consumers. 

Borrowers pay for force-placed 

insurance but do not select the 

insurance provider. Thus, the market for 

force-placed insurance may not fully 

reflect the interests of borrowers in 

minimizing force-placement and the 

amount of time force-placed insurance 

is in effect. In particular, the proposed 

force-placed insurance disclosures and 

procedures may reduce borrowers 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57276 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

194For the average homeowner’s insurance 

premium, see data provided by Insurance Institute 

of America, available at: http://www.iii.org/ 

facts_statistics/homeowners-and-rentersinsurance.html. For information on the cost of 

force-placed insurance, see http://newsroom.

assurant.com/releasedetail.cfm?

ReleaseID=645046&ReleaseType=Featured

%20News (reporting force-placed insurance costs 

1.5 to 2 times hazard insurance). 

195That is to say, the homeowner pays onetwelfth to one-half of the additional $880. 

196 Discussions with industry suggest that 2% of 

mortgages incur force-placement each year and 

there are approximately 52 million first liens, so 

about 1.04 million homeowners incur forceplacement each year. Ten percent of this figure 

multiplied by $73 (or $440) gives $7.6 million (or 

$45.8 million). 

paying for unnecessary force-placed 

insurance or the length of time during 

which borrowers pay for such 

insurance. 

The Bureau does not have 

representative data with which to 

quantify the extent to which industry 

currently complies with the proposed 

force-placed insurance provisions or the 

extent to which additional compliance 

would reduce the need for force 

placement or the duration of force 

placement; however, as discussed in 

greater detail below, the Bureau 

understands that many servicers already 

comply with the proposed procedures 

with respect to sending borrowers 

notices before charging borrowers for 

force-placed insurance and canceling 

force-placed insurance after verifying 

that borrower has obtained hazard 

insurance coverage. Moreover, even a 

small reduction in force placement may 

provide consumers with substantial 

benefits. In 2009, the average premium 

for homeowner’s insurance was $880 

while force-placed insurance cost about 

twice this amount.194 Thus, a 

homeowner who pays force-placed 

insurance for one to six months pays an 

additional $73 to $440 dollars.195 If the 

provisions of the proposed rule reduced 

force-placement by just 10%, 

approximately 171,000 homeowners 

would save between $7.6 million and 

$45.8 million in unnecessary premiums 

each year.196

The following discussion provides a 

qualitative analysis of the benefits to 

borrowers of the proposed force-placed 

insurance disclosures and procedures. 

In each case, as discussed previously, 

the Bureau understands that certain 

servicers may already comply with 

some of the proposed procedures. The 

Bureau believes that for a borrower in 

the specified situation and with a 

servicer that does not comply with some 

of the proposed procedures, full 

compliance would provide important 

additional consumer benefits. 

For purposes of qualitative analysis, it 

is useful to first divide borrowers into 

those with insurance that has been 

force-placed by a servicer and those 

with hazard insurance coverage 

obtained by the borrower. Of those with 

borrower-obtained hazard insurance, it 

is useful to sub-divide this group into 

three additional groups: those with 

hazard insurance that is not about to 

lapse; those with hazard insurance that 

is about to lapse and who have the 

funds to renew (whether the funds are 

kept in an escrow account or 

elsewhere); and those with hazard 

insurance that is about to lapse and who 

do not have the funds to renew. The 

proposed force-placed insurance 

disclosures and procedures may provide 

different benefits to borrowers 

depending on the group to which they 

belong. 

Borrowers with force-placed 

insurance would likely benefit from the 

proposed requirements regarding 

renewal of force-placed insurance, 

evidence of hazard insurance, 

cancellation of force-placed insurance, 

and limitations on charges related to 

force-placed insurance. The proposed 

rule would require servicers to send a 

renewal notice once every 12 months, 

accept insurance information provided 

by the borrower to verify whether or not 

the borrower has hazard insurance in 

place, cancel force-placed insurance and 

refund the borrower for any period of 

overlapping coverage within 15 days of 

receiving verification that the borrower 

has obtained hazard insurance. For a 

borrower in the situation described and 

with a servicer that does not currently 

comply with some of the proposed 

procedures, full compliance may reduce 

both the amount of time the borrower 

has force-placed insurance and the cost 

to the borrower of paying for forceplaced insurance. 

Consider next a borrower who has 

hazard insurance that is not about to 

lapse, but the servicer for some reason 

believes it is about to lapse and begins 

the process of force-placing insurance. 

The proposed rule would require the 

servicer to send the borrower two 

notices before charging the borrower for 

force-placed insurance. The proposed 

disclosures may prompt the borrower to 

contact the servicer with their insurance 

information. By possibly prompting the 

borrower to communicate with the 

servicer and provide the servicer with 

information to verify that the borrower 

has hazard insurance in place, the 

proposed rule may reduce the chance 

that a borrower in the situation 

described would pay for force-placed 

insurance. 

Consider next a borrower who has a 

hazard insurance policy that is about to 

lapse and has the funds to renew the 

insurance. If the funds are not in an 

escrow account, then the borrower may 

fail to properly renew the insurance. 

The proposed force-placed insurance 

procedures would not require the 

servicer to renew the hazard insurance 

of a borrower who does not have an 

escrow account established to pay the 

borrower’s hazard insurance; however, 

the servicer would have to provide the 

two proposed notices before charging 

such borrower for force-placed 

insurance. The Bureau undertook three 

rounds of qualitative testing of the 

proposed notices, and participants said 

that if they received force-placed 

insurance notices like the ones the 

Bureau is proposing, they would 

immediately contact their insurance 

provider to find out whether or not their 

hazard insurance was still in force. For 

a borrower in this situation and for 

whom the mortgage loan is serviced by 

a servicer that does not currently 

provide notices that meet the proposed 

content and form requirements, full 

compliance with the proposed 

requirements may reduce the chance 

that the borrower would pay for 

unnecessary force-placed insurance. If 

the borrower’s insurance does lapse, full 

compliance with the proposed 

requirements regarding renewal of forceplaced insurance, evidence of hazard 

insurance and cancellation of forceplaced insurance may reduce both the 

amount of time the borrower has forceplaced insurance and the cost to the 

borrower of paying for force-placed 

insurance. 

Finally, consider a borrower who has 

hazard insurance that is about to lapse 

and does not have the funds to renew 

the insurance. If this borrower has an 

escrow account with insufficient funds 

to pay his or her hazard insurance 

premium charges, the servicer is 

currently required under Regulation X 

to advance funds for the timely payment 

of escrowed items as long as the 

borrower’s payment is not more than 30 

days overdue. For a borrower in the 

situation described and with a servicer 

that is not complying with the proposed 

procedure, full compliance would 

greatly reduce the possibility that the 

borrower’s hazard insurance was 

canceled for nonpayment and 

accordingly, the chance that the 

borrower would pay for force-placed 

insurance. If the borrower does not have 

an escrow account and the servicer 

obtains force-placed insurance, but the 

borrower later acquires the funds to 

obtain hazard insurance, full 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57277 

197See e.g., Levitin and Twomey, 28 Yale J. on 

Reg. 48 (2011) (explaining that servicing advances, 

which include advances for taxes and insurance, 

are costly to servicers because they are do not 

recover interest on the advances) . 

198See Diane Thompson, Foreclosure 

Modifications: How Servicer Incentives Discourage 

Loan Modifications, 86 Wash. L. Rev. 755, 816–20 

(2011). 

199Furthermore, as discussed in greater detail in 

part VI, above, servicers already are subject to a 

disclosure regime with some similar characteristics 

when obtaining force-placed flood insurance as 

required by the FDPA. The presence of these 

systems may make it less costly for servicers to 

comply with the Bureau’s proposed procedures for 

force-placed insurance, since systems are in place 

that could be adapted outside the force-placed flood 

insurance context. 

compliance with the proposed 

requirement to cancel force-placed 

insurance within 15 days of receiving 

verification that the borrower has 

obtained hazard insurance may reduce 

the amount of time force-placed 

insurance is in effect. 

The proposed rule also provides 

requirements on the renewal or 

replacement of force-placed insurance, 

including a disclosure to consumers. 

Specifically, a servicer may not charge 

a borrower for renewing or replacing 

pre-existing force-placed insurance 

unless: (1) The servicer delivers or 

places in the mail a written notice to the 

borrower with specified disclosures at 

least 45 days before the premium charge 

or any fee is assessed; and (2) during the 

45-day notice period, the servicer has 

not received evidence that the borrower 

has obtained hazard insurance. The 

proposed disclosure includes the cost of 

the insurance (or a good faith estimate) 

and statements to the effect that the 

servicer has previously obtained the 

insurance, charged the borrower for the 

insurance, and has the right to maintain 

the insurance. The proposed rule also 

provides certain formatting 

requirements on the disclosure. 

The Bureau’s proposal may help 

borrowers avoid the cost associated with 

the renewal or replacement of preexisting force-placed insurance by both 

alerting borrowers to the impending 

charge and conditioning the ability of 

servicers to charge borrowers for 

renewal or replacement of pre-existing 

force-placed insurance on properly 

providing the specified disclosures. The 

disclosures may benefit certain 

borrowers by providing them with the 

information they need to purchase 

hazard insurance before being charged 

for renewal or replacement of forceplaced insurance. Conditioning the 

ability of servicers to charge borrowers 

for renewal or replacement on the 

provision of the disclosures facilitates 

compliance with the disclosure 

requirement. As discussed previously, 

incentives like commissions paid to 

servicers or their insurance affiliates 

may cause servicers to prefer renewing 

or replacing pre-existing force-placed 

insurance coverage over providing 

borrowers with an opportunity to obtain 

hazard insurance. 

The Bureau does not believe that the 

requirements with respect to forceplaced insurance will impose any 

significant costs to borrowers for the 

following reasons: (1) As discussed 

above, the Bureau understands that only 

approximately two percent of mortgages 

incur force-placed insurance annually; 

and (2) as discussed below, many 

servicers already comply with the 

proposed disclosures with respect to 

sending borrowers notices before 

charging borrowers for force-placed 

insurance and the proposed requirement 

that the they cancel force-placed 

insurance after verifying that the 

borrower has obtained hazard insurance 

coverage. 

Benefits and costs to covered persons. 

The Bureau believes that the proposed 

force-placed insurance disclosures and 

procedures may provide certain benefits 

to servicers. For example, the model 

forms the Bureau is providing servicers 

may reduce servicers’ compliance cost. 

Servicers may also benefit from any 

reduction in the need to obtain forceplaced insurance. Servicers advance 

their own funds to pay for force-placed 

insurance. While servicers have priority 

in recovering these funds either from 

the homeowner or when the property is 

sold in foreclosure, they do not recover 

interest on these advances, like the 

advances for the force-placed insurance 

premium charge.197

The Bureau notes that the owners or 

assignees of mortgage loans may also 

benefit from the proposed force-placed 

insurance disclosures and procedures. 

As discussed in part VI, above, forceplaced insurance is often significantly 

more expensive than hazard insurance 

obtained by the borrower. If the 

property ultimately goes to foreclosure 

and the loan is liquidated, servicers get 

compensated for advancing charges 

related to force-placed insurance before 

owner or assignee of the mortgage loan 

is paid.198 Thus, the additional cost of 

force-placed insurance produces an 

additional expense to such persons, 

who benefit when this additional 

expense is minimized. To the extent the 

proposed rule reduces the frequency 

and duration of lapses in hazard 

insurance obtained by the borrower, 

owners or assignees of mortgage loans 

benefit along with borrowers. 

Based on discussions with industry, 

the Bureau understands that servicers 

generally provide borrowers with 

multiple notices before charging a 

borrower for force-placed insurance. 

Thus, the additional cost of the 

proposed force-placed insurance 

disclosures notice would most likely be 

the one-time cost of developing the form 

to conform with the Bureau’s proposed 

regulations. The force-placed insurance 

disclosure would require minimal 

customization to each loan, but there 

may be some additional cost associated 

with providing the borrower with the 

cost or a good faith estimate of the cost 

of force-placed insurance, stated as an 

annual premium. The Bureau requests 

additional information about the forceplaced insurance disclosures that 

servicers currently provide and the 

incremental cost of complying with the 

proposed force-placed insurance 

disclosure requirement. 

The Bureau understands that many 

servicers generally terminate forceplaced insurance coverage and refund to 

borrowers any premiums charged 

during any period when the borrower 

had borrower-obtained insurance 

coverage in place. The Bureau does not 

believe that complying with the 

remaining proposed procedures— 

including the provision of the forceplaced insurance renewal notice— 

would impose substantial incremental 

costs on servicers. However, the Bureau 

continues to examine this issue and to 

collect data and other relevant 

information.199

Finally, the Bureau recognizes that 

the proposed force-placed insurance 

provisions may produce a number of 

changes in how force-placed insurance 

is provided and paid for. The Bureau 

understands that currently some 

servicers incur all of the costs associated 

with providing force-placed insurance 

notices, tracking borrower coverage, and 

placing and terminating the insurance. 

For other servicers, the Bureau 

understands that the force-placed 

insurance provider handles these 

activities and absorbs the costs or passes 

them on to the borrower. The proposed 

force-placed insurance provisions may 

reduce the frequency with which 

servicers obtain force-placed insurance. 

This would most likely reduce total 

payments by borrowers to servicers and 

force-placed insurers, even if the cost to 

insure the remaining borrowers 

increased, since there would be fewer 

transactions and fees. On the other 

hand, a reduction in the frequency with 

which force-placed insurance is 

provided may also reduce commission 

income that in some cases is paid by 

insurers to servicers or their insurance 

affiliates, and a reduction in payments 

to force-placed insurance providers may 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57278 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

200See, however, the general discussion of 

servicing operations and avoidable foreclosure in 

the analysis of the proposed provisions on 

reasonable information management, infra. 

reduce providers’ willingness to 

perform the tracking and other activities 

stated above as part of the service. The 

Bureau continues to examine how the 

proposed force-placed insurance 

provisions may affect covered persons. 

The Bureau asks interested parties to 

provide general information, data, and 

research results that are relevant to this 

issue. 

2. Procedures Regarding Error 

Resolution and Requests for Information 

Section 1463 of the Dodd-Frank Act 

amends section 6 of RESPA by adopting 

a number of servicer prohibitions with 

respect to handling asserted errors and 

inquiries. These include (1) servicer 

obligations to respond to certain types 

of errors, (2) amendments to the 

timeframe for responding to qualified 

written requests and associated 

penalties for failure to comply, and (3) 

a prohibition on servicers charging fees 

in connection with valid qualified 

written requests. 

The Bureau is using its authority in 

RESPA to propose a comprehensive set 

of requirements for investigating and 

correcting errors and for responding to 

borrower inquiries that incorporates the 

amendments to RESPA in the DoddFrank Act. In addition to the current 

requirements to address errors relating 

to servicing through Qualified Written 

Requests, servicers would be required to 

correct errors relating to, among other 

things, allocating payments, providing 

an accurate payoff balance, failure to 

suspend a scheduled foreclosure sale 

while, for example, the borrower is 

performing under an agreement on a 

loss mitigation options. Servicers also 

would be required to respond to 

inquiries about a borrower’s mortgage 

loan account, whether or not a borrower 

has complied with the requirements for 

submitting a Qualified Written Request. 

Servicers would have to provide 

borrowers with a written 

acknowledgement of receiving a notice 

of error within five days (excluding 

legal public holidays, Saturdays and 

Sundays) of receipt of the notice of 

error, unless the servicer corrects the 

error within such time and the borrower 

is notified of the correction in writing. 

Servicers would have to correct the 

error and notify the borrower of such 

correction, or conduct a reasonable 

investigation and provide the borrower 

with written notification regarding the 

investigation and the documents relied 

upon by the servicer. Generally, with 

the exception of certain types of errors, 

the investigation would have to be 

completed and a response provided 

within 30 days (excluding legal public 

holidays, Saturdays and Sundays) after 

receipt of the notice of error. 

The Bureau is proposing substantially 

similar requirements to apply to 

inquiries. For example, servicers would 

have to provide borrowers with written 

acknowledgement of receiving an 

information request, unless the servicer 

provides the borrower with the 

information requested and with contact 

information for further assistance within 

five days (excluding legal public 

holidays, Saturdays and Sundays). 

Servicers would have to provide the 

borrower with the requested 

information or conduct a reasonable 

search for the information and provide 

the borrower with a written notification 

regarding the search. Generally, with the 

exception of certain types of 

information requests, the information or 

a notification stating that the servicer 

has determined the requested 

information is not available to the 

servicer would have to be provided 

within 30 days after receipt of the 

information request. 

Benefits and costs to consumers-error 

resolution. As explained in part VI, 

above, each of the nine proposed 

enumerated errors would results from a 

failure by the servicer to perform a 

typical servicer duty. The proposed 

error resolution procedures would 

require that servicers, in a timely 

manner, correct these errors or 

investigate and explain to the borrower 

why no error has occurred. 

The Bureau has conducted outreach 

with servicers regarding alleged errors. 

One servicer estimates that it receives 

1,850 allegations of error per month on 

a portfolio of about 300,000 loans; 

another estimates about the same 

number on a portfolio of about 1 million 

loans. However, the Bureau currently 

does not have data on the nature of the 

alleged errors, the extent to which 

servicers already comply with the 

proposed error resolution procedures, or 

the benefit to borrowers from full 

compliance. Thus, the Bureau does not 

have the data necessary to quantify the 

benefits to borrowers of the proposed 

error resolution procedures.200

Although the Bureau does not have 

the data necessary to quantify the 

benefits to borrowers of the proposed 

error resolution procedures, the Bureau 

believes that the benefits may be 

substantial. Some of the enumerated 

errors concern basic duties that 

servicers should generally perform 

every month for every borrower (e.g., 

accept conforming payments, properly 

apply payments as required under the 

terms of the mortgage loan, pay taxes 

and insurance, etc.). The Bureau 

understands that servicers currently 

perform them. Other enumerated errors, 

however, concern duties regarding 

delinquent borrowers and the transfer of 

mortgage loan account information to 

other servicers. Under the proposed 

rule, it would be an error for a servicer 

to fail to provide accurate information to 

a borrower with respect to loss 

mitigation options and foreclosure or to 

fail to suspend a scheduled foreclosure 

sale when, for example, the borrower is 

performing under a loss mitigation 

agreement. It also would be an error for 

a servicer to fail to transfer information 

to a transferee servicer relating to the 

servicing of a borrower’s mortgage loan 

account in an accurate and timely 

manner. Servicers may not have 

uniformly investigated and corrected 

these errors, as the proposal would 

require them to. These errors have the 

potential to impose substantial financial 

and other costs on consumers. Thus, the 

proposed requirements to investigate 

allegations that servicers have 

committed these errors and to correct 

these errors (when found) may provide 

substantial benefits to certain 

consumers. 

More generally, the Bureau notes that 

borrowers do not choose their servicer, 

except indirectly by choosing their 

lender. Even if borrowers choose their 

servicer at origination, perhaps by 

seeking a lender that services the loans 

it originates, the borrower cannot 

subsequently choose a different servicer 

if the quality of servicing is 

unsatisfactory. Thus, the market for 

servicing may not fully reflect the 

interests of borrowers in having robust 

error resolution procedures. While 

certain servicers may nonetheless 

reliably perform their duties, the recent 

financial crisis suggests that for some, 

the incentives to do so were lacking. 

Benefits and costs to consumers— 

requests for information. The Bureau 

has conducted outreach with servicers 

regarding requests for information. One 

servicer estimates that it receives 70,000 

phone calls a month on portfolio of 

300,000 loans; another estimates 

160,000 phone calls per month on a 

portfolio of about 1 million loans. The 

vast majority of these calls are inquiries 

and the most common inquiry is 

whether the servicer has received the 

borrower’s payment. The Bureau 

currently does not have data on the 

nature of the other inquiries, the extent 

to which servicers already comply with 

the proposed procedures regarding 

inquiries, or the benefit to borrowers 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57279 

201See, however, the general discussion of 

servicing operations and avoidable foreclosure in 

the analysis of the proposed provisions on 

reasonable information management. 

202For example, erroneous information furnished 

by servicers to a consumer reporting agency are a 

type of covered error specifically included in the 

proposed rule. See proposed § 1024.35(b)(iii). 

Servicers who furnish erroneous information to a 

consumer reporting agency are already required to 

handle disputes about this information under the 

Fair Credit Reporting Act. These preexisting 

obligations under the Fair Credit Reporting Act will 

make it less costly for servicers to implement the 

changes in this rule since they should already have 

systems in place that can be adapted outside the 

context of errors about information furnished to 

consumer reporting agencies. 

203See Office of the Comptroller of Currency, 

OCC Mortgage Metrics Report, Fourth Quarter 2011, 

at 12 (Table 1) (2012). 

204There are 31.4 million loans in the database, 

which is 60% of all first-lien residential mortgages 

outstanding. Id., at 8. 

from full compliance. Thus, the Bureau 

does not have the data necessary to 

quantify the benefits to borrowers of the 

proposed procedures regarding 

inquiries.201 The Bureau requests 

interested parties to provide data, 

research, and other information that 

may inform the further consideration of 

this issue. 

The Bureau understands that the 

servicer is a convenient source of 

certain information (e.g., details about 

the terms of the loan, the annual amount 

of interest paid, the remaining mortgage 

balance) and may be the only source of 

other information (e.g., the date a 

payment was received or a 

disbursement from escrow was made, 

the new payment on an adjustable rate 

mortgage). This information provides 

many benefits to borrowers, both by 

facilitating household budgeting in the 

near term and over time and by allowing 

borrowers to forestall or correct 

problems (e.g., by verifying that 

payments were received or taxes and 

insurance were paid from escrow). The 

fact that borrowers go to the trouble of 

requesting information from servicers 

indicates that they recognize some 

benefit from having the information. 

More generally, as discussed above, 

the Bureau notes that borrowers do not 

choose their servicer, except indirectly, 

by choosing their lender. Even if 

borrowers choose their servicer at 

origination, perhaps by seeking a lender 

that services the loans it originates, the 

borrower cannot subsequently choose a 

different servicer if the quality of 

servicing is unsatisfactory. Thus, the 

market for servicing may not fully 

reflect the interests of borrowers in 

having robust procedures for responding 

to inquiries. While certain servicers may 

nonetheless reliably perform their 

duties, the recent crisis suggests that for 

some, the incentives to do so were 

lacking. 

Benefits and costs to covered persons. 

The Bureau understands that certain 

servicers may already comply with 

many of the proposed procedures 

regarding error resolution and response 

to inquiries.202 Further, certain 

proposed provisions are intended to 

mitigate the costs of complying with the 

proposed procedures. The Bureau 

proposes that errors and information 

requests that are resolved within five 

days do not require written 

acknowledgement of receipt of a notice 

of error or information request. The 

Bureau believes that the proposed 

provisions, including the proposed 

finite list of errors, provide clarity 

regarding servicer duties. Clarity 

mitigates one-time compliance costs for 

servicers that would otherwise pay for 

additional legal advice regarding 

compliance with the rule or would 

perform activities that were not in fact 

required by the rule. 

As discussed in part VI, above, the 

Bureau considered the impact of the 

proposed error resolution requirements 

if the types of errors were not limited. 

The Bureau believes that the added 

costs and burden created by having an 

open-ended definition of an error could 

substantially increase the costs to 

servicers with limited additional benefit 

to consumers. The Bureau further 

believes that requiring servicers to 

respond to potentially any assertion of 

an error could, as a practical matter, 

lead to servicers using disproportionate 

resources to respond to every asserted 

error. That practice may cause servicers 

to expend fewer resources to address 

errors that may be far more significant 

to borrowers. 

The Bureau further considered 

whether to define as a covered error a 

servicer’s failure to accurately and 

timely provide a disclosure to a 

borrower as required by applicable law. 

The Bureau determined that such a 

failure was not appropriate as a covered 

error because the information request 

provisions provide the borrower the 

ability to obtain the underlying 

information. Further, the Bureau 

believes that a servicer’s action to 

attempt to correct the failure, such as by 

sending the disclosure after the 

deadline, would not actually correct the 

error and would not be helpful or useful 

to borrowers. In that circumstance, the 

error resolution request would create 

burden and impose costs on servicers 

without offering concomitant benefit for 

borrowers. 

Although certain servicers may 

already comply with many of the 

proposed procedures, the Bureau 

understands that some of these 

proposed procedures may impose onetime and ongoing compliance costs on 

servicers. The Bureau asks interested 

parties to provide specific information 

about the proposed requirements for 

error resolution and requests for 

information with which servicers are 

not already in compliance and the costs 

of coming into compliance. 

3. Reasonable Information Management 

Policies and Procedures 

The Bureau is using its authority in 

RESPA to propose requirements on the 

information management practices of 

servicers. The proposed rule specifies 

that a servicer’s information 

management practices need to address 

objectives broadly categorized as: 

Accessing and providing accurate 

information relating to a borrower’s 

account; evaluating borrowers for loss 

mitigation options; facilitating oversight 

of, and compliance by, service 

providers; and facilitating servicing 

transfers. The reasonableness of a 

servicer’s policies and procedures 

would be determined in part by the 

nature and scope of the servicer’s 

operations, characteristics of the 

servicing portfolio, and the servicer’s 

history of consumer complaints. 

Benefits and cost to consumers. The 

Bureau recognizes that borrowers who 

make timely and conforming payments 

every period and whose payments are 

correctly and timely posted by the 

servicer and disbursed to third parties 

as appropriate may rarely need any new 

information from the servicer. The 

servicer of these loans generally requires 

only enough information about the loan 

to properly credit the payment to 

principal, interest, taxes and insurance; 

or in the case of adjustable rate 

mortgages, to change the amount due 

and change the crediting to principal 

and interest. However, a substantial 

number of borrowers do not make 

timely and conforming payments. One 

large database of first-lien residential 

mortgages shows that in each of the five 

quarters ending with the last quarter of 

2011, between 10% and 15% of 

mortgages failed to be current and 

performing.203 This represents between 

3.1 million and 4.7 million loans.204

The borrowers with these mortgages 

likely face difficult decisions about 

budgeting limited household resources 

and may require detailed and accurate 

information about what they owe, their 

loss mitigation options, and the 

consequences of different choices. 

For reasons discussed above, the 

Bureau does not have representative 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57280 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

205See Michael A. Stegman et al., Preventative 

Servicing is Good for Business and Affordable 

Homeownership Policy, 18 Housing Policy Debate 

243, 257 (2007). 

206Other authors have also noted substantial 

differences in loss mitigation practices by servicers 

that are not accounted for by differences in 

borrowers, types of mortgages and other observable 

factors. See e.g., Sumit Agarwal et al., Market-Based 

Loss Mitigation Practices for Troubled Mortgages 

Following the Financial Crisis, Federal Reserve 

Bank of Chicago, (2010) (Agarwal et al.). 

207Specifically, the probability that a loan cures 

increases from .815 with the worst performing 

servicer (Servicer #2) to .8902 with a highperforming reference group of servicers. The figure 

.815 is the solution to ln[.8902/ 

(1¥.8902)]¥.61=ln[x/(1¥x)], where ¥.61 is the 

regression coefficient on Servicer #2 given on page 

265 and .8902 is discussed on page 263. Thus, the 

probability a loan that is 30 days late actually 

defaults decreases from .185 (=1¥.815) to .1098 

(=1¥.8902), which is approximately a 41% 

reduction. 

208The 20% default rate is consistent with the 

data in Stegman et al. but may underestimate the 

default rate in more recent data. 

209 In one study, only 30% of loans that were 90 

days late and began a repayment plan were 

reinstated or paid in full during the period of the 

study. Presumably, loans that are 90 days late and 

never begin a repayment plan have an even lower 

success rate. See Amy Crews Cutts & William A. 

Merrill, Interventions in Mortgage Default: Policies 

and Practices to Prevent Home Loss and Lower 

Costs 11–12 and Table 2 (Freddie Mac, Working 

Paper No. 08–01, Mar. 2008). 

210See Kenneth P. Brevoort &Cheryl R. Cooper, 

Foreclosure’s Wake: The Credit Experiences of 

Individuals Following Foreclosure (2010), available 

at: http://www.federalreserve.gov/pubs/feds/2010/ 

201059/201059pap.pdf. 

211Foreclosure itself may lead to a 27% reduction 

in the value of a house (possibly due to losses 

associated with abandonment) and a 1% reduction 

in the value of every other house within 5 tenths 

of a mile. See John Y. Campbell, Stefano Giglio, & 

Parag Pathak, Forced Sales and House Prices, 

American Economic Review 101(5) (2011), abstract 

available at: http://www.aeaweb.org/ 

articles.php?doi=10.1257/aer.101.5.2108. 

212For example, servicers are already subject to 

record keeping requirements under current 

§ 1024.17(l) of Regulation X. This will make it less 

costly for servicers to implement the changes in this 

rule since they should already have systems in 

place that can be adapted to the new requirements. 

data with which to quantify the extent 

to which industry currently complies 

with the proposed reasonable 

information management procedures, 

the extent to which additional 

compliance would provide additional 

benefits to consumers, or the monetary 

value of those additional benefits to 

consumers. However, it is possible to 

provide a rough estimate of a key 

consumer benefit—a reduction in 

avoidable default (i.e., 90 day 

delinquency)—that may be attributed 

collectively to the proposed provisions 

regarding error resolution and requests 

for information, reasonable information 

management, early intervention, and 

continuity of contact. 

These benefits are discussed as part of 

reasonable information management for 

two reasons. First, the proposed 

provisions on reasonable information 

management include a requirement that 

a borrower must be able to receive an 

accurate and timely evaluation for a loss 

mitigation option. Thus, reasonable 

information management may reduce 

avoidable or unnecessary foreclosures. 

Second, reasonable information 

management facilitates compliance with 

the other proposed provisions listed 

above, all of which could help 

delinquent borrowers. A servicer that 

could not access accurate and timely 

information relating to a borrower’s 

account would likely have difficulty 

providing accurate information with 

respect to loss mitigation options and 

foreclosure (consistent with the 

proposed provisions on error 

resolution), notifying a borrower that he 

or she is late with a payment (as would 

be required by the proposed provisions 

on early intervention), and accessing a 

complete record of the borrower’s 

payment history (as required by the 

proposed provisions on continuity of 

contact). 

The estimate of avoidable default 

relies on a study of the performance of 

approximately 28,000 housing loans 

tracked from September 1998 to 

December 2004 (and originated prior to 

December 2003).205 Most of the loans 

were serviced by eight servicers. After 

restricting the sample to loans that at 

some point experience a 30-day 

delinquency, the authors use regression 

analysis to isolate the impact each 

servicer has on the probability a loan 

ever reaches 90-day delinquency (which 

they define as ‘‘default’’). The authors 

show that there are significant 

differences among the services in the 

probability a loan defaults, even after 

controlling for borrower credit score and 

income, certain characteristics of the 

property, and other factors.206 The best 

servicing (servicing performed by 

servicers with the highest cure rates 

with respect to loans that have become 

30 days delinquent) achieves 

approximately a 41% reduction in the 

probability that a loan that becomes 30 

days delinquent will eventually default, 

relative to the worst servicing (servicing 

performed by servicers with the lowest 

cure rates with respect to loans that 

have become 30 days delinquent).207

To translate this figure into an 

estimate of avoidable default, suppose 

that over 1 million mortgages become 

30–60 days late each year. If they all 

receive the worst servicing and about 

20% default, then a switch to the best 

servicing would reduce the default rate 

to about 12% (a reduction of 41%).208

Thus, 80,000 mortgages would no longer 

default if they had the best servicing. If 

30% default, then about 120,000 would 

no longer default if they had the best 

servicing. These defaults are avoidable 

with better servicing. Furthermore, a 

substantial number of these defaults 

will ultimately go to foreclosure, 

perhaps 70%.209

The Bureau does not currently have 

data that would allow it to further 

monetize the cost of default and 

foreclosure on borrowers or other 

consumers. Some recent research that 

controls for economic conditions 

documents the persistent negative 

effects of foreclosure on borrower’s 

credit scores.210 Other work establishes 

substantial negative effects that 

foreclosed homes have on nearby 

homes.211 The Bureau continues to 

examine how reasonable information 

management policies and procedures 

and other provisions of the proposed 

rule may affect default and foreclosure 

and the costs of these outcomes on 

borrowers and other consumers. The 

Bureau asks interested parties to 

provide general information, data, and 

research results that address these 

issues. 

More generally, as noted above, 

servicers may not have sufficient 

incentives to provide reasonable 

information management policies and 

procedures absent the proposed rule. As 

discussed in the Background section, 

mortgage servicing is to a large extent a 

high-volume, low-margin business that 

encourages servicers to provide minimal 

levels of service to borrowers. While 

certain servicers may nonetheless have 

reasonable information management 

policies and procedures, the mortgage 

crisis demonstrated that for some 

servicers the incentives to have these 

practices were lacking. 

Benefits and costs to covered persons. 

The Bureau understands that certain 

servicers already comply with many of 

the proposed procedures.212 Servicers 

that service mortgage loans subject to 

investor or guarantor loss mitigation 

requirements, such as requirements 

imposed on Fannie Mae, Freddie Mac, 

and Ginnie Mae, or servicers subject to 

regulatory consent orders or the national 

mortgage settlement, must already 

comply with policies regarding 

evaluation for a loss mitigation option. 

Further, the Bureau is proposing to 

mitigate the cost of the proposed 

procedures by providing that the 

reasonableness of a servicer’s policies 

and procedures would be determined in 

part by the nature and scope of the 

servicer’s operations, characteristics of 

the servicing portfolio, and the 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57281 

213See Amy Crews Cutts & William A. Merrill, 

Interventions in Mortgage Default: Policies and 

Practices to Prevent Home Loss and Lower Costs 10 

(Freddie Mac, Working Paper No. 08–01, Mar. 

2008). 

214 Id., Table 2. This statistic is merely suggestive 

of a benefit to early intervention, since borrowers 

who are willing to begin a repayment plan at 30 

days may be more likely to become current even 

without a repayment plan. 

215See General Accounting Office, Actions 

Needed by Treasury to Address Challenges in 

Implementing Making Home Affordable Programs, 

Table 1 (2011). 

216For a discussion of recent changes, including 

the implementation of the new ‘‘HAMP Tier 2’’ 

alternative, see Making Home Affordable 

Supplemental Directive 12–02, March 9, 2012, 

available at https://www.hmpadmin.com/portal/ 

programs/docs/hamp_servicer/sd1202.pdf. 

servicer’s history of consumer 

complaints. The Bureau believes that 

the performance-based approach of the 

proposed information management 

provisions coupled with the flexible 

requirement for reasonableness will 

allow each servicer to comply with the 

proposed provisions in ways that best 

suit its particular circumstances. 

4. Procedures for Early Intervention 

With Delinquent Borrowers 

As discussed in greater detail 

elsewhere in this SUPPLEMENTARY

INFORMATION, Dodd-Frank Act section 

1463 amends RESPA to authorize the 

Bureau to impose on servicers 

obligations the Bureau finds appropriate 

to carry out the consumer protection 

purposes of RESPA. The Bureau is using 

this authority to propose early 

intervention provisions regarding 

delinquent borrowers. The Bureau 

proposes to require servicers to provide 

two notices (one oral and one written) 

to delinquent borrowers. Generally, the 

Bureau proposes to require servicers to 

make a good faith effort to contact 

delinquent borrowers no later than 30 

days after the payment due date. 

Additionally, not later than 40 days 

after a missed payment, the proposed 

rule would require servicers to provide 

the delinquent borrower a written notice 

about loss mitigation and the 

foreclosure process. 

Benefits and costs to consumers. The 

proposed provisions on early 

intervention with delinquent borrowers 

are intended to spur the engagement 

between servicers and borrowers that is 

necessary for avoiding foreclosure. In 

one study using data from September 

2005 through August 2007, Freddie Mac 

servicers reported that for 53.3% of the 

total number of loans that went into 

foreclosure, the borrower never 

responded to the servicer.213 Of course, 

this means that 47% of borrowers did 

respond to the servicer. The proposed 

provisions may benefit borrowers, 

possibly by reducing the number of 

borrowers who never respond to the 

servicer, but in any case ensuring that 

those who would respond have the 

opportunity to do so. 

The Bureau also understands that 

borrowers may benefit from the 

proposed provisions by taking 

corrective action more quickly. In one 

study using data from 2000 through 

2006, the re-default rate was about 27% 

(15 percentage points) lower on 

repayment plans established when a 

loan was 30 days late instead of 60 days 

late.214 Early intervention may generally 

benefit borrowers by reducing avoidable 

interest costs, limiting the impact on 

borrowers’ credit reports, and 

facilitating household budgeting and 

planning. 

Finally, it is essential to note that the 

repayment plans, loan modifications 

and other alternatives to default or 

foreclosure that servicers offer change 

regularly, often to make additional 

borrowers eligible. For example, a 

number of TARP funded housing 

programs have been developed since the 

initial HAMP first-lien modification 

program was implemented in April 

2009. Programs now exist that provide 

principal reduction for HAMP-eligible 

borrowers with high loan-to-value 

ratios, provide temporary principal 

forbearance for unemployed borrowers, 

and provide incentives for shortsales.215 Furthermore, the eligibility 

criteria for these programs change 

regularly.216 The changing set of 

alternatives to default and foreclosure 

and eligibility for these alternatives 

mean that delinquent borrowers who 

have not had recent contact with their 

servicer regarding the alternatives for 

which they qualify are probably 

uninformed or misinformed about the 

options available to them. The proposed 

provisions for early intervention benefit 

borrowers by providing them with 

information they probably do not have. 

Benefits and costs to covered persons. 

Through industry outreach, the Bureau 

understands that many servicers already 

comply with the proposed early 

intervention procedures. As stated 

above, most servicers should be familiar 

with the early intervention standards for 

delinquent borrowers issued by private 

mortgage investors, the GSEs, Ginnie 

Mae, or government agencies offering 

guarantees or insurance for mortgage 

loans, such as FHA, the VA, or the Rural 

Housing Service. Servicers of FHA and 

VA loans are generally required to take 

action within the first 20 days of a 

delinquency, such as making telephone 

calls, and sending written delinquency 

notifications. Similarly, servicers of 

loans purchased by the GSEs are 

encouraged to contact borrowers within 

several days of a delinquency. Freddie 

Mac recommends that servicers begin 

initial call campaigns on the third day 

of delinquency, and Fannie Mae 

recommends that servicers take similar 

actions with respect to borrowers having 

a high risk of default. The Bureau 

understands, however, that some GSE 

servicers may not provide written 

notifications to certain lower-risk 

delinquent borrowers until the 65th day 

of delinquency. In addition, Federal 

agencies and the GSEs have established 

requirements and recommended 

practices with respect to written 

notifications that are similar to the 

Bureau’s proposal under proposed 

§ 1024.39(b). 

Furthermore, the Bureau is proposing 

to mitigate the cost of the written notice 

provision by providing servicers with 

model clauses and by limiting the 

written notice to be sent once every 180 

days. The model clauses provide 

servicers with examples of language 

explaining the foreclosure process and 

encouraging the borrower to contact the 

servicer. The Bureau intends for the 

model clauses to provide servicers with 

examples of the level of detail that the 

Bureau expects servicers to provide in 

their written notice. 

5. Procedures for Continuity of Contact 

With Delinquent Borrowers 

Dodd-Frank Act section 1463 requires 

servicers to comply with any obligation 

the Bureau finds appropriate to carry 

out the consumer protection purposes of 

RESPA. The Bureau is using this 

authority to propose continuity of 

contact provisions regarding delinquent 

borrowers. 

The Bureau proposes to require 

servicers to assign personnel to 

delinquent borrowers for whom 

servicers are required to notify pursuant 

to the proposed oral notification 

requirement under its early intervention 

proposal, discussed above. 

Additionally, the servicers would be 

required to provide such borrowers with 

live, telephonic response to inquiries 

and, as applicable, assist the borrower 

with loss mitigation options. Servicers 

would be required to establish policies 

and procedures reasonably designed to 

ensure that the personnel they assign to 

delinquent borrowers perform an 

enumerated list of functions where 

applicable, including, for example, 

providing the borrower with accurate 

information about loss mitigation 

options available to the borrower and 

actions the borrower must take to be 

evaluated for such options. 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57282 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

217See General Accounting Office, Troubled 

Asset Relief Program: Further Actions Needed to 

Fully and Equitably Implement Foreclosure 

Mitigation Programs, at 15 (2010). 

218See also the general discussion of servicing 

operations and avoidable foreclosure in the analysis 

of the proposed provisions on reasonable 

information management. 

219Specifically, as specified in proposed 

§ 1024.41(g), if a servicer received a timely and 

complete loss mitigation application, a servicer 

could not proceed to foreclosure sale unless: (1) The 

servicer denied the borrower’s application for a loss 

mitigation option and the appeal process is 

inapplicable, the borrower has not requested an 

appeal, or the time for requesting an appeal has 

expired; (2) the servicer denied the borrower’s 

appeal; (3) the borrower rejected a servicer’s offer 

of a loss mitigation option; or (4) a borrower failed 

to perform pursuant to the terms of a loss mitigation 

option. 

220Mortgages were troubled if they were ever 60+ 

days past due or the borrower contacted the lender 

asking to renegotiate the loan. 

221See Sumit Agarwal, et al., Market-Based Loss 

Mitigation Practices for Troubled Mortgages 

Following the Financial Crisis, at 7–10, Table 2, 

Federal Reserve Bank of Chicago (2010). 

Benefits and costs to consumers. As 

discussed above in greater detail in part 

VI, above, the onset of the mortgage 

crisis revealed that many servicers did 

not have the infrastructure, trained staff, 

controls, and procedures needed to 

handle the high volumes of delinquent 

mortgages, loan modification requests, 

and foreclosures they were required to 

process. One study of complaints to the 

HOPE Hotline reported that over half 

were from borrowers who could not 

reach their servicers and obtain 

information about the status of their 

applications for HAMP modification.217

Other complaints concerned lost 

documentation and that borrowers were 

not able to speak with representatives 

who were knowledgeable about the 

status of the borrowers’ applications for 

loss mitigation. While certain servicers 

may nonetheless have provided 

delinquent borrowers with the services 

described in the proposed continuity of 

contact provisions, such as, for example, 

access to personnel who could provide 

the borrower with accurate information 

about the status of a loss mitigation 

application, the mortgage crisis 

demonstrated that a number of servicers 

did not. 

As discussed in part VI, above, the 

Bureau believes that these problems 

may have had a significant adverse 

impact on borrowers seeking 

alternatives to foreclosure. While the 

Bureau does not have the data with 

which to quantify the effects, the 

inability of a borrower to speak with 

personnel knowledgeable about the 

status of a loss mitigation application 

creates delay in rectifying problems 

(including problems with lost 

documentation) that may lead to 

avoidable foreclosure. Similarly, the 

inability of borrowers to obtain a 

complete record of their payment 

histories with the servicer or of servicer 

personnel to access all documents the 

borrowers have submitted to the 

servicer in connection with an 

application for a loss mitigation option 

may impair the ability of borrowers to 

generally advocate for themselves 

regarding loss mitigation and possibly to 

slow or halt foreclosure. Conversely, the 

ability of borrowers to speak with 

personnel knowledgeable about loss 

mitigation options available to the 

borrower and the actions the borrower 

must take to be evaluated for such 

options makes it easier for borrowers to 

effectively pursue these options. These 

provisions therefore increase the 

chances that certain delinquent 

borrowers are able to obtain a loss 

mitigation plan and avoid 

foreclosure.218

Benefits and costs to covered persons. 

The Bureau understands that many 

servicers are already in compliance with 

the proposed requirements. As 

discussed in part VI, above, in response 

to reported problems with respect to 

how servicers to respond to delinquent 

borrowers, other regulators and the 

GSEs have responded by establishing 

staffing standards for servicers to meet 

when they assist delinquent borrowers. 

Accordingly, the Bureau believes that 

any additional costs of the proposed 

continuity of contact provisions would 

be minimal. 

6. Loss Mitigation Procedures 

Dodd-Frank Act section 1463 requires 

servicers to comply with any obligation 

the Bureau finds appropriate to carry 

out the consumer protection purposes of 

RESPA. The Bureau is using this 

authority to propose provisions 

regarding loss mitigation. 

The proposed provisions on loss 

mitigation would require servicers that 

make loss mitigation options available 

to borrowers in the ordinary course of 

business to undertake certain duties in 

connection with the evaluation of 

borrower applications for loss 

mitigation options. These servicers 

would have a duty to evaluate 

borrowers that apply for loss mitigation 

within specific timeframes and to 

inform borrowers about the status of 

their applications and the servicer’s 

decision. These servicers would also be 

prohibited from completing a 

foreclosure sale unless certain 

conditions held.219

Benefits and costs to consumers. The 

proposed procedures in 1024.41 provide 

a minimal structure to the process and 

decision-making around loss mitigation. 

Borrowers who submit complete 

applications may benefit from the 

proposed requirement on servicers to 

review and respond within a fixed 

period of time (30 days). Those who are 

denied loan modifications may benefit 

from the proposed requirement to 

disclose the reasons for the denial and 

the consumer’s rights to appeal the 

decision, and from the appeal itself. 

The Bureau is aware that a mandatory 

timeline may have unintended 

consequences for borrowers in certain 

circumstances. For example, one study 

of the loan-level data from the OCC– 

OTS Mortgage Metrics database studied 

1.8 million mortgages that were current 

in the last quarter of 2007 and became 

‘‘troubled’’ at some point between 

January 2008 and May 2009.220 About 

300,000 loans became troubled in each 

quarter of 2008. The researchers found 

that servicers made decisions very 

slowly and did not take any action, even 

after 6 months, in about half the 

cases.221 The timeline in the proposed 

provisions would have been binding on 

a large number of loans during this 

period, and it is difficult to predict how 

the servicers would have responded. 

One feature of the proposed 

provisions mitigates concerns about 

unintended consequences for borrowers. 

Servicers would be required to make a 

decision about whether to grant a loss 

mitigation option within 30 days. They 

would not, however, have to move to 

foreclosure just because they decline to 

provide a loss mitigation option. 

Servicers would be required to make a 

decision, but they would not be 

required to take any action that they 

would not have taken absent the 

proposed loss mitigation provisions, 

and through continuity of contact they 

could alert borrowers to the possibility 

of a different decision at a later date. 

Servicers would, however, be required 

to produce a record of decisions and, in 

the case of loss mitigation the reasons 

for denial, that record may provide 

greater accountability to both borrowers 

and investors. This argument also 

mitigates concerns that borrowers who 

may benefit from a long foreclosure 

timeline would necessarily need to 

leave their homes sooner than they 

otherwise would. 

More generally, borrowers applying 

for a loss mitigation option are in a 

high-stakes and unfamiliar situation. 

They may have no clear understanding 

of what to expect and what is expected 

of them. Federal rules on loss mitigation 

may make key decision points more 

salient and credible to borrowers and 

motivate them, for example, to provide 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57283 

complete applications to servicers in a 

timely manner. Borrowers may also be 

able to draw more directly on the 

experiences of other borrowers who 

were successful in loss mitigation since 

all would have been through a similar 

process. 

Borrowers may also benefit from the 

proposed restrictions on the timing of 

foreclosure sales. As discussed above, 

there is substantial anecdotal evidence 

that borrowers have been foreclosed 

upon despite working in good faith for 

a loss mitigation option. The proposed 

restrictions would not prevent 

foreclosures that occur from the failure 

of servicers to comply with basic 

servicer duties, like maintaining proper 

records of payments and agreements. 

However, the proposed restrictions 

would define a clear set of 

circumstances under which discussions 

regarding loss mitigation options have 

ended. This certainty and clarity should 

make it less likely that borrowers will be 

foreclosed upon unexpectedly and 

makes clear to borrowers what is 

expected from them to avoid 

foreclosure. 

Benefits and costs to covered persons. 

The proposed provisions on loss 

mitigation may impose some costs on 

servicers. For example, servicers who 

make loss mitigation options available 

in the ordinary course of business may 

need to employ additional staffing in 

order to meet the proposed 30-day 

timeline for evaluation when large 

numbers of borrowers submit 

applications. Servicers would also need 

to allow 90 days between the time a 

borrower submits a complete loss 

mitigation application and the servicer 

conducts a foreclosure sale. This builds 

in time for consideration of the 

application and an appeal, but it also 

may delay foreclosures that servicers, 

based on their experience, recognize as 

inevitable. Any lengthening of time 

until foreclosure sale will also increase 

the time during which servicers will 

have the expense of providing 

borrowers with continuity of contact. 

On the other hand, the amount of time 

required for a successful modification 

may be shorter, and the cost to servicers 

lower, if the timelines and other 

proposed provisions for loss mitigation 

encourage borrowers to work more 

effectively with servicers. 

The costs to covered person of the 

proposed loss mitigation provisions 

depend on the extent to which servicers 

already comply with the proposed 

provisions and, for those not in 

compliance, the cost of making 

necessary changes. The Bureau asks 

interested parties to provide data and 

other information about current 

compliance with the proposed 

provisions, the challenges of coming 

into compliance, and the benefits and 

costs to covered persons from any 

interactions between these provisions 

and other provisions of this proposed 

rule. 

E. Potential Specific Impacts of the 

Proposed Rule 

1. Depository Institutions and Credit 

Unions With $10 Billion or Less in Total 

Assets 

Regarding the provisions for forceplaced insurance, the Bureau 

understands within the group of 

depository institutions and credit 

unions with $10 billion or less in total 

assets, as described in section 1026 of 

the Dodd-Frank Act, the larger 

depositories and credit unions generally 

have contracts with force-placed 

insurance providers under which the 

providers would absorb the costs of the 

proposed provisions. Thus, the Bureau 

believes there would be little impact of 

the proposed provisions on these 

institutions. But for smaller depository 

institutions or credit unions, the Bureau 

understands that providers may pass 

along certain costs to such institutions. 

The impact of these provisions on small 

depository institutions and credit 

unions, including a discussion of input 

from SERs in the SBREFA process, is 

discussed in further detail in the 

Regulatory Flexibility Analysis in part 

VIII, below. Based on feedback received 

from the SERs, The Bureau understands 

that small mortgage servicers engage in 

relatively little force-placement. The 

Bureau asks interested parties to 

provide general information, data, and 

research results that are relevant to 

understanding the impact of the 

proposed provisions for force-placed 

insurance on depository institutions and 

credit unions considered in this section. 

Regarding the other proposed 

provisions, the Bureau believes that the 

consideration of benefits and costs of 

covered persons presented above 

provides a largely accurate analysis of 

the impacts of the proposed rule on 

depository institutions and credit 

unions with $10 billion or less in total 

assets. About 90% of all servicers are 

depository institutions and the vast 

majority of these institutions adhere to 

the servicing guidelines established by 

the GSEs. There is substantial overlap 

between these guidelines and provisions 

of the proposed rule, especially in 

regards to early intervention with 

delinquent borrowers and loss 

mitigation. Thus, the Bureau believes 

that the consideration of benefits and 

costs to covered persons given above 

provides a general description of the 

impacts to depository institutions and 

credit unions considered in this section. 

However, the Bureau seeks comment on 

this conclusion and asks interested 

parties to provide general information, 

data, and research results that are 

relevant to understanding the impact of 

the proposed provisions on depository 

institutions and credit unions 

considered in this section. 

2. Impact of the Proposed Provisions on 

Consumers in Rural Areas 

Consumers in rural areas may 

experience benefits from the proposed 

rule that are different in certain respects 

from the benefits experienced by 

consumers in general. Consumers in 

rural areas may be more likely to obtain 

mortgages from small local banks and 

credit unions that either service the 

loans in portfolio or sell the loans and 

retain the servicing rights. These 

servicers may already provide most of 

the benefits to consumers that the 

proposed rule is designed to provide, 

including, for example, getting errors 

corrected promptly or getting access to 

personnel to assist them with their 

application for loss mitigation options. 

On the other hand, it is also possible 

that a lack of alternatives in some rural 

areas among lenders who also service 

may make it possible for the proposed 

rule to provide rural consumers with 

greater benefits. 

The Bureau will further consider the 

impact of the proposed rule on 

consumers in rural areas. The Bureau 

therefore asks interested parties to 

provide data, research results and other 

factual information on the impact of the 

proposed rule on consumers in rural 

areas. 

F. Additional Analysis Being 

Considered and Request for Information 

The Bureau will further consider the 

benefits, costs, and impacts of the 

proposed provisions before finalizing 

the proposal. At various points in the 

analysis above, the Bureau asks 

interested parties to provide data, 

research results and other information 

relating to particular issues. The Bureau 

is generally interested in the impact of 

the proposed provisions on consumers, 

covered persons and markets in order to 

further understand and quantify the 

benefits and costs to consumers and 

covered persons. The Bureau generally 

requests interested parties to provide 

data, research, and other information 

that may inform the further 

consideration of benefits, costs and 

impacts of the proposed provisions. 

To supplement the information 

discussed in this SUPPLEMENTARY


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222More information about the Mortgage Call 

Report can be found at: http:// 

mortgage.nationwidelicensingsystem.org/slr/ 

common/mcr/Pages/default.aspx. 

INFORMATION and any information that 

the Bureau may receive from 

commenters, the Bureau is currently 

working to gather additional data that 

may be relevant to this and other 

mortgage related rulemakings. These 

data may include additional data from 

the National Mortgage License System 

(NMLS) and the NMLS Mortgage Call 

Report, loan file extracts from various 

lenders, and data from the pilot phases 

of the National Mortgage Database. The 

Bureau expects that each of these 

datasets will be confidential. This 

section now describes each dataset in 

turn. 

First, as the sole system supporting 

licensure/registration of mortgage 

companies for 53 regulatory agencies for 

states and territories and mortgage loan 

originators under the Secure and Fair 

Enforcement for Mortgage Licensing Act 

(SAFE Act), NMLS contains basic 

identifying information for nondepository mortgage loan origination 

companies. Firms that hold a State 

license or State registration through 

NMLS are required to complete either a 

standard or expanded Mortgage Call 

Report (MCR). The Standard MCR 

includes data on each firm’s residential 

mortgage loan activity including 

applications, closed loans, individual 

mortgage loan originator (MLO) activity, 

line of credit, and other data repurchase 

information by State. It also includes 

financial information at the company 

level. The expanded report collects 

more detailed information in each of 

these areas for those firms that sell to 

Fannie Mae or Freddie Mac.222 To date, 

the Bureau has received basic data on 

the firms in the NMLS and de-identified 

data and tabulations of data from the 

MCR. These data were used, along with 

HMDA data, to help estimate the 

number and characteristics of nondepository institutions active in various 

mortgage activities. In the near future, 

the Bureau may receive additional data 

on loan activity and financial 

information from the NMLS including 

loan activity and financial information 

for identified lenders. The Bureau 

anticipates that these data will provide 

additional information about the 

number, size, type, and level of activity 

for non-depository lenders engaging in 

various mortgage origination and 

servicing activities. As such, it 

supplements the Bureau’s current data 

for non-depository institutions reported 

in HMDA and the data already received 

from NMLS. For example, these new 

data will include information about the 

number and size of closed-end first and 

second loans originated, fees earned 

from origination activity, levels of 

servicing, revenue estimates for each 

firm, and other information. The Bureau 

may compile some simple counts and 

tabulations and conduct some basic 

statistical modeling to better model the 

levels of various activities at various 

types of firms. In particular, the 

information from the NMLS and the 

MCR may help the Bureau refine its 

estimates of benefits, costs, and impacts 

for the proposed new servicing 

requirements in this proposed rule and 

the companion 2012 TILA Servicing 

Proposal, as well as other proposed 

rules to make revisions to the RESPA 

Good Faith Estimate and settlement 

statement forms, changes to the HOEPA 

thresholds, changes to requirements for 

appraisals, updates to loan originator 

compensation rules, and impose new 

ability-to-repay standards. 

Second, the Bureau is working to 

obtain a random selection of loan-level 

data from several lenders. The Bureau 

intends to request loan file data from 

lenders of various sizes and geographic 

locations to construct a representative 

dataset. In particular, the Bureau will 

request a random sample of RESPA GFE 

and RESPA settlement statement forms 

from loan files for closed-end loans. 

These forms include data on some or all 

loan characteristics including settlement 

charges, origination charges, appraisal 

fees, flood certifications, mortgage 

insurance premiums, homeowner’s 

insurance, title charges, balloon 

payments, prepayment penalties, 

origination charges, and credit charges 

or points. Through conversations with 

industry, the Bureau believes that such 

loan files exist in standard electronic 

formats allowing for the creation of a 

representative sample for analysis. The 

Bureau may use these data to further 

measure the impacts of certain proposed 

changes. Calculations of various 

categories of settlement and origination 

charges may help the Bureau calculate 

the various impacts of proposed changes 

in other proposals to the definition of 

finance charge, including proposed 

changes in the number and 

characteristics of loans that exceed the 

HOEPA thresholds, loans that would 

meet the high-rate or high-risk 

definitions mandating additional 

consumer protections, and loans that 

meet the points and fees thresholds 

contained in the ability-to-repay 

provisions of the Dodd-Frank Act. 

Third, the Bureau may also use data 

from the pilot phases of the National 

Mortgage Database (NMDB) to refine its 

proposals and/or its assessments of the 

benefits, costs, and impacts of these 

proposals. The NMDB is a 

comprehensive database, currently 

under development, of loan-level 

information on first lien single-family 

mortgages. It is designed to be a 

nationally representative sample (1%) 

and contains data derived from credit 

reporting agency data and other 

administrative sources along with data 

from surveys of mortgage borrowers. 

The first two pilot phases, conducted 

over the past two years, vetted the data 

development process, successfully pretested the survey component and 

produced a prototype dataset. The 

initial pilot phases validated that 

sampled credit repository data are both 

accurate and comprehensive and that 

the survey component yields a 

representative sample and a sufficient 

response rate. A third pilot is currently 

being conducted with the survey being 

mailed to holders of 5,000 newly 

originated mortgages sampled from the 

prototype NMDB. Based on the 2011 

pilot, a response rate of 50% or higher 

is expected. These survey data will be 

combined with the credit repository 

information of non-respondents, and 

then de-identified. Credit repository 

data will be used to minimize nonresponse bias, and attempts will be 

made to impute missing values. The 

data from the third pilot will not be 

made public. However, to the extent 

possible, the data may be analyzed to 

assist the Bureau in its regulatory 

activities and these analyses will be 

made publically available. 

The survey data from the pilots may 

be used by the Bureau to analyze 

consumers’ shopping behavior regarding 

mortgages. For instance, the Bureau may 

calculate the number of consumers who 

use brokers, the number of lenders 

contacted by borrowers, how often and 

with what patterns potential borrowers 

switch lenders, and other behaviors. 

Questions may also assess borrowers’ 

understanding of their loan terms and 

the various charges involved with 

origination. Tabulations of the survey 

data for various populations and simple 

regression techniques may be used to 

help the Bureau with its analysis. 

The Bureau requests commenters to 

submit data and to provide suggestions 

for additional data to assess the issues 

discussed above and other potential 

benefits, costs, and impacts of the 

proposed rule. The Bureau also requests 

comment on the use of the data 

described above. 

VIII. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA), 

as amended by SBREFA and the DoddFrank Act, requires each agency to 


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223As described in the IRFA in part VIII.B, below, 

sections 603(b)(3) through (b)(5) and section 603(c) 

of the RFA, respectively, require a description of 

and, where feasible, provision of an estimate of the 

number of small entities to which the proposed rule 

will apply; a description of the projected reporting, 

record keeping, and other compliance requirements 

of the proposed rule, including an estimate of the 

classes of small entities which will be subject to the 

requirement and the type of professional skills 

necessary for preparation of the report or record; an 

identification, to the extent practicable, of all 

relevant Federal rules which may duplicate, 

overlap, or conflict with the proposed rule; and a 

description of any significant alternatives to the 

proposed rule which accomplish the stated 

objectives of applicable statutes and which 

minimize any significant economic impact of the 

proposed rule on small entities. 5 U.S.C. 603(b)(3), 

603(b)(4), 603(b)(5), 603(c). 

224The Bureau posted these materials on its Web 

site and invited the public to email remarks on the 

materials, available at: http:// 

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

225This written feedback is attached as appendix 

A to the Small Business Review Panel Report. 

consider the potential impact of its 

regulations on small entities, including 

small businesses, small governmental 

units, and small not-for-profit 

organizations. 5 U.S.C. 601 et seq. The 

RFA generally requires an agency to 

conduct an initial regulatory flexibility 

analysis (IRFA) and a final regulatory 

flexibility analysis (FRFA) of any rule 

subject to notice-and-comment 

rulemaking requirements, unless the 

agency certifies that the rule will not 

have a significant economic impact on 

a substantial number of small entities. 5 

U.S.C. 603, 604. The Bureau also is 

subject to certain additional procedures 

under the RFA involving the convening 

of the Small Business Review Panel to 

consult with SERs prior to proposing a 

rule for which an IRFA is required. 5 

U.S.C. 609. 

The Bureau has not certified that the 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities 

within the meaning of the RFA. 

Accordingly, the Bureau convened and 

chaired the Small Business Review 

Panel to consider the impact of the 

proposed rule on small entities that 

would be subject to that rule and to 

obtain feedback from representatives of 

such small entities. The Small Business 

Review Panel for this rulemaking is 

discussed below in part VIII.A. 

The Bureau is publishing an IRFA. 

Among other things, the IRFA estimates 

the number of small entities that will be 

subject to the proposed rule and 

describe the impact of that rule on those 

entities. The IRFA for this rulemaking is 

set forth below in part VIII.A. 

A. Small Business Review Panel 

Under section 609(b) of the RFA, as 

amended by SBREFA and the DoddFrank Act, the Bureau seeks, prior to 

conducting the IRFA, information from 

representatives of small entities that 

may potentially be affected by its 

proposed rules to assess the potential 

impacts of that rule on such small 

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

sets forth a series of procedural steps 

with regard to obtaining this 

information. The Bureau first notifies 

the Chief Counsel for Advocacy of the 

SBA and provides the Chief Counsel for 

Advocacy of the SBA with information 

on the potential impacts of the proposed 

rule on small entities and the types of 

small entities that might be affected. 5 

U.S.C. 609(b)(1). Not later than 15 days 

after receipt of the formal notification 

and other information described in 

section 609(b)(1) of the RFA, the Chief 

Counsel for Advocacy of the SBA then 

identifies individuals representative of 

affected small entities for the purpose of 

obtaining advice and recommendations 

from those individuals about the 

potential impacts of the proposed rule 

(referred to previously as SERs). 5 

U.S.C. 609(b)(2). The Bureau convenes a 

review panel for such rule consisting 

wholly of fulltime Federal employees of 

the office within the Bureau responsible 

for carrying out the proposed rule, the 

Office of Information and Regulatory 

Affairs within OMB, and the Chief 

Counsel for Advocacy of the SBA, 

which constitutes the Small Business 

Review Panel. 5 U.S.C. 609(b)(3). The 

Panel reviews any material the Bureau 

has prepared in connection with the 

SBREFA process and collects advice 

and recommendations of each 

individual SER identified by the Bureau 

after consultation with the Chief 

Counsel for Advocacy of the SBA on 

issues related to sections 603(b)(3) 

through (b)(5) and 603(c) of the RFA.223

5 U.S.C. 609(b)(4). Not later than 60 

days after the date the Bureau convenes 

the Small Business Review Panel, the 

Panel reports on the comments of the 

SERs and its findings as to the issues on 

which the Panel consulted with the 

SERs, and the report is made public as 

part of the rulemaking record. 5 U.S.C. 

609(b)(5). Where appropriate, the 

Bureau modifies the rule or the IRFA in 

light of the foregoing process. 5 U.S.C. 

609(b)(6). 

On April 9, 2012, the Bureau 

provided the Chief Counsel for 

Advocacy of the SBA with the formal 

notification and other information 

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

RFA. To obtain feedback from SERs to 

inform the Panel pursuant to section 

609(b)(2) and 609(b)(4) of the RFA, the 

Bureau, in consultation with the Chief 

Counsel for Advocacy of the SBA, 

identified five categories of small 

entities that may be subject to the 

proposed rule for purposes of the IRFA: 

commercial banks/savings institutions, 

credit unions, non-depositories engaged 

primarily in lending funds with real 

estate as collateral (included in NAICS 

522292), non-depositories primarily 

engaged in loan servicing (included in 

NAICS 522390), and certain non-profit 

organizations. Section 3 of the IRFA, in 

Part VIII.B.3, below, describes in greater 

detail the Bureau’s analysis of the 

number and types of entities that may 

be affected by the proposed rule. Having 

identified the categories of small entities 

that may be subject to the proposed rule 

for purposes of an IRFA, the Bureau, in 

consultation with the Chief Counsel for 

Advocacy of the SBA, selected 16 SERs 

to participate in the SBREFA process. 

As described in chapter 7 of the Small 

Business Review Panel Report 

(described below), the SERs selected by 

the Bureau in consultation with the 

Chief Counsel for Advocacy of the SBA 

included representatives from each of 

the categories identified by the Bureau 

and comprised a diverse group of 

individuals with regard to geography 

and type of locality (i.e., rural, urban, 

suburban, or metropolitan areas). 

On April 10, 2012, the Bureau 

convened the Small Business Review 

Panel pursuant to section 609(b)(3) of 

the RFA. To collect the advice and 

recommendations of the SERs under 

section 609(b)(4) of the RFA, the Panel 

held an outreach meeting/ 

teleconference with the SERs on April 

24, 2012 (‘‘Panel Outreach Meeting’’). 

To help the SERs prepare for the Panel 

Outreach Meeting, the Panel circulated 

briefing materials prepared in 

connection with section 609(b)(4) of the 

RFA that summarized the proposals 

under consideration at that time, posed 

discussion issues, and provided 

information about the SBREFA process 

generally.224 All 16 SERs participated in 

the Panel Outreach Meeting either in 

person or by telephone. The Small 

Business Review Panel also provided 

the SERs with an opportunity to submit 

written feedback until May 1, 2012. In 

response, the Small Business Review 

Panel received written feedback from 5 

of the representatives.225

On June 11, 2012, the Small Business 

Review Panel submitted to the Director 

of the Bureau, Richard Cordray, the 

written Small Business Review Panel 

Report, which includes the following: 

background information on the 

proposals under consideration at the 

time; information on the types of small 

entities that would be subject to those 

proposals and on the SERs who were 


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selected to advise the Small Business 

Review 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 Small Business 

Review Panel findings, focusing on the 

statutory elements required under 

section 603 of the RFA. 5 U.S.C. 

609(b)(5). 

In preparing this proposed rule and 

the IRFA, the Bureau has carefully 

considered the feedback from the SERs 

participating in the SBREFA process 

and the findings and recommendations 

in the Small Business Review Panel 

Report. The section-by-section analysis 

of the proposed rule in Part VI, above, 

and the IRFA discuss this feedback and 

the specific findings and 

recommendations of the Small Business 

Review Panel, as applicable. The 

SBREFA process provided the Small 

Business Review Panel and the Bureau 

with an opportunity to identify and 

explore opportunities to mitigate the 

burden of the rule on small entities 

while achieving the rule’s purposes. It is 

important to note, however, that the 

Small Business Review Panel prepared 

the Small Business Review Panel Report 

at a preliminary stage of the proposal’s 

development and that the report—in 

particular, the findings and 

recommendations—should be 

considered in that light. Also, any 

options identified in the Small Business 

Review Panel Report for reducing the 

proposed rule’s regulatory impact on 

small entities were expressly subject to 

further consideration, analysis, and data 

collection by the Bureau to ensure that 

the options identified were practicable, 

enforceable, and consistent with 

RESPA, TILA, the Dodd-Frank Act, and 

their statutory purposes. The proposed 

rule and the IRFA reflect further 

consideration, analysis, and data 

collection by the Bureau. 

B. Initial Regulatory Flexibility Analysis 

Under section 603(a) of the RFA, an 

IRFA ‘‘shall describe the impact of the 

proposed rule on small entities.’’ 5 

U.S.C. 603(a). Section 603(b) of the RFA 

sets forth the required elements of the 

IRFA. An IRFA shall contain (1) a 

description of the reasons why action by 

the agency is being considered; (2) a 

succinct statement of the objectives of, 

and the legal basis for, the proposed 

rule; (3) a description of and, where 

feasible, provision of an estimate of the 

number of small entities to which the 

proposed rule will apply; (4) a 

description of the projected reporting, 

recordkeeping, and other compliance 

requirements of the proposed rule, 

including an estimate of the classes of 

small entities that will be subject to the 

requirement and the types of 

professional skills necessary for the 

preparation of the report or record; and 

(5) identification, to the extent 

practicable, of all relevant Federal rules 

which may duplicate, overlap, or 

conflict with the proposed rule. The 

Bureau, further, must describe any 

significant alternatives to the proposed 

rule which accomplish the stated 

objectives of applicable statutes and 

which minimize any significant 

economic impact of the proposed rule 

on small entities. Finally, as amended 

by the Dodd-Frank Act, section 603(d) 

of the RFA requires that the IRFA 

include a description of any projected 

increase in the cost of credit for small 

entities, a description of any significant 

alternatives to the proposed rule which 

accomplish the stated objectives of 

applicable statutes and which minimize 

any increase in the cost of credit for 

small entities (if such an increase in the 

cost of credit is projected), and a 

description of the advice and 

recommendations of representatives of 

small entities relating to the cost of 

credit issues. 5 U.S.C. 603(d)(1); DoddFrank Act section 1100G(d)(1). 

1. Description of the Reasons Why 

Agency Action Is Being Considered 

As discussed in the part I, above, 

mortgage servicing has been marked by 

pervasive and profound consumer 

protection problems. As a result of these 

problems, Congress included a number 

of provisions in the Dodd-Frank Act 

specifically to address mortgage 

servicing. One of these provisions is 

section 1463 of the Dodd-Frank Act, 

which amends RESPA. This provision 

puts new disclosure requirements and 

limitations on servicers obtaining forceplaced insurance, and it establishes 

obligations for servicers to respond to 

requests from borrower to correct errors 

or provide certain information. Section 

1463 of the Dodd-Frank Act also 

authorizes the Bureau, by regulation, to 

impose other obligations on servicers 

that it finds appropriate to carry out the 

purposes of the statute. 

These new statutory requirements 

take effect automatically on January 21, 

2013, as written in the statute, unless 

final rules are issued prior to that date. 

If the Bureau adopts implementing 

regulations no later than January 21, 

2013, the Bureau may establish an 

effective date for the rules. The statutory 

requirements implemented by the rules 

then take effect on the same date. The 

Bureau intends to exercise its authority 

to adopt regulations to clarify new 

consumer protection obligations under 

the statute, to adopt additional 

consumer protections not required by 

the statute, and to give servicers 

sufficient time to come into compliance. 

The Bureau is also considering adjusting 

servicers’ legal obligations, including 

the obligations of small servicers, in 

certain circumstances to ease burden 

without sacrificing adequate protection 

of consumers. 

The Bureau is proposing additional 

standards to improve the way servicers 

treat borrowers, particularly delinquent 

borrowers. Some servicers have made it 

very difficult for delinquent borrowers 

to understand, and take advantage of, 

potential alternatives to foreclosure. For 

example, servicers have frequently 

neglected to reach out or respond to 

such borrowers to discuss alternatives to 

foreclosure, lost or misplaced the 

documents of borrowers who have 

sought loan modifications or other 

options offered by servicers, and forced 

borrowers who have invested 

substantial time communicating with an 

employee of the servicer to repeat the 

process with different employees that 

lack information about the substance of 

prior communications. The Bureau is 

proposing new servicing regulations to 

address these concerns. 

When finalized, the Bureau’s rules 

will constitute the first truly national 

mortgage servicing standards. Other 

Federal regulatory agencies have issued 

guidance on mortgage servicing and 

loan modifications and taken 

enforcement actions against mortgage 

servicers. The State attorneys general, 

joined by numerous Federal agencies 

including the Bureau, entered into the 

National Mortgage Settlement with the 

nation’s five largest servicers in 

February 2012. The National Mortgage 

Settlement applies to portfolio loans 

serviced by the five largest servicers. 

Borrowers of mortgage loans owned by 

GSEs or private investors may not 

necessarily gain the benefit of the 

protections set forth in that settlement. 

These varied regulatory responses are 

understandable when viewed as a 

response to an unprecedented mortgage 

crisis and significant problems in the 

servicing of mortgage loans. Ultimately, 

however, both borrowers and mortgage 

servicers will be better served by having 

uniform minimum national standards 

that govern mortgage servicing. When 

adopted in final form, the Bureau’s rules 

will apply to all mortgage servicers, 

whether depository institutions or nondepository institutions, and to all 

segments of the mortgage market, 

regardless of the ownership of the 

loan—except to the extent the Bureau 

adopts exemptions for smaller servicers. 


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226As specified in proposed § 1024.41(g), if a 

servicer receives a timely and complete loss 

mitigation application, a servicer may not proceed 

to foreclosure sale unless: (1) The servicer denies 

the borrower’s application for a loss mitigation 

option and the appeal process is inapplicable, the 

borrower has not requested an appeal, or the time 

for requesting an appeal has expired; (2) the 

servicer denies the borrower’s appeal; (3) the 

borrower rejects a servicer’s offer of a loss 

mitigation option; or (4) a borrower fails to perform 

pursuant to the terms of a loss mitigation option. 227The current SBA size standards are found on 

SBA’s Web site, available at: http://www.sba.gov/ 

content/table-small-business-size-standards. 228 Id. 

229Savings institutions include thrifts, savings 

banks, mutual banks, and similar institutions. 

230The Bureau is continuing to refine its 

description of small non-profit organizations 

engaged in mortgage loan servicing and working to 

estimate the number of these entities, but it is not 

possible to estimate the number of these 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. 

2. Succinct Statement of the Objectives 

of, and Legal Basis for, the Proposed 

Rule 

This rulemaking has multiple 

objectives. The proposed provisions on 

force-placed insurance should reduce 

the likelihood that servicers purchase 

force placed insurance without a 

reasonable basis. This will reduce 

instances of servicers charging 

borrowers for force-placed insurance 

they do not need or charge more than 

is bona fide and reasonable. The 

proposed provisions on error resolution 

and requests for information would 

require servicers to promptly investigate 

alleged errors and, as appropriate, 

correct them. Servicers would also be 

required to conduct reasonable and 

timely searches for certain types of 

information. 

The proposed provisions on 

maintaining reasonable information 

management policies and procedures 

address wide-spread problems reported 

across the mortgage servicing industry 

with regard to management of borrower 

documents and information. 

Compliance with the rule will require 

providing accurate information to 

borrowers, correcting errors where they 

occur, evaluating borrowers for loss 

mitigation options, facilitating oversight 

of, and compliance by, service 

providers, and facilitating servicing 

transfers. 

The proposed provisions on early 

intervention with delinquent borrowers 

are intended to spur the engagement 

between servicers and borrowers that is 

necessary for avoiding foreclosure. Early 

intervention may also generally benefit 

borrowers by reducing avoidable 

interest costs, limiting the impact on 

borrowers’ credit reports, and 

facilitating household budgeting and 

planning. 

The proposed provisions on 

continuity of contact ensure that 

servicer personnel have access to 

information about delinquent borrowers 

so that the servicer can appropriately 

assist the borrower in exploring loss 

mitigation options. 

Finally, the proposed provisions on 

loss mitigation would require servicers 

that make loss mitigation options 

available to borrowers in the ordinary 

course of business to undertake certain 

duties in connection with the evaluation 

of borrower applications for loss 

mitigation options. These servicers 

would have a duty to evaluate 

borrowers that apply for loss mitigation 

within specific timeframes and to 

inform borrowers about the status of 

their application and the servicer’s 

decision. These servicers would also be 

prohibited from completing a 

foreclosure sale unless certain 

conditions held.226

3. Description and, Where Feasible, 

Provision of an Estimate of the Number 

of Small Entities to Which the Proposed 

Rule Will Apply 

As discussed in the Small Business 

Review Panel Report, for purposes of 

assessing the impacts of the proposed 

rule on small entities, ‘‘small entities’’ is 

defined in the RFA to include small 

businesses, small nonprofit 

organizations, and small government 

jurisdictions. 5 U.S.C. 601(6). A ‘‘small 

business’’ is determined by application 

of SBA regulations and reference to the 

North American Industry Classification 

System (NAICS) classifications and size 

standards.227 5 U.S.C. 601(3). Under 

such standards, banks and other 

depository institutions are considered 

‘‘small’’ if they have $175 million or less 

in assets, and for most other financial 

businesses, the threshold is average 

annual receipts (i.e., annual revenues) 

that do not exceed $7 million.228

During the Small Business Review 

Panel outreach, the Bureau identified 

five categories of small entities that may 

be subject to the proposed rule for 

purposes of the RFA: Commercial 

banks/savings institutions 229 (NAICS 

522110 and 522120), credit unions 

(NAICS 522130), firms providing real 

estate credit (NAICS 522292), firms 

engaged in other activities related to 

credit intermediation (NAICS 522390), 

and small non-profit organizations. 

Commercial banks, savings institutions 

and credit unions are small businesses 

if they have $175 million or less in 

assets. Firms providing real estate credit 

and firms engaged in other activities 

related to credit intermediation are 

small businesses if average annual 

receipts do not exceed $7 million. 

A small non-profit organization is any 

not-for-profit enterprise which is 

independently owned and operated and 

is not dominant in its field. Small nonprofit organizations engaged in mortgage 

servicing typically perform a number of 

activities directed at increasing the 

supply of affordable housing in their 

communities. Some small non-profit 

organizations originate and service 

mortgage loans for low and moderate 

income individuals while others 

purchase loans or the 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.230

The following table provides the 

Bureau’s estimate of the number and 

types of entities that may be affected by 

the proposals under consideration: 

ESTIMATED NUMBER OF AFFECTED ENTITIES AND SMALL ENTITIES BY NAICS CODE AND ENGAGEMENT IN CLOSED-END

MORTGAGE LOAN SERVICING

Category NAICS Small entity threshold Total 

entities 

Small 

entities 

Entities 

engaged in 

mortgage 

loan servicing 

Small entities 

engaged in 

mortgage 

loan servicing 

Commercial banks & savings institutions .......... 522110, 522120 $175,000,000 assets 7,724 4,250 7,502 4,098 

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


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57288 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

231The Bureau is continuing to refine its estimate 

of the number of firms providing real estate credit 

and engaging in other activities related to credit 

intermediation that are small and which engage in 

mortgage loan servicing. 

ESTIMATED NUMBER OF AFFECTED ENTITIES AND SMALL ENTITIES BY NAICS CODE AND ENGAGEMENT IN CLOSED-END

MORTGAGE LOAN SERVICING—Continued 

Category NAICS Small entity threshold Total 

entities 

Small 

entities 

Entities 

engaged in 

mortgage 

loan servicing 

Small entities 

engaged in 

mortgage 

loan servicing 

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

Other activities related to credit intermediation 

(includes loan servicing).

522390 $7,000,000 revenues 5,494 5,319 1,388 800 

For commercial banks, savings 

institutions and credit unions, the 

number of entities and asset sizes were 

obtained from December 2010 Call 

Report data as compiled by SNL 

Financial. Banks and savings 

institutions are counted as engaging in 

mortgage loan servicing if they hold 

closed-end loans secured by 1-to-4 

family residential property or they are 

servicing mortgage loans for others. 

Credit unions are counted as engaging 

in mortgage loan servicing if they have 

closed-end 1-to-4 family mortgages on 

portfolio, or hold real estate loans that 

have been sold but remain serviced by 

the institution. 

For firms providing real estate credit 

and firms engaged in other activities 

related to credit intermediation, the 

total number of entities and small 

entities comes from the 2007 Economic 

Census. The total number of these 

entities engaged in mortgage loan 

servicing is based on a special analysis 

of data from the Nationwide Mortgage 

Licensing System and Registry and is as 

of Q1 2011. The total equals the number 

of non-depositories that engage in 

mortgage loan servicing, including tax 

exempt entities, except for those 

mortgage loan servicers (if any) that do 

not engage in any mortgage-related 

activities that require a state license. 

The estimated number of small entities 

engaged in mortgage loan servicing is 

based on predicting the likelihood that 

an entity’s revenue is less than the $7 

million threshold based on the 

relationship between servicer portfolio 

size and servicer rank in data from 

Inside Mortgage Finance.231

4. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements of 

the Proposed Rule, Including an 

Estimate of the Classes of Small Entities 

Which Will Be Subject to the 

Requirement and the Type of 

Professional Skills Necessary for the 

Preparation of the Report 

The proposed rule does not impose 

new reporting requirements. 

The possible recordkeeping and 

compliance costs for small entities from 

each major component of the proposed 

rule are presented below. The Bureau 

presents these costs against a pre-statute 

baseline. This baseline includes the 

costs of complying with the Federal 

rules that overlap with the proposed 

rule, as described in section 5 of this 

part, below. The Bureau expects that the 

costs of complying with the proposed 

rule relative to the pre-statute baseline 

are lower than these costs would be if 

not for the costs of complying with the 

existing Federal rules. In particular, 

certain one-time and ongoing costs 

regarding error resolution, early 

intervention and loss mitigation will 

have generally been incurred and 

budgeted for by servicers. These 

expenses will facilitate and thereby 

reduce the cost of compliance with the 

proposed rule. 

Benefits to consumers from the 

proposed rule have been previously 

discussed in the section 1022 analysis 

in part VII, above. 

(a) Force-Placed Insurance 

Dodd-Frank Act section 1463 amends 

RESPA to prohibit a servicer of a 

federally related mortgage from 

obtaining force-placed hazard insurance 

unless there is a reasonable basis to 

believe the borrower has failed to 

comply with the loan contract’s 

requirements to maintain property 

insurance. The statute sets forth a 

mandatory process servicers must 

follow, which includes sending two 

notices to the borrower, before imposing 

any charge on a borrower for forceplaced insurance. The statute also 

provides process requirements about 

terminating force-placed insurance and 

refunding force-placed insurance 

premiums paid during any period 

during which the borrower’s insurance 

coverage and the force-placed insurance 

coverage were each in effect. 

The Bureau is proposing forms for the 

force-placed insurance notices to be sent 

to borrowers. The Bureau is also 

proposing requirements concerning: 

charges related to force-placed 

insurance, payment of insurance from 

escrow, and notice requirements when 

servicers renew existing insurance 

policies. 

Based on discussions with industry 

and the SERs, the Bureau understands 

that the proposed force-placed 

insurance provision may not have the 

same impact on all small servicers. 

Some small servicers incur all of the 

costs associated with providing notices, 

tracking borrower coverage, and placing 

and terminating the insurance. For other 

small servicers, the force-placed 

insurance provider handles these 

activities and absorbs the costs or passes 

them on to the consumer indirectly 

through the insurance premium. 

Based on discussions with the SERs, 

the Bureau currently understands that 

many small servicers already comply 

with most of the force-placed insurance 

provisions of the proposed rule. Two 

SERs stated that they already provide 

two or more notices of pending forceplaced insurance and others stated that 

they already refund premiums back to 

borrowers for periods of overlapping 

coverage. Other SERs noted that they 

already provide refunds for overlapping 

coverage. 

If small servicers in general already 

comply with the force-placed insurance 

provisions of the proposed rule, then 

the impact of the proposed rule will 

likely come from the one-time cost of 

developing disclosures that would meet 

the proposed disclosure requirements 

and the ongoing costs of providing 

information in the disclosures that they 

do not already provide. For example, 

one SER stated that their current notice 

does not include an estimate of forceplaced insurance costs. In addition, 

some small servicers who very rarely 


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Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57289 

232Small Business Review Panel Report, at 22. 

need to force-place insurance and 

therefore use informal procedures may 

need to develop written procedures to 

ensure they comply with the proposed 

rule. The Bureau believes the one-time 

cost of developing these policies will be 

minimal. 

When the Bureau convened its Small 

Business Review Panel on mortgage 

servicing, the Bureau learned that 

several of the small servicers that 

participated on the panel obtained 

force-placed insurance policies that 

must be renewed monthly. The Bureau 

proposes to mitigate the cost of these 

disclosures by providing that a servicer 

is not required to send more than one 

renewal notice during any 12-month 

period. 

One SER raised a different concern 

regarding notice and process costs 

associated with borrowers who have 

chronic lapses in hazard insurance 

coverage. This SER said that there 

would be labor costs associated with 

managing a process in which notices 

must be delivered at required intervals, 

setting up escrows for the premium, 

refunding premiums, and repeating the 

process when insurance lapses again. 

The Bureau believes that most small 

servicers already incur most of these 

costs. However, the Bureau is interested 

in data and other factual information 

about the likely compliance costs 

associated with borrowers who have 

chronic lapses in hazard insurance 

coverage and requests comment on this 

issue. 

Finally, most SERs did not raise 

specific concerns with the proposal to 

expand existing requirements, in 

regards to disbursements from a 

borrower’s escrow account to pay the 

borrower’s hazard insurance premium, 

to borrower’s whose mortgage payments 

are more than 30 days past due. Two 

SERs that expressed concern about 

advancing funds to renew a borrower’s 

hazard insurance because the borrower 

could cancel the insurance and keep the 

refund.232 The Small Business Review 

Panel recommended that the Bureau 

reduce the incentives for borrowers to 

take such action by allowing servicers to 

advance premium payments in 30-day 

installments. Proposed comment 

17(k)(5)–3 reflects the panel’s 

recommendation, and the Bureau 

believes that small servicers would not 

be unduly burdened by the Bureau’s 

proposal. 

(b) Error Resolution and Response to 

Inquiries 

Dodd-Frank Act section 1463 amends 

section 6 of RESPA by adopting a 

number of servicer prohibitions with 

respect to handling alleged errors and 

inquiries, including revising the 

timeframe to respond to qualified 

written requests, and prohibiting the 

charging of fees in connection with 

qualified written requests. 

The Bureau is proposing a 

comprehensive set of requirements for 

investigating and correcting errors and 

for responding to borrower inquiries. 

Servicers would be required to correct 

errors relating to allocation of payments, 

provision of final balances for purposes 

of paying off the loan, avoiding 

foreclosures, or other standard servicer 

duties. Servicers also would be required 

to respond to inquiries about certain 

topics. 

Servicers would have to provide 

borrowers with a written 

acknowledgement of receiving a notice 

of error, unless the servicer resolves the 

error within five days and the borrower 

is notified of the resolution in writing. 

Servicers would have to correct the 

error and provide the borrower with 

written notification of the correction or 

conduct a reasonable investigation and 

provide the borrower with written 

notification regarding the investigation 

and the documents relied upon by the 

servicer. Generally, the investigation 

would have to be completed and a 

response provided within 30 days after 

receipt of the notice of error. 

Substantially similar requirements 

apply to inquiries. Servicers would have 

to provide borrowers with written 

acknowledgement of receiving an 

information request, unless the servicer 

provides the borrower with the 

information requested and with contact 

information for further assistance within 

five days, which can be provided orally 

or in writing. Servicers would have to 

provide the borrower with the requested 

information, either orally or in writing, 

or conduct a reasonable search for the 

information and provide the borrower 

with a written notification regarding the 

search. Generally, with the exception of 

requests for certain types of information, 

the information or the notice would 

have to be provided within 30 days after 

receipt of the information request. 

Aside from the requirement to 

respond in writing to notices of error 

and inquiries, servicers not in 

compliance with the other provisions 

would need to develop compliance 

procedures and train staff and may need 

new or updated software and hardware 

in order to access the information 

required to address notices of error and 

inquiries. However, the Bureau 

understands that most small servicers 

already comply with these proposed 

provisions. SERs had no objection to the 

proposed response timeframes. SERs 

emphasized that their borrowers 

demanded immediate resolution of 

errors and response to inquiries and 

their high-touch customer service model 

was designed to meet the demands of 

these borrowers. 

SERs did generally object to the 

proposed written response 

requirements. Several SERs stated that 

having to respond in writing to every 

notice of error would be burdensome. 

Further, SERs argued that there would 

be no consumer benefit, since errors are 

generally asserted orally and resolved 

quickly, if not immediately, and orally. 

The Bureau notes that the proposed 

provision regarding inquiries does not 

require a written response if the servicer 

provides the information requested to 

the borrower within five days. 

Nevertheless, the Bureau understands 

that small servicers, as defined above, 

have an incentive to provide protections 

to consumers that may not exist for 

other servicers. 

(c) Reasonable Information Management 

Policies and Procedures 

Section 1463 of the Dodd-Frank Act 

requires servicers to comply with any 

obligation the Bureau finds appropriate 

to carry out the consumer protection 

purposes of RESPA. The Bureau is using 

this authority to propose a requirement 

that servicers establish reasonable 

information management policies and 

procedures. This provision would 

impose a recordkeeping burden on 

small servicers. 

The proposed provisions specify 

certain objectives for servicers’ 

information management practices. 

These practices should facilitate: 

Accessing and providing accurate 

information; investigating and 

correcting errors and providing 

requested information; evaluating loss 

mitigation options; oversight of, and 

compliance by, service providers; 

facilitating servicing transfers; and 

providing access to information about 

actions taken by the servicer. 

Servicers that maintain reasonable 

information management policies and 

procedures may incur a cost to review 

and document their policies and 

procedures, obtain legal advice, train 

their staff to follow the policies and 

procedures, and monitor staff adherence 

to the policies and procedures. The 

proposal mitigates all of these costs for 

small servicers through the provision 

that the ‘‘reasonableness’’ of a servicer’s 

policies and procedures would depend 

upon the size of the servicer and the 

nature and scope of its activities. 

Further, depository institutions already 

are subject to interagency guidelines 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57290 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

233See Small Business Review Panel for Mortgage 

Servicing Rulemaking, Outline of Proposals Under 

Consideration and Alternatives Considered, at 19, 

22, 24–26. 

234Small Business Review Panel Report at 26. 

relating to safeguarding the institution’s 

safety and soundness that facilitate 

reasonable information management for 

purposes of mortgage servicing. 

The SERs appreciated the flexibility 

of the proposal and thought it was good 

that ‘‘reasonable’’ depends on the size, 

nature, and scope of the entity. The 

SERs emphasized that small firms do 

not necessarily use automated or online 

systems to record and track all borrower 

communications. They urged the 

Bureau to avoid structuring the 

requirement in such a way as to require 

expensive system upgrades. 

(d) Early Intervention for Delinquent 

Borrowers 

Section 1463 of the Dodd-Frank Act 

requires servicers to comply with any 

obligation the Bureau finds appropriate 

to carry out the consumer protection 

purposes of RESPA. The Bureau is using 

this authority, among others, to propose 

early intervention and continuity of 

contact provisions regarding delinquent 

borrowers. 

The Bureau is generally proposing to 

require servicers to make two contacts 

with delinquent borrowers. The Bureau 

proposes to require servicers to make a 

good faith effort to contact delinquent 

borrowers orally no later than 30 days 

after the payment due date. The Bureau 

also proposes to require servicers to 

provide delinquent borrowers with a 

written notice with information about 

loss mitigation options and foreclosure. 

This second contact must be provided 

no later than 40 days after the payment 

date that the borrower missed. 

The Bureau is proposing to mitigate 

the cost of the written notice provision 

by providing servicers with model 

clauses and by limiting the written 

notice to be provided once every 180- 

day period. The Bureau’s model clauses 

provide servicers with examples of 

language explaining the foreclosure 

process and encouraging the borrower to 

contact the servicer. The Bureau intends 

for the model clauses to provide 

servicers with examples of the level of 

detail that the Bureau expects servicers 

to provide in their written notice. 

The SERs explained that they 

generally contact delinquent borrowers 

well before the 45th day of a borrower’s 

delinquency. One SER mentioned that 

the GSEs require contact with 

delinquent borrowers at day 16. The 

SERs stated that they had relatively low 

numbers of delinquent borrowers; 

however, one SER expressed concern 

about borrowers who were frequently 

delinquent. This SER did not want to 

have to send information every month. 

The Bureau notes that under the 

proposal, a servicer is not required to 

provide the written notice to a borrower 

more than once during any 180-day 

period. 

Some SERs did object to the proposed 

written notice requirement. The SERs 

generally stated that they tailor the 

information they provide to the specific 

situation of the borrower. One SER 

objected to a process that the SER 

regarded as unnecessary and which 

would require sending yet another 

notice to the borrower. 

(e) Continuity of Contact 

Section 1463 of the Dodd-Frank Act 

requires servicers to comply with any 

obligation the Bureau finds appropriate 

to carry out the consumer protection 

purposes of RESPA. The Bureau is using 

this authority, among others, to propose 

requiring servicers to assign personnel 

to respond to inquiries of certain 

delinquent borrowers and, as 

applicable, assist them with loss 

mitigation options. 

The Bureau is proposing that 

borrowers who meet the requirements 

for the proposed oral notification under 

the Bureau’s proposed early invention 

provision must be provided with live 

phone access to the assigned personnel. 

The proposal would require that 

servicers maintain reasonable policies 

and procedures designed to ensure that 

the assigned personnel perform an 

enumerated list of functions, such as 

having access to certain information 

about the borrowers (e.g., a complete 

record of the borrower’s payment 

history in the servicer’s possession). The 

proposal provides conditions that define 

the duration of continuity of contact, 

and the proposal provides that certain 

delays and failures that disrupt 

continuity of contact do not violate the 

rule. 

The Bureau believes that small 

servicers generally meet the proposed 

provisions for continuity of contact. 

SERs generally stated that with their 

small staffs, everyone had access to files 

and would be able to assist borrowers in 

delinquency. One SER noted that 

originating officials handle the 

collections for the loans they originated. 

This SER noted that borrowers have 

ready access to the originator and the 

originator has full access to all loan 

documents and payment history. 

(f) Loss Mitigation 

Section 1463 of the Dodd-Frank Act 

requires servicers to comply with any 

obligation the Bureau finds appropriate 

to carry out the consumer protection 

purposes of RESPA. The Bureau is using 

this authority, among others, to propose 

requirements on servicers that offer loss 

mitigation options to borrowers in the 

ordinary course of business. 

As discussed above, the Bureau is 

aware of the potential impacts of the 

loss mitigation requirements on small 

servicers. As discussed above for 

proposed § 1024.41, while the Small 

Business Review Panel Report and the 

outreach meeting did not focus in 

significant detail on some of the specific 

measures proposed here such as, for 

example, appeals of loss mitigation 

determinations, the SERs provided 

feedback on many elements of the loss 

mitigation process. The Bureau 

requested feedback from small servicers 

on the following: (1) A duty to suspend 

a foreclosure sale while a borrower is 

performing as agreed under a loss 

mitigation option or other alternative to 

foreclosure; (2) the ability to adopt 

policies and procedures to facilitate 

review of borrowers for loss mitigation 

options; (3) the ability to provide 

information regarding loss mitigation 

early in the foreclosure process to 

borrowers; and (4) the ability to provide 

borrowers with the opportunity to 

discuss evaluations for loss mitigation 

options with designated servicer contact 

personnel.233

The SERs said that they generally 

engaged in individualized contact with 

borrowers early in the foreclosure 

process, completed discussions of loss 

mitigation options with borrowers prior 

to a point in time when borrowers 

should have significant foreclosure 

related information, and generally 

worked closely with foreclosure counsel 

so that foreclosure processes and loss 

mitigation could be easily conducted 

simultaneously without prejudice to the 

loss mitigation process. Further, the 

SERs explained that they were willing 

to communicate with borrowers about 

loss mitigation contemporaneously with 

the foreclosure process, and one SER 

indicated that it would be willing to 

bring a mortgage file back to consider a 

modification, if appropriate.234

Based in part on the outreach with the 

SERs on April 24, 2012, as well as other 

feedback obtained by the Bureau after 

that outreach meeting, the Bureau 

considered proposing clearer and more 

detailed requirements relating to loss 

mitigation practices. The Bureau 

determined, for the sake of clarity and 

consistency, to include loss mitigation 

obligations as a separate regulation, 

rather than embedding the requirements 

within the provisions relating to error 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
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235The RFA requires identification of duplicative, 

overlapping, or conflicting Federal regulation. 

Consent orders, settlement agreements with Federal 

agencies, and investor requirements of Fannie Mae 

and Freddie Mac do not constitute Federal 

regulations for purposes of the IRFA. 

resolution, reasonable information 

management policies and procedures, 

early intervention for delinquent 

borrowers, and continuity of contact. 

(g) Estimate of the Classes of Small 

Entities Which Will Be Subject to the 

Requirement and the Type of 

Professional Skills Necessary for the 

Preparation of the Report or Record 

Section 603(b)(4) of the RFA requires 

an estimate of the classes of small 

entities which will be subject to the 

requirement. The classes of small 

entities which will be subject to the 

reporting, recordkeeping, and 

compliance requirements of the 

proposed rule are the same classes of 

small entities that are identified above 

in part VIII.B.3. 

Section 603(b)(4) of the RFA also 

requires an estimate of the type of 

professional skills necessary for the 

preparation of the reports or records. 

The Bureau anticipates that the 

professional skills required for 

compliance with the proposed rule are 

the same or similar to those required in 

the ordinary course of business of the 

small entities affected by the proposed 

rule. Compliance by the small entities 

that will be affected by the proposed 

rule will require continued performance 

of the basic functions that they perform 

today: Generating disclosure forms, 

addressing errors and providing 

information to borrowers, managing 

information about borrowers, contacting 

delinquent borrowers, providing 

continuity of contact for delinquent 

borrowers, and (as applicable) reviewing 

applications by borrowers for loss 

mitigation. 

5. Identification, to the Extent 

Practicable, All Relevant Federal Rules 

Which May Duplicate, Overlap, or 

Conflict With the Proposed Rule 

The Dodd-Frank Act codified certain 

requirements contained in existing 

regulations and in some cases imposed 

new requirements that expand or vary 

the scope of existing regulations. The 

Bureau is working to eliminate conflicts 

and to harmonize the earlier rules with 

the new statutory requirements. 

RESPA section 6(e) contains 

procedures for qualified written 

requests that overlap with section 1463 

of the Dodd-Frank Act to provide 

additional procedures for resolving 

errors and responding to inquiries. The 

Bureau is proposing broader, more 

consumer-friendly error resolution and 

information request procedures that 

cover wider topics than the current 

qualified written request procedures 

and will subsume the qualified written 

request procedures. The Bureau believes 

that a common minimum set of 

procedures applicable to all assertions 

of errors or information requests, 

whether in the form of a qualified 

written request or not, will benefit both 

borrowers and servicers. Further, as 

noted elsewhere in, this SUPPLEMENTARY

INFORMATION, depending on the 

circumstances, the error resolution 

procedures in this rule may overlap 

with the direct dispute procedures 

under FCRA where the dispute involves 

erroneously furnishing negative 

information to a consumer reporting 

agency. See 15 U.S.C. 1681s–2(a)(8); 12 

CFR 1022.43. 

As noted, elsewhere in this 

SUPPLEMENTARY INFORMATION, the early 

intervention and loss mitigation 

procedures in this proposed rule may 

overlap with existing Federal law 

codifying requirements of FHA, VA, and 

the Rural Housing Service with respect 

to mortgages insured by those agencies. 

The Bureau also understands that 

section 106(c)(5) of the Housing and 

Urban Development Act of 1968, as 

amended, generally requires creditors to 

provide notice of homeownership 

counseling to eligible delinquent 

borrowers not later than 45 days after a 

borrower misses a payment due date. 12 

U.S.C. 1701x(c)(5)(B). Similar to the 

information required under section 

106(c)(5) of the Housing and Urban 

Development Act, the written notice in 

proposed § 1024.39(b)(2)(vi) would 

include contact information for housing 

counselors and the borrower’s State 

housing finance authority, although 

servicers would be required to provide 

the written notice not later than 40 days 

after a borrower misses a payment due 

date. To the extent requirements 

proposed by Bureau overlap with 

existing Federal rules, the Bureau 

expects servicers would abide by the 

stricter standard in order to comply 

with all requirements. 

Apart from this overlap, the Bureau is 

not aware of any other Federal 

regulations that currently duplicate, 

overlap, or conflict with the proposals 

under consideration.235 The Bureau 

requests comment to identify any 

additional such Federal rules that 

impose duplicative, overlapping, or 

conflicting requirements on servicers 

and potential changes to the proposed 

rules in light of duplicative, 

overlapping, or conflicting 

requirements. 

6. Description of Any Significant 

Alternatives to the Proposed Rule 

Which Accomplish the Stated 

Objectives of Applicable Statutes and 

Minimize Any Significant Economic 

Impact of the Proposed Rule on Small 

Entities 

The SERs expressed general concern 

about the costs to small entities of 

regulation, but the SERs also stated that 

they were already in compliance with 

most of the provisions of the proposed 

rule. Where the SERs expressed concern 

about the costs of complying with a 

proposed provision, the Bureau 

considered alternatives that might 

impose lower costs on small servicers, 

but does not believe that these 

alternatives would accomplish the 

stated objectives of the applicable 

statute. 

Regarding the proposed disclosures 

for force-placed insurance, the Bureau 

understands that small servicers may 

incur costs for providing these 

disclosures that large servicers do not. 

Providers may be more likely to charge 

small servicers for new or changed 

disclosures than they are to charge large 

servicers. Small servicers are also more 

likely to produce the disclosures inhouse. The Bureau believes that the 

proposed force-placed insurance 

disclosures would be an effective and 

important component of a statutory 

regime intended to reduce or prevent 

unnecessary force-placement of hazard 

insurance. The Bureau does not believe 

that less costly alternatives to the 

proposed rule for small servicers would 

accomplish this objective. The Bureau 

notes that most SERs did not raise 

concerns with the proposal. The Bureau 

proposes to mitigate the cost of the 

disclosures to all servicers by providing 

that a servicer is not required to send 

more than one renewal notice during 

any 12-month period. 

Regarding the proposed provisions for 

reasonable information management 

policies and procedures, the Bureau 

provides flexibility for small servicers 

by providing for servicers to design 

policies and procedures that are 

appropriate for their servicing 

businesses in light of the size, nature, 

and scope of the servicer’s operations, 

including, for example, the volume and 

aggregate unpaid principal balance of 

mortgage loans serviced, the credit 

quality, including the default risk, of the 

mortgage loans serviced, and the 

servicer’s history of consumer 

complaints. As noted above, the SERs 

appreciated the flexibility of the 

proposal and thought it was good that 

reasonableness would depends on the 

size, nature, and scope of the entity. 


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57292 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

236See 5 U.S.C. 603(d)(2). The Bureau provided 

this notification as part of the notification and other 

information provided to the Chief Counsel for 

Advocacy of the SBA with respect to the Small 

Business Review Panel outreach pursuant to RFA 

section 609(b)(1). 

237See 5 U.S.C. 603(d)(2)(B). 

238See TILA § 104(1); RESPA § 7(a)(1). 

239Small Business Review Panel Report, 

appendix D, at 154–155 (PowerPoint slides from the 

Panel Outreach Meeting, ‘‘Topic 7: Impact on the 

Cost of Business Credit’’). 

The SERs did express concern in 

regards to the error resolution 

procedures. In particular, several SERs 

stated that having to respond in writing 

to every notice of error would be 

burdensome. The Bureau notes that the 

proposal includes a provision that 

minimize the burden on servicers from 

the error resolution requirements if a 

notice of error is overbroad or unduly 

burdensome. 

The Bureau considered providing 

small servicers with an alternative 

method of compliance with two of the 

proposed provisions for error resolution. 

Under the alternative considered, small 

servicers would not have needed to 

comply with the proposed 

acknowledgement of receipt 

requirement or the proposed response to 

notice of error requirement if (a) the 

small servicer provided notification of 

the correction orally if the error was 

asserted orally by the borrower, and (b) 

the small servicer indicated in its 

records both the error asserted by the 

borrower and the action taken by the 

servicer to correct the error. The Bureau 

believes, however, that there is 

substantial consumer protection in the 

acknowledgement of receipt and 

response to notice of error requirements 

and that the alternative may diminish 

these protections for borrowers with 

mortgages that happen to be serviced by 

small servicers. The Bureau solicits 

comment on whether the Bureau should 

further consider alternative means of 

compliance with the proposed error 

resolutions procedures. 

Small servicers generally explained 

that they did not expect the Bureau’s 

proposed early intervention 

requirements would impose significant 

burden because they were already 

providing early intervention for 

delinquent borrowers. Based on this 

information, the Bureau has not 

proposed to provide small servicers an 

exemption from the proposed 

notification requirements under 

proposed § 1024.39(a) and (b). However, 

the Bureau solicits comment on whether 

the Bureau should consider alternative 

means of compliance with proposed 

§ 1024.39(a) and (b), such as by 

permitting small servicers to develop a 

more streamlined written notice under 

proposed § 1024.39(b). 

7. Discussion of Impact on Cost of 

Credit for Small Entities 

Section 603(d) of the RFA requires the 

Bureau to consult with small entities 

regarding the potential impact of the 

proposed rule on the cost of credit for 

small entities and related matters. 5 

U.S.C. 603(d). To satisfy these statutory 

requirements, the Bureau provided 

notification to the Chief Counsel for 

Advocacy of the SBA on April 9, 2012 

that the Bureau would collect the advice 

and recommendations of the same SERs 

identified in consultation with the Chief 

Counsel for Advocacy of the SBA 

through the Small Business Review 

Panel outreach concerning any 

projected impact of the proposed rule 

on the cost of credit for small entities as 

well as any significant alternatives to 

the proposed rule which accomplish the 

stated objectives of applicable statutes 

and which minimize any increase in the 

cost of credit for small entities.236 The 

Bureau sought to collect the advice and 

recommendations of the SERs during 

the Panel Outreach meeting regarding 

these issues because, as small financial 

service providers, the SERs could 

provide valuable input on any such 

impact related to the proposed rule.237

At the time the Bureau circulated the 

Small Business Review Panel outreach 

materials to the SERs in advance of the 

PanelOutreach Meeting, it had no 

evidence that the proposals under 

consideration would result in an 

increase in the cost of business credit 

for small entities. Instead, the summary 

of the proposals stated that the 

proposals would apply only to mortgage 

loans obtained by consumers primarily 

for personal, family, or household 

purposes and the proposals would not 

apply to loans obtained primarily for 

business purposes.238

At the Panel Outreach Meeting, the 

Bureau asked the SERs a series of 

questions regarding cost of business 

credit issues.239 The questions were 

focused on two areas. First, the SERs 

from commercial banks/savings 

institutions, credit unions, and mortgage 

companies were asked whether, and 

how often, they extend to their 

customers closed-end mortgage loans to 

be used primarily for personal, family, 

or household purposes but that are used 

secondarily to finance a small business, 

and whether the proposals then under 

consideration would result in an 

increase in their customers’ cost of 

credit. Second, the Bureau inquired as 

to whether, and how often, the SERs 

take out closed-end, home-secured loans 

to be used primarily for personal, 

family, or household purposes and use 

them secondarily to finance their small 

businesses, and whether the proposals 

under consideration would increase the 

SERs’ cost of credit. 

The SERs had few comments on the 

impact on the cost of business credit. 

While they took this time to express 

concerns that these regulations would 

increase their costs, they said these 

regulations would have little to no 

impact on the cost of business credit. 

When asked, one SER mentioned that at 

times people may use a home-secured 

loan to finance a business, which was 

corroborated by a different SER based 

on his personal experience with starting 

a business. The Bureau is generally 

interested in the use of personal credit 

to finance a business and invites 

interested parties to provide data and 

other factual information on this issue. 

Based on the feedback obtained from 

SERs at the Panel Outreach Meeting, the 

Bureau currently does not anticipate 

that the proposed rule will result in an 

increase in the cost of credit for small 

business entities. To further evaluate 

this question, the Bureau solicits 

comment on whether the proposed rule 

will have any impact on the cost of 

credit for small entities. 

IX. Paperwork Reduction Act 

The collection of information 

contained in this proposal, and 

identified as such, has been submitted 

to OMB for review under section 

3507(d) of the Paperwork Reduction Act 

of 1995 (44 U.S.C. 3501 et seq.) 

(Paperwork Reduction Act or PRA). 

Under the Paperwork Reduction Act, 

the Bureau may not conduct or sponsor, 

and a person is not required to respond 

to, an information collection unless the 

information collection displays a valid 

OMB control number. 

This proposed rule would amend 12 

CFR part 1024 (Regulation X). 

Regulation X currently contains 

collections of information approved by 

OMB, and the Bureau’s OMB control 

number for Regulation X is 3170–0016. 

The collection title is: Real Estate 

Settlement Procedures Act (Regulation 

X) 12 CFR 1024. As described below, 

the proposal would amend the 

collections of information currently in 

Regulation X. 

The title of this information collection 

is 2012 Real Estate Settlement 

Procedures Act (Regulation X) Mortgage 

Servicing. The frequency of response is 

on-occasion. These information 

collection requirements would be 

required to provide benefits for 

consumers and would be mandatory. 

See 12 U.S.C. 2601 et seq. Because the 

Bureau does not collect any 

information, no issue of confidentiality 


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240For purposes of this PRA analysis, references 

to ‘‘creditors’’ or ‘‘lenders’’ shall be deemed to refer 

collectively to commercial banks, savings 

institutions, credit unions, and mortgage companies 

(i.e., non-depository lenders), unless otherwise 

stated. Moreover, reference to ‘‘respondents’’ shall 

generally mean all categories of entities identified 

in the sentence to which this footnote is appended, 

except as otherwise stated or if the context indicates 

otherwise. 

241For proposes of this PRA analysis, references 

to ‘‘creditors’’ or ‘‘lenders’’ shall be deemed to refer 

collectively commerical banks, savings institutions, 

credit unions, and mortgage companies (i.e., nondepository lenders), unless otherwise stated. 

Moreover, reference to ‘‘respondents’’ shall 

generally mean all categories of entities identified 

in the sentence to which this footnote is appended, 

except as otherwise stated or if the context indicates 

otherwise. 

242A detailed analysis of the burdens and costs 

described in this section can be found in the 

Paperwork Reduction Act Supporting Statement 

that corresponds with this proposal. The 

Supporting Statement is available at 

www.reginfo.gov. 

243 Dollar figures are vendor costs and do not 

include the dollar value of burden hours. 

arises. The likely respondents would be 

federally insured depository institutions 

(such as commercial banks, savings 

banks, and credit unions) and nondepository institutions (such as 

mortgage brokers, real estate investment 

trusts, private-equity funds, etc.) that 

service consumer mortgages.240

Under the proposal, the Bureau would 

account for the paperwork burden for 

respondents under Regulation X. Using 

the Bureau’s burden estimation 

methodology, the Bureau believes the 

total estimated one-time industry 

burden for the approximately 12,813 

respondents subject to the proposed rule 

would be approximately 570,000 hours 

for one time changes and 2.4 million 

hours annually.241 The estimated 

burdens in this PRA analysis represent 

averages for all respondents. The Bureau 

expects that the amount of time required 

to implement each of the proposed 

changes for a given institution may vary 

based on the size, complexity, and 

practices of the respondent. 

For purposes of this PRA analysis, the 

Bureau estimates that there are 11,425 

depository institutions and credit 

unions subject to the proposed rule, and 

an additional 1,388 non-depository 

institutions. Based on discussions with 

industry, the Bureau assumes that all 

depository respondents except for one 

large entity and 95% of non-depository 

respondents (and 100% of small nondepository respondents) use third-party 

software and information technology 

vendors. Under existing contracts, 

vendors would absorb the one-time 

software and information technology 

costs associated with complying with 

the proposal for large- and mediumsized respondents but not for small 

respondents. 

A. Information Collection Requirements 

The Bureau is proposing six changes 

to the information collection 

requirements in Regulation X: 

1. Provisions regarding mortgage 

servicing transfer notices: The Bureau’s 

proposal would substantially reduce the 

length and complexity of the mortgage 

servicing transfer notice but would 

expand coverage from closed-end firstlien mortgages to closed-end 

subordinate-lien mortgages as well. 

2. Provisions regarding the placement 

and termination of force-placed 

insurance, including three notices: The 

Bureau’s proposal for force-placed 

insurance would require servicers to 

provide two notices to a borrower at 

least 45 days and 15 days before 

charging the borrower for force-placed 

insurance. In addition to the two 

notices, the Bureau is proposing to 

require servicers to provide borrowers a 

written notice before charging a 

borrower for renewing or replacing 

existing force-placed insurance on an 

annual basis. 

3. Provisions regarding error 

resolution and requests for information: 

The Bureau’s proposals for error 

resolution would include a requirement 

on servicers generally to provide written 

acknowledgement of receipt of a notice 

of error and to provide a written 

response to the stated error. The 

Bureau’s proposal for response to 

information requests would require 

servicers to provide a written response 

acknowledging receipt of an information 

request. Servicers would also be 

required to provide the borrower with 

the requested information either orally 

or in writing, or a written notification 

that the information requested is not 

available to the servicer. 

4. Requirements for early intervention 

with delinquent borrowers: The 

Bureau’s proposals would require 

servicers to provide oral and written 

notices upon a borrower’s reaching 

certain stages of delinquency. 

5. Requirements regarding loss 

mitigation: Under the Bureau’s 

proposals, servicers that offer loss 

mitigation options in the ordinary 

course of business would be required to 

follow certain procedures when 

evaluating loss mitigation applications, 

including (1) providing a notice telling 

the borrower if the loss mitigation is 

incomplete, approved, or denied (and, 

for denials of loan modification 

requests, a more detailed notice of the 

specific reason for denial and appeal 

rights), (2) providing a notice of the 

appeal determination, and (3) providing 

servicers of senior or subordinate liens 

encumbering the property that is the 

subject of the loss mitigation application 

copies of the loss mitigation application. 

B. Analysis of Proposed Information 

Collection Requirements 242

1. Mortgage Servicing Transfers 

The Bureau’s proposal would 

substantially reduce the length and 

complexity of the mortgage servicing 

transfer notice but would expand 

coverage to closed-end second lien 

mortgages, in addition to closed-end 

first-lien mortgages. 

Currently, lenders are required to 

notify closed-end first lien borrowers at 

origination whether their loan may be 

sold and the servicing transferred. Upon 

any mortgage transfer, the transferor 

servicer is required to provide written 

notice to the borrower notifying them of 

the transfer, while the transferee 

servicer is required to provide 

notification to the borrower that it will 

servicer the borrower’s mortgage. The 

Bureau’s proposed provision would 

substantially reduce the length and 

complexity of the existing mortgage 

servicing transfer disclosure. The 

Bureau is expanding coverage from 

closed-end first-lien mortgages to also 

include closed-end second lien 

mortgages. 

All respondents would have a onetime burden under this requirement 

associated with reviewing the 

regulation. Certain respondents would 

have one-time burden in hours or 

vendor costs from creating software and 

information technology capability to 

produce the new disclosure. The Bureau 

estimates this one-time burden to be 30 

minutes and $90, on average, for each 

respondent.243

Certain Bureau respondents would 

have ongoing burden in hours or vendor 

costs associated with the information 

technology used in producing the 

disclosure. All Bureau respondents 

would have ongoing vendor costs 

associated with distributing (e.g., 

mailing) the disclosure. The Bureau 

estimates this ongoing burden to be 2 

hours and $215, on average, for each 

respondent. 

2. Force-Placed Insurance Disclosures 

The Bureau’s proposal for forceplaced insurance would require 

servicers to provide two notices to a 

borrower at least 45 days and 15 days 

before charging the borrow for forceplaced insurance. In addition to the two 

notices, the Bureau is proposing to 


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57294 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

244 Dollar figures are vendor costs and do not 

include the dollar value of burden hours. 

require servicers to provide borrowers a 

written notice before charging a 

borrower for renewing or replacing 

existing force-placed insurance on an 

annual basis. 

The Bureau understands the proposed 

requirement that servicers provide 

borrowers with two written notices 

prior to charging borrowers for forceplaced insurance reflects common 

practices (i.e., ‘‘usual and customary’’ 

business practices) today for the 

majority of mortgage servicers. 

However, the Bureau understands that 

the proposed requirement that servicers 

provide a written notice prior to 

charging borrowers for the renewal or 

replacement of existing force-place 

insurance does not reflect common 

practices. 

All respondents would have a onetime burden under this requirement 

associated with reviewing the 

regulation. Certain respondents would 

have one-time burden in hours or 

vendor costs from creating software and 

information technology capability to 

produce the new renewal disclosure. 

Furthermore, while the Bureau 

considers borrower notifications of 

force-placed insurance prior to 

placement as the normal course of 

business, institutions may still have to 

incur one-time costs associated with 

modifying their existing disclosures to 

comply with the Bureau’s proposed 

disclosure provisions. As a result, the 

Bureau’s one-time burden incorporates 

these costs. The Bureau estimates this 

one-time burden to be 45 minutes and 

$90, on average, for each respondent.244

Certain respondents would have 

ongoing burden in hours or vendor costs 

associated with the information 

technology used in producing the 

disclosure. All respondents would have 

ongoing vendor costs associated with 

distributing (e.g., mailing) the renewal 

disclosure. The Bureau estimates this 

ongoing burden to be 15 minutes and 

$23, on average, for each respondent. 

3. Error Resolution and Requests for 

Information 

The Bureau’s proposals for error 

resolution and requests for information 

would require written 

acknowledgement of receiving a notice 

of error or an information request, 

written notification of correction of 

error, and oral or written provision of 

the information requested by the 

borrower or a written notification that 

the information requested is not 

available to the servicer, and an internal 

record of engagement with the borrower, 

which are forms of information 

collection. 

The Bureau estimates that one-time 

hourly burden to provide training for 

relevant staff to comply with the 

proposed disclosure requirements to be 

43 hours, on average, per respondent. 

Respondents would have ongoing 

burden in hours and/or vendor costs 

associated with the information 

technology used in producing the 

disclosure. All respondents would have 

ongoing vendor costs associated with 

distributing (e.g., mailing) the disclosure 

and some will have production costs 

associated with the new disclosure. The 

Bureau estimates this ongoing burden to 

be 50 hours and $87, on average, for 

each respondent. 

4. Early Intervention With Delinquent 

Borrowers 

An information collection would be 

created by the Bureau’s proposal to 

require servicers to provide an oral and 

written notice upon a borrower’s 

reaching certain stages of delinquency. 

Most respondents currently provide 

some form of delinquency notice, and 

thus the expenses associated with this 

information collection are from the onetime costs to incorporate the Bureau’s 

required information. 

Fannie Mae, Freddie Mac, FHA, and 

the VA generally recommend that all 

institutions that service any of their 

guaranteed mortgages to perform duties 

similar to those set forth in the Bureau’s 

proposed provisions regarding early 

intervention with delinquent borrowers; 

the Bureau estimates that 80% of 

outstanding mortgages are guaranteed 

by one of these institutions. The Bureau 

estimates that 75% of loans that are not 

guaranteed by one of these institutions 

are serviced by a servicer that is 

currently providing delinquency notices 

that would comply with the proposal. 

The Bureau estimates the one-time 

burden to be 0.4 hours, on average, for 

each institution. The Bureau estimates 

the ongoing burden to be 3 hours and 

$3, on average for each respondent. 

5. Loss Mitigation 

Under the Bureau’s proposals, 

servicers that offer loss mitigation 

options in the ordinary course of 

business would be required to follow 

certain procedures when evaluating loss 

mitigation applications, including (1) 

providing a notice telling the borrower 

if the loss mitigation is incomplete, 

approved, or denied (and, for denials of 

loan modification requests, a more 

detailed notice of the specific reason for 

denial and appeal rights), (2) providing 

a notice of the appeal determination, 

and (3) providing servicers of senior or 

subordinate liens encumbering the 

property that is subject of the loss 

mitigation application copies of the loss 

mitigation application. 

The loss mitigation provision would 

create an information collection by 

requiring servicers to notify borrowers 

who submit loss mitigation applications 

and any servicers of senior or second 

liens encumbering the property that is 

the subject of the loss mitigation 

application where an applications has 

been submitted. Servicers may be 

required to send up to three notices per 

loss mitigation application. For 

incomplete applications, servicers 

would be required to notify the 

borrower that their application is 

incomplete and explain the steps 

needed to complete. For complete 

applications, the servicer is required to 

notify the borrower of their decision and 

provide a copy of the application to any 

servicers of senior or subordinate liens 

encumbering the property that is the 

subject of the loss mitigation 

application. For incomplete 

applications that are resubmitted, and 

possess second-lien loan on their 

property, the provision would require 

three notices. 

All respondents would have a onetime burden under this requirement 

associated with reviewing the 

regulation. Certain respondents would 

have one-time burden in hours or 

vendor costs from creating software and 

information technology costs associated 

with changes in the payoff statement 

disclosure. The Bureau estimates this 

one-time burden to be 20 minutes and 

$90, on average, for each respondent. 

The Bureau estimates the ongoing 

burden to be 135 hours and $229, on 

average, for each respondent. 

B. Summary of Burden Hours 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57295 

Respondents 

Disclosures 

per 

respondent 

Hours burden 

per disclosure 

Total burden 

hours 

Total vendor 

costs 

Ongoing: 

Notice of Mortgage Service Transfer ........................... 12,813 726 0.003 26,000 $2,760,000 

Force-Placed Insurance ................................................ 12,813 77 0.003 3,000 290,000 

Error Resolution & Response to Inquiries .................... 12,813 300 0.167 642,000 1,110,000 

Early Intervention for Delinquent Borrowers ................ 12,813 12 0.250 37,000 40,000 

Loss Mitigation .............................................................. 12,813 810 0.161 1,670,000 2,930,000 

One-Time: 

Notice of Mortgage Service Transfer ........................... 12,813 1 0.495 6,000 1,160,000 

Force-Placed Insurance ................................................ 12,813 1 0.740 9,000 1,160,000 

Error Resolution & Response to Inquiries .................... 12,813 1 43 547,000 0 

Early Intervention for Delinquent Borrowers ................ 12,813 1 0.400 5,000 0 

Loss Mitigation .............................................................. 12,813 1 0.295 4,000 1,160,000 

Totals may not be exact due to rounding. 

C. Comments 

Comments are specifically requested 

concerning: (1) Whether the proposed 

collections of information are necessary 

for the proper performance of the 

functions of the Bureau, including 

whether the information will have 

practical utility; (2) the accuracy of the 

estimated burden associated with the 

proposed collections of information; (3) 

how to enhance the quality, utility, and 

clarity of the information to be 

collected; and (4) how to minimize the 

burden of complying with the proposed 

collections of information, including the 

application of automated collection 

techniques or other forms of information 

technology. All comments will become 

a matter of public record. Comments on 

the collection of information 

requirements should be sent to the 

Office of Management and Budget 

(OMB), Attention: Desk Officer for the 

Consumer Financial Protection Bureau, 

Office of Information and Regulatory 

Affairs, Washington, DC, 20503, or by 

the Internet to http:// 

oira_submission@omb.eop.gov, with 

copies to the Bureau at the Consumer 

Financial Protection Bureau (Attention: 

PRA Office), 1700 G Street NW., 

Washington, DC 20552, or by the 

Internet to CFPB_Public_PRA@cfpb.gov. 

Text of Proposed Revisions 

Certain conventions have been used 

to highlight the proposed changes to the 

text of the regulation. New language is 

shown inside flbold-faced arrowsfi, 

while language that would be removed 

is set off with øbold-faced brackets¿. In 

certain cases deemed appropriate by the 

Bureau to aid understanding, 

redesignated text, such as text moved 

from one paragraph to another, is also 

shown inside arrows and brackets. 

List of Subjects in 12 CFR Part 1024 

Condominiums, Consumer protection, 

Housing, Insurance, Mortgage servicing, 

Mortgagees, Mortgages, Reporting and 

recordkeeping requirements. 

Authority and Issuance 

For the reasons set forth above, the 

Bureau proposes to amend part 1024 of 

Chapter X in Title 1 of the Code of 

Federal Regulations as follows: 

PART 1024—REAL ESTATE 

SETTLEMENT PROCEDURES ACT 

(REGULATION X) 

1. The authority citation for part 1024 

is revised to read as follows: 

Authority: 12 U.S.C. 2603–2605, 2607, 

2609, 2617, 5512, 5532, 5581. 

2. Redesignate §§ 1024.1 through 

1024.5 as Subpart A to part 1024 . 

3. In part 1024, add the heading 

‘‘Subpart A—General’’ above § 1024.1. 

4. In § 1024.2, revise the definitions 

for ‘‘Federally related mortgage loan,’’ 

‘‘Mortgage broker,’’ ‘‘Origination 

service,’’ ‘‘Public Guidance 

Documents,’’ ‘‘Servicer,’’ and 

‘‘Servicing,’’ to read as follows: 

§ 1024.2 Definitions. 

* * * * * 

(b) * * * 

Federally related mortgage loan øor 

mortgage loan¿ means: 

(1) Any loan (other than temporary 

financing, such as a construction loan): 

(i) That is secured by a first or 

subordinate lien on residential real 

property, including a refinancing of any 

secured loan on residential real property 

upon which there is either: 

(A) Located or, following settlement, 

will be constructed using proceeds of 

the loan, a structure or structures 

designed principally for occupancy of 

from one to four families (including 

individual units of condominiums and 

cooperatives and including any related 

interests, such as a share in the 

cooperative or right to occupancy of the 

unit); or 

(B) Located or, following settlement, 

will be placed using proceeds of the 

loan, a manufactured home; and 

(ii) For which one of the following 

paragraphs applies. The loan: 

(A) Is made in whole or in part by any 

lender that is either regulated by or 

whose deposits or accounts are insured 

by any agency of the Federal 

Government; 

(B) Is made in whole or in part, or is 

insured, guaranteed, supplemented, or 

assisted in any way: 

(1) By the Secretary of the Department 

of Housing and Urban Development 

(HUD) or any other officer or agency of 

the Federal Government; or 

(2) Under or in connection with a 

housing or urban development program 

administered by the Secretary of HUD or 

a housing or related program 

administered by any other officer or 

agency of the Federal Government; 

(C) Is intended to be sold by the 

originating lender to the Federal 

National Mortgage Association, the 

Government National Mortgage 

Association, the Federal Home Loan 

Mortgage Corporation (or its successors), 

or a financial institution from which the 

loan is to be purchased by the Federal 

Home Loan Mortgage Corporation (or its 

successors); 

(D) Is made in whole or in part by a 

‘‘creditor’’, as defined in section 103(g) 

of the Consumer Credit Protection Act 

(15 U.S.C. 1602(g)), that makes or 

invests in residential real estate loans 

aggregating more than $1,000,000 per 

year. For purposes of this definition, the 

term ‘‘creditor’’ does not include any 

agency or instrumentality of any State, 

and the term ‘‘residential real estate 

loan’’ means any loan secured by 

residential real property, including 

single-family and multifamily 

residential property; 

(E) Is originated either by a dealer or, 

if the obligation is to be assigned to any 

maker of mortgage loans specified in 


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57296 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

paragraphs (1)(ii)(A) through (D) of this 

definition, by a mortgage broker; or 

(F) Is the subject of a home equity 

conversion mortgage, also frequently 

called a ‘‘reverse mortgage,’’ issued by 

any maker of mortgage loans specified 

in paragraphs (1)(ii)(A) through (D) of 

this definition. 

(2) Any installment sales contract, 

land contract, or contract for deed on 

otherwise qualifying residential 

property is a federally related mortgage 

loan if the contract is funded in whole 

or in part by proceeds of a loan made 

by any maker of mortgage loans 

specified in paragraphs (1)(ii)(A) 

through(D) of this definition. 

(3) If the residential real property 

securing a mortgage loan is not located 

in a State, the loan is not a federally 

related mortgage loan. 

* * * * * 

Mortgage broker means a person (not 

an employee of a lender) or entity that 

renders origination services and serves 

as an intermediary between a borrower 

and a lender in a transaction involving 

a federally related mortgage loan, 

including such a person or entity that 

closes the loan in its own name in a 

table funded transaction. øA loan 

correspondent approved under HUD 

regulation 24 CFR 202.8 for Federal 

Housing Administration programs is a 

mortgage broker for purposes of this 

part.¿ 

* * * * * 

Origination service means any service 

involved in the creation of a flfederally 

relatedfi mortgage loan, including but 

not limited to the taking of the loan 

application, loan processing, the 

underwriting and funding of the loan, 

and the processing and administrative 

services required to perform these 

functions. 

* * * * * 

Public Guidance Documents means 

Federal Register documents adopted or 

published, that the Bureau may amend 

from time-to-time by publication in the 

Federal Register. These documents are 

also available from the Bureau øat the 

address indicated in § 1024.3¿. 

fl Requests for copies of Public 

Guidance Documents should be directed 

to the Associate Director, Research, 

Markets, and Regulations, Bureau of 

Consumer Financial Protection, 1700 G 

Street NW., Washington, DC 20552.fi 

* * * * * 

Servicer means the person responsible 

for the servicing of a federally related 

mortgage loan (including the person 

who makes or holds such loan if such 

person also services the loan). The term 

does not include: 

(1) The Federal Deposit Insurance 

Corporation (FDIC), in connection with 

assets acquired, assigned, sold, or 

transferred pursuant to section 13(c) of 

the Federal Deposit Insurance Act or as 

receiver or conservator of an insured 

depository institution; øand¿ 

fl(2) The National Credit Union 

Administration (NCUA), in connection 

with assets acquired, assigned, sold, or 

transferred pursuant to section 208 of 

the Federal Credit Union Act or as 

conservator or liquidating agent of an 

insured credit union; andfi 

(ø2¿fl3fi) The Federal National 

Mortgage Corporation (FNMA); the 

Federal Home Loan Mortgage 

Corporation (Freddie Mac); the FDIC; 

HUD, including the Government 

National Mortgage Association (GNMA) 

and the Federal Housing Administration 

(FHA) (including cases in which a 

mortgage insured under the National 

Housing Act (12 U.S.C. 1701 et seq.) is 

assigned to HUD); the øNational Credit 

Union Administration (¿NCUAø)¿; the 

Farm Service Agency; and the 

Department of Veterans Affairs (VA), in 

any case in which the assignment, sale, 

or transfer of the servicing of the 

flfederally relatedfi mortgage loan is 

preceded by termination of the contract 

for servicing the loan for cause, 

commencement of proceedings for 

bankruptcy of the servicer, øor¿ 

commencement of proceedings by the 

FDIC for conservatorship or receivership 

of the servicer (or an entity by which the 

servicer is owned or controlled) fl, or 

commencement of proceedings by the 

NCUA for appointment of a conservator 

or liquidating agent of the servicer (or 

an entity by which the servicer is owned 

or controlled)fi. 

Servicing means receiving any 

scheduled periodic payments from a 

borrower pursuant to the terms of any 

flfederally relatedfi mortgage loan, 

including amounts for escrow accounts 

under section 10 of RESPA (12 U.S.C. 

2609), and making the payments to the 

owner of the loan or other third parties 

of principal and interest and such other 

payments with respect to the amounts 

received from the borrower as may be 

required pursuant to the terms of the 

mortgage servicing loan documents or 

servicing contract. In the case of a home 

equity conversion mortgage or reverse 

mortgage as referenced in this section, 

servicing includes making payments to 

the borrower. 

* * * * * 

5. Revise § 1024.3 to read as follows: 

§ 1024.3 øQuestions or suggestions from 

public and copies of public guidance 

documents¿ flE-Sign applicabilityfi. 

øAny questions or suggestions from 

the public regarding RESPA, or requests 

for copies of Public Guidance 

Documents, should be directed to the 

Associate Director, Research, Markets, 

and Regulations, Bureau of Consumer 

Financial Protection, 1700 G Street NW., 

Washington, DC 20006. Legal questions 

concerning the interpretation of this 

part may be directed to the same 

address.¿ flThe disclosures required by 

this part may be provided to a borrower 

in electronic form, subject to 

compliance with the consumer consent 

and other applicable provisions of the 

Electronic Signatures in Global and 

National Commerce Act (E-Sign Act) (15 

U.S.C. 7001 et seq.).fi 

6. In § 1024.4, revise paragraph (a)(1), 

remove paragraph (b), and redesignate 

paragraph (c) as paragraph (b) to read as 

follows: 

§ 1024.4 Reliance upon rule; regulation or 

interpretation by the Bureau. 

* * * * * 

(a) Rule, regulation or interpretation. 

(1) For purposes of sections 19(a) and 

(b) of RESPA (12 U.S.C. 2617(a) and (b)), 

only the following constitute a rule, 

regulation or interpretation of the 

Bureau: 

(i) All provisions, including 

appendices fland supplementsfi, of 

this part. Any other document referred 

to in this part is not incorporated in this 

part unless it is specifically set out in 

this part; 

(ii) Any other document that is 

published in the Federal Register by the 

Bureau and states that it is an 

‘‘interpretation,’’ ‘‘interpretive rule,’’ 

‘‘commentary,’’ or a ‘‘statement of 

policy’’ for purposes of section 19(a) of 

RESPA. øSuch documents will be 

prepared by Bureau staff and counsel. 

Such documents may be revoked or 

amended by a subsequent document 

published in the Federal Register by the 

Bureau.¿ flExcept in unusual 

circumstances, interpretations will not 

be issued separately but will be 

incorporated in an official interpretation 

to this part, which will be amended 

periodically.fi 

7. In § 1024.5, revise paragraph (b)(7) 

as follows: 

§ 1024.5 Coverage of RESPA. 

* * * * * 

(b) * * * 

(7) Secondary market transactions. A 

bona fide transfer of a loan obligation in 

the secondary market is not covered by 

RESPA and this part, except as set forth 

in section 6 of RESPA (12 U.S.C. 2605) 


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and ø§ 1024.21¿ flSubpart C of this part 

(§§ 1024.30–1024.41)fi. In determining 

what constitutes a bona fide transfer, the 

Bureau will consider the real source of 

funding and the real interest of the 

funding lender. Mortgage broker 

transactions that are table-funded are 

not secondary market transactions. 

Neither the creation of a dealer loan or 

dealer consumer credit contract, nor the 

first assignment of such loan or contract 

to a lender, is a secondary market 

transaction (see § 1024.2). 

8. In § 1024.7, revise paragraph (f)(3) 

as follows: 

§ 1024.7 Good faith estimate. 

* * * * * 

(f) * * * 

(3) Borrower-requested changes. If a 

borrower requests changes to the 

flfederally relatedfi mortgage loan 

identified in the GFE that change the 

settlement charges or the terms of the 

loan, the loan originator may provide a 

revised GFE to the borrower. If a revised 

GFE is to be provided, the loan 

originator must do so within 3 business 

days of the borrower’s request. The 

revised GFE may increase charges for 

services listed on the GFE only to the 

extent that the borrower-requested 

changes to the mortgage loan identified 

on the GFE actually resulted in higher 

charges. 

9. Amend § 1024.17 by: 

a. Revising paragraph (c)(8). 

b. Revising paragraph (f)(2)(ii). 

c. Revising paragraph (f)(4)(iii). 

d. Revising paragraph (i)(2). 

e. Revising paragraph (i)(4)(iii). 

f. Adding paragraph (k)(5). 

g. Removing paragraph (l) and 

redesignating paragraph (m) as 

paragraph (l). 

The revisions and additions read as 

follows: 

§ 1024.17 Escrow accounts. 

* * * * * 

(c) * * * 

(8) Provisions in flfederally relatedfi 

mortgage documents. The servicer must 

examine the flfederally relatedfi 

mortgage loan documents to determine 

the applicable cushion for each escrow 

account. If the flfederally relatedfi 

mortgage loan documents provide for 

lower cushion limits, then the terms of 

the loan documents apply. Where the 

terms of any ømortgage loan¿ flsuchfi 

document allow greater payments to an 

escrow account than allowed by this 

section, then this section controls the 

applicable limits. Where øthe mortgage 

loan¿ flsuchfi documents do not 

specifically establish an escrow account, 

whether a servicer may establish an 

escrow account for the loan is a matter 

for determination by other Federal or 

State law. If øthe mortgage loan¿ 

flsuchfi documentfls arefi øis¿ 

silent on the escrow account limits and 

a servicer establishes an escrow account 

under other Federal or State law, then 

the limitations of this section apply 

unless applicable Federal or State law 

provides for a lower amount. If øthe 

loan¿ flsuchfi documents provide for 

escrow accounts up to the RESPA 

limits, then the servicer may require the 

maximum amounts consistent with this 

section, unless an applicable Federal or 

State law sets a lesser amount. 

* * * * * 

(f) * * * 

(2) * * * 

(ii) These provisions regarding 

surpluses apply if the borrower is 

current at the time of the escrow 

account analysis. A borrower is current 

if the servicer receives the borrower’s 

payments within 30 days of the 

payment due date. If the servicer does 

not receive the borrower’s payment 

within 30 days of the payment due date, 

then the servicer may retain the surplus 

in the escrow account pursuant to the 

terms of the flfederally relatedfi 

mortgage loan documents. 

* * * * * 

(f) * * * 

(4) * * * 

(iii) These provisions regarding 

deficiencies apply if the borrower is 

current at the time of the escrow 

account analysis. A borrower is current 

if the servicer receives the borrower’s 

payments within 30 days of the 

payment due date. If the servicer does 

not receive the borrower’s payment 

within 30 days of the payment due date, 

then the servicer may recover the 

deficiency pursuant to the terms of the 

flfederally relatedfi mortgage loan 

documents. 

* * * * * 

(i) * * * 

(2) No annual statements in the case 

of default, foreclosure, or bankruptcy. 

This paragraph (i)(2) contains an 

exemption from the provisions of 

§ 1024.17(i)(1). If at the time the servicer 

conducts the escrow account analysis 

the borrower is more than 30 days 

overdue, then the servicer is exempt 

from the requirements of submitting an 

annual escrow account statement to the 

borrower under § 1024.17(i). This 

exemption also applies in situations 

where the servicer has brought an action 

for foreclosure under the underlying 

flfederally relatedfi mortgage loan, or 

where the borrower is in bankruptcy 

proceedings. If the servicer does not 

issue an annual statement pursuant to 

this exemption and the loan 

subsequently is reinstated or otherwise 

becomes current, the servicer shall 

provide a history of the account since 

the last annual statement (which may be 

longer than 1 year) within 90 days of the 

date the account became current. 

* * * * * 

(4) * * * 

(iii) Short year statement upon loan 

payoff. If a borrower pays off a 

flfederally relatedfi mortgage loan 

during the escrow account computation 

year, the servicer shall submit a short 

year statement to the borrower within 

60 days after receiving the pay-off 

funds. 

* * * * * 

(k) * * * 

fl(5) Notwithstanding paragraphs 

(k)(1) and (k)(2) of this section, a 

servicer must make payments from a 

borrower’s escrow account in a timely 

manner to pay the premium charge on 

a borrower’s hazard insurance, as 

defined in § 1024.31, unless the servicer 

has a reasonable basis to believe that the 

borrower’s hazard insurance has been 

canceled or not renewed for reasons 

other than nonpayment of premium 

charges. If the borrower’s escrow 

account does not contain sufficient 

funds to pay the premium charge, the 

servicer must advance funds to make 

such payment.fi 

10. Redesignate §§ 1024.6 through 

1024.21 as Subpart B to part 1024. 

11. Add the heading ‘‘Subpart B— 

Mortgage Settlement and Escrow 

Accounts’’ above § 1024.6. 

§ 1024.21 [Removed and reserved] 

12. Remove and reserve § 1024.21. 

§ 1024.22 [Removed] 

13. Remove § 1024.22. 

§ 1024.23 [Removed] 

14. Remove § 1024.23. 

15. Add Subpart C to part 1024 to 

read as follows: 

Subpart C—Mortgage Servicing 

Sec. 

1024.30 Scope. 

1024.31 Definitions. 

1024.32 General disclosure requirements. 

1024.33 Mortgage servicing transfers. 

1024.34 Timely payments by servicer. 

1024.35 Error resolution procedures. 

1024.36 Requests for information. 

1024.37 Force-placed insurance. 

1024.38 Reasonable information 

management policies and procedures. 

1024.39 Early intervention requirements for 

certain borrowers. 

1024.40 Continuity of contact. 

1024.41 Loss mitigation procedures. 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
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flSubpart C—Mortgage Servicing 

§ 1024.30 Scope. 

This subpart applies to any mortgage 

loan, as that term is defined in 

§ 1024.31. 

§ 1024.31 Definitions. 

For purposes of this subpart: 

Consumer reporting agency has the 

meaning set forth in section 603 of the 

Fair Credit Reporting Act, 15 U.S.C. 

1681a. 

Day means calendar day, except 

where legal public holidays, Saturdays, 

and Sundays are expressly excluded. 

Hazard insurance means insurance on 

the property securing a mortgage loan 

that protects the property against loss 

caused by fire, wind, flood, earthquake, 

theft, falling objects, freezing, and other 

similar hazards for which the owner or 

assignee of such loan requires 

insurance. 

Loss mitigation application means a 

submission from a borrower requesting 

evaluation for a loss mitigation option, 

as that term is defined in this section, 

in accordance with procedures 

established by the servicer for the 

submission of such requests. 

Loss mitigation options means 

alternatives available from the servicer 

to the borrower to avoid foreclosure. 

Master servicer means the owner of 

the right to perform servicing. A master 

servicer may perform the servicing itself 

or do so through a subservicer. 

Mortgage loan means any federally 

related mortgage loan, as that term is 

defined in § 1024.2 subject to the 

exemptions in § 1024.5(b), but does not 

include open-end lines of credit (home 

equity plans). 

Qualified written request means a 

written correspondence from the 

borrower to the servicer that enables the 

servicer to identify the name and 

account of the borrower, and either: 

(1) States the reasons the borrower 

believes an error relating to the 

servicing of the loan has occurred; or 

(2) Provides sufficient detail to the 

servicer regarding information relating 

to the servicing of the mortgage loan 

sought by the borrower. 

Reverse mortgage transaction has the 

meaning set forth in 12 CFR 1026.33(a). 

Service provider means any party 

retained by a servicer that interacts with 

a borrower or provides a service to a 

servicer for which a borrower may incur 

a fee. 

Subservicer means a servicer who 

does not own the right to perform 

servicing, but who performs servicing 

on behalf of the master servicer. 

Transferee servicer means a servicer 

who obtains or who will obtain the right 

to perform servicing pursuant to an 

agreement or understanding with the 

owner or assignee of a mortgage loan. 

Transferor servicer means a servicer, 

including a table funding mortgage 

broker or dealer on a first lien dealer 

loan, who transfers or will transfer the 

right to perform servicing pursuant to an 

agreement or understanding with the 

owner or assignee of a mortgage loan. 

§ 1024.32 General disclosure 

requirements. 

(a) Disclosure requirements. (1) Form 

of disclosures. Disclosures and notices 

required under this subpart must be 

clear and conspicuous, in writing, and 

in a form the consumer may keep, 

except as otherwise provided in this 

subpart. The disclosures required by 

this subpart may be provided to the 

consumer in electronic form, subject to 

compliance with the consumer consent 

and other applicable provisions of the ESign Act, as set forth in § 1024.3. A 

servicer may use commonly accepted or 

readily understandable abbreviations in 

complying with the disclosure 

requirements of this subpart. 

(2) Foreign language disclosures. 

Disclosures required under this subpart 

may be made in a language other than 

English, provided that the disclosures 

are made available in English upon the 

borrower’s request. 

(b) Additional information; 

disclosures required by other laws. 

Nothing in this subpart shall be 

construed as prohibiting a servicer from 

including additional information with a 

disclosure required by applicable law. 

Nothing in this subpart shall be 

construed as prohibiting a servicer from 

combining disclosures required by other 

laws (such as the Truth in Lending Act 

(15 U.S.C. 1601 et seq.) or the Truth in 

Savings Act (12 U.S.C. 4301 et seq.)) or 

the terms of an agreement with a 

Federal or State regulatory agency with 

the disclosures required by this subpart, 

unless such prohibition is expressly set 

forth in this subpart, applicable law, or 

the terms of an agreement with a 

Federal or State regulatory agency. 

§ 1024.33 Mortgage servicing transfers. 

(a) Servicing disclosure statement. 

Within 3 days (excluding legal public 

holidays, Saturdays, and Sundays) after 

a person applies for a reverse mortgage 

transaction, the lender, table funding 

mortgage broker, or dealer in a first lien 

dealer loan shall provide to the person 

a servicing disclosure statement that 

states whether the servicing of the 

reverse mortgage transaction may be 

assigned, sold, or transferred to any 

other person at any time. Appendix 

MS–1 of this part contains a model form 

for the disclosures required under this 

paragraph. If an application is denied 

credit within the 3-day period, a 

servicing disclosure statement is not 

required to be delivered. 

(b) Notices of transfer of loan 

servicing. (1) Requirement for notice. 

Except as provided in this section, each 

transferor servicer and transferee 

servicer of any mortgage loan shall 

provide to the borrower a notice of 

transfer for any assignment, sale, or 

transfer of the servicing of the mortgage 

loan. The notice must contain the 

information described in paragraph 

(b)(4) of this section. Appendix MS–2 of 

this part contains a model form for the 

disclosures required under this 

paragraph. 

(2) Certain transfers excluded. (i) The 

following transfers are not considered 

an assignment, sale, or transfer of 

mortgage loan servicing for purposes of 

this section if there is no change in the 

payee, address to which payment must 

be delivered, account number, or 

amount payment due: 

(A) A transfer between affiliates; 

(B) A transfer that results from 

mergers or acquisitions of servicers or 

subservicers; or 

(C) A transfer that occurs between 

master servicers without changing the 

subservicer. 

(ii) The Federal Housing 

Administration (FHA) is not required to 

provide to the borrower a notice of 

transfer where a mortgage insured under 

the National Housing Act is assigned to 

the FHA. 

(3) Time of notice. (i) In general. 

Except as provided in paragraph 

(b)(2)(ii) of this section, the transferor 

servicer shall provide the notice of 

transfer to the borrower not less than 15 

days before the effective date of the 

transfer of the servicing of the mortgage 

loan. The transferee servicer shall 

provide the notice of transfer to the 

borrower not more than 15 days after 

the effective date of the transfer. The 

transferor and transferee servicers may 

provide a single notice, in which case 

the notice shall be provided not less 

than 15 days before the effective date of 

the transfer of the servicing of the 

mortgage loan. 

(ii) Extended time. The notice of 

transfer shall be provided to the 

borrower by the transferor servicer or 

the transferee servicer not more than 30 

days after the effective date of the 

transfer of the servicing of the mortgage 

loan in any case in which the transfer 

of servicing is preceded by: 

(A) Termination of the contract for 

servicing the loan for cause; 

(B) Commencement of proceedings for 

bankruptcy of the servicer; 


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Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57299 

(C) Commencement of proceedings by 

the FDIC for conservatorship or 

receivership of the servicer or an entity 

that owns or controls the servicer; or 

(D) Commencement of proceedings by 

the NCUA for appointment of a 

conservator or liquidating agent of the 

servicer or an entity that owns or 

controls the servicer. 

(4) Contents of notice. The notices of 

transfer shall include the following 

information: 

(i) The effective date of the transfer of 

servicing; 

(ii) The name, address, and a toll-free 

telephone number for an employee or 

department of the transferee servicer 

that can be contacted by the borrower to 

obtain answers to servicing transfer 

inquiries; 

(iii) The name, address, and a toll-free 

telephone number for an employee or 

department of the transferor servicer 

that can be contacted by the borrower to 

obtain answers to servicing transfer 

inquiries; 

(iv) The date on which the transferor 

servicer will cease to accept payments 

relating to the loan and the date on 

which the transferee servicer will begin 

to accept such payments. These dates 

shall either be the same or consecutive 

days; 

(v) Whether the transfer will affect the 

terms or the continued availability of 

mortgage life or disability insurance, or 

any other type of optional insurance, 

and any action the borrower must take 

to maintain coverage; and 

(vi) A statement that the transfer of 

servicing does not affect any term or 

condition of the mortgage loan other 

than terms directly related to the 

servicing of the loan. 

(c) Borrower payments during transfer 

of servicing. (1) Payments not 

considered late. During the 60-day 

period beginning on the effective date of 

transfer of the servicing of any mortgage 

loan, if the transferor servicer (rather 

than the transferee servicer that should 

properly receive payment on the loan) 

receives payment on or before the 

applicable due date (including any grace 

period allowed under the mortgage loan 

instruments), a payment may not be 

treated as late for any purpose, except 

with respect to calculating the period of 

delinquency for purposes of § 1024.39. 

(2) Treatment of payments. A 

transferor servicer shall promptly either: 

(i) Transfer a payment it has received 

incorrectly to the transferee servicer for 

application to a borrower’s mortgage 

loan account, or 

(ii) Return the payment to the person 

that made the payment to the transferor 

servicer. 

(d) Preemption of state laws. A lender 

who makes a mortgage loan or a servicer 

shall be considered to have complied 

with the provisions of any State law or 

regulation requiring notice to a borrower 

at the time of application for a loan or 

transfer of servicing of a loan if the 

lender or servicer complies with the 

requirements of this section. Any State 

law requiring notice to the borrower at 

the time of application or at the time of 

transfer of servicing of the loan is 

preempted, and there shall be no 

additional borrower disclosure 

requirements. Provisions of State law, 

such as those requiring additional 

notices to insurance companies or 

taxing authorities, are not preempted by 

section 6 of RESPA or this section, and 

this additional information may be 

added to a notice provided under this 

section, if permitted under State law. 

§ 1024.34 Timely payments by servicer. 

(a) Timely escrow disbursements 

required. If the terms of a mortgage loan 

require the borrower to make payments 

to the servicer of the mortgage loan for 

deposit into an escrow account to pay 

taxes, insurance premiums, and other 

charges for the mortgaged property, the 

servicer shall make payments from the 

escrow account in a timely manner, that 

is, on or before the deadline to avoid a 

penalty, as governed by the 

requirements in § 1024.17(k). 

(b) Refund of escrow balance. (1) In 

general. Within 20 days (excluding legal 

public holidays, Saturdays, and 

Sundays) of a borrower’s payment of a 

mortgage loan in full, any amounts 

remaining in the escrow account shall 

be returned to the borrower. 

(2) Servicer may credit funds to a new 

escrow account. A servicer may credit 

funds in an escrow account balance to 

an escrow account for a new mortgage 

loan as of the date of the settlement of 

the new mortgage loan if the new 

mortgage loan is provided to the 

borrower by a lender that: 

(i) Was also the lender to whom the 

prior mortgage loan was initially 

payable; 

(ii) Is the owner or assignee of the 

prior mortgage loan; or 

(iii) Uses the same servicer that 

serviced the prior mortgage loan to 

service the new mortgage loan. 

§ 1024.35 Error resolution procedures. 

(a) Notice of error. A servicer shall 

comply with the requirements of this 

section for any oral or written notice 

from the borrower that asserts a covered 

error and that includes the name of the 

borrower, information that enables the 

servicer to identify the borrower’s 

mortgage loan account, and the error the 

borrower believes has occurred. A 

notice on a payment coupon or other 

payment form supplied by the servicer 

need not be treated by the servicer as a 

notice of error. A qualified written 

request that asserts a covered error 

relating to the servicing of the mortgage 

loan is considered a notice of error and 

must comply with all requirements 

applicable to a notice of error. 

(b) Scope of error resolution. For 

purposes of this section, the term 

‘‘error’’ means the following categories 

of covered errors: 

(1) Failure to accept a payment that 

conforms to the servicer’s written 

requirements for the borrower to follow 

in making payments. 

(2) Failure to apply an accepted 

payment to principal, interest, escrow, 

or other charges under the terms of the 

mortgage loan and applicable law. 

(3) Failure to credit a payment to a 

borrower’s mortgage loan account as of 

the date of receipt, where such failure 

has resulted in a charge to the consumer 

or the furnishing of negative 

information to a consumer reporting 

agency. 

(4) Failure to pay taxes, insurance 

premiums, or other charges, including 

charges that the borrower and servicer 

have voluntarily agreed that the servicer 

should collect and pay, in a timely 

manner as required by § 1024.34(a), or 

to refund an escrow account balanced as 

required by § 1024.34(b). 

(5) Imposition of a fee or charge that 

the servicer lacks a reasonable basis to 

impose upon the borrower. 

(6) Failure to provide an accurate 

payoff balance amount upon a 

borrower’s request pursuant to 12 CFR 

1026.36(c)(1)(iii). 

(7) Failure to provide accurate 

information to a borrower for loss 

mitigation options and foreclosure, as 

required by §§ 1024.39 and 1024.40. 

(8) Failure to accurately and timely 

transfer information relating to the 

servicing of a borrower’s mortgage loan 

account to a transferee servicer. 

(9) Failure to suspend a scheduled 

foreclosure sale in the circumstances 

described in § 1024.41(g). 

(c) Contact information for borrowers 

to assert errors. A servicer may, by 

notice provided to a borrower, establish 

a telephone number and address that a 

borrower must use to submit a notice of 

error in accordance with the procedures 

in this section. The notice shall include 

a statement that the borrower may assert 

an error by contacting the servicer 

through the telephone number or 

address established for that purpose. If 

a servicer designates a specific 

telephone number and address for 

receiving errors, a servicer shall 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57300 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

designate the same telephone number 

and address for receiving information 

requests pursuant to § 1024.36(b) of this 

part. A servicer shall provide a notice to 

a borrower before any change in the 

telephone number or address used for 

receiving a notice of error. 

(d) Acknowledgment of receipt. 

Within five days (excluding legal public 

holidays, Saturdays, and Sundays) of a 

servicer receiving a notice of an error 

from a borrower, the servicer shall 

provide to the borrower a response 

acknowledging receipt of the borrower’s 

notice of the asserted error. 

(e) Response to notice of error. (1) 

Investigation and response 

requirements. (i) In general. A servicer 

must respond to a notice of error by 

either: 

(A) Correcting the error identified by 

the borrower and providing the 

borrower with notification of the 

correction, the date of the correction, 

and contact information for further 

assistance; or 

(B) Conducting a reasonable 

investigation and providing the 

borrower with a notification that 

includes a statement that the servicer 

has determined that no error occurred, 

a statement of the reason or reasons for 

this determination, a statement of the 

borrower’s right to request documents 

relied upon by the servicer in reaching 

its determination, information regarding 

how the borrower can request such 

documents, and contact information for 

further assistance. 

(ii) Different or additional error. If 

during a reasonable investigation of a 

notice of error, a servicer concludes that 

an error occurred other than, or in 

addition to, the error alleged by the 

borrower, the servicer shall correct the 

error and provide the borrower with a 

notification that describes the error the 

servicer identified, the action taken to 

correct the error, the applicable date for 

the correction, and contact information 

for further assistance. 

(2) Requesting information from 

borrower. A servicer may request 

supporting documentation from a 

borrower, but may not: 

(i) Require a borrower to provide such 

information as a condition of 

investigating the alleged error; or 

(ii) Determine that no error occurred 

because the borrower failed to provide 

any requested information without 

conducting a reasonable investigation 

pursuant to paragraph (e)(1)(i)(B) of this 

section. 

(3) Time limits. (i) In general. A 

servicer must comply with the 

requirements of paragraph (e)(1) of this 

section: 

(A) Not later than five days (excluding 

legal public holidays, Saturdays, and 

Sundays) after the servicer receives the 

asserted error, if a notice of error 

identifies an error in paragraph (b)(6) of 

this section. 

(B) Prior to the date of a scheduled 

foreclosure sale or within 30 days 

(excluding legal public holidays, 

Saturdays, and Sundays) after the 

servicer receives the asserted error, 

whichever is earlier, if a notice of error 

identifies an error in paragraph (b)(9) of 

this section. 

(C) For all other errors, not later than 

30 days (excluding legal public 

holidays, Saturdays, and Sundays) after 

the servicer receives the asserted error. 

(ii) Extension of time limits. The 

servicer may extend the time period for 

completing its investigation of a notice 

of error by an additional 15 days 

(excluding legal public holidays, 

Saturdays, and Sundays) if, before the 

end of the 30-day period set forth in 

paragraph (e)(3)(i)(C) of this section, the 

servicer notifies the borrower of the 

extension and the reasons for the 

extension. A servicer may not extend 

the time period for completing its 

investigation of an error identified in 

paragraphs (b)(6) or (b)(9) of this 

section. 

(4) Copies of documentation. A 

servicer shall provide to the borrower, at 

no charge, copies of documents and 

information relied upon by the servicer 

in making its determination within 15 

days (excluding legal public holidays, 

Saturdays, and Sundays) of receiving 

the borrower’s request for such 

documents. 

(f) Alternative compliance. (1) Early 

correction. A servicer is not required to 

comply with paragraphs (d) and (e) of 

this section if the servicer corrects the 

error identified by the borrower within 

five days (excluding legal public 

holidays, Saturdays, and Sundays) of 

receiving the notice of error, and the 

borrower is notified of that correction in 

writing. 

(2) Error asserted before foreclosure 

sale. A servicer is not required to 

comply with the requirements of 

paragraphs (d) and (e) of this section if 

the servicer receives a notice of an error 

in paragraph (b)(9) of this section seven 

days or less before a scheduled 

foreclosure sale, so long as prior to the 

scheduled foreclosure sale, the servicer 

responds to the borrower, orally or in 

writing, and corrects the error or states 

the reason the servicer has determined 

that no error has occurred. 

(g) Requirements not applicable. (1) In 

general. A servicer is not required to 

comply with the requirements of 

paragraphs (d) and (e) of this section if 

the servicer reasonably determines that 

any of the following applies: 

(i) Duplicative notice of error. An 

asserted error is substantially the same 

as an error previously asserted by the 

borrower for which the servicer has 

previously complied with its obligation 

to respond pursuant to paragraph (e)(1) 

of this section, unless the borrower 

provides new and material information 

to support the asserted error. New and 

material information means information 

that was not reviewed by the servicer in 

connection with investigating a prior 

notice of error and is reasonably likely 

to change a servicer’s prior 

determination about the error. 

(ii) Overbroad or unduly burdensome 

notice of error. A notice of error is 

overbroad or unduly burdensome. A 

notice of error is overbroad if a servicer 

cannot reasonably determine from the 

notice of error the specific covered error 

that a borrower asserts has occurred on 

a borrower’s account. A notice of error 

is unduly burdensome if a diligent 

servicer could not respond to the notice 

of error without either exceeding the 

maximum timeframe permitted by 

paragraph (e)(3)(ii) of this section or 

incurring costs (or dedicating resources) 

that would be unreasonable in light of 

the circumstances. To the extent a 

servicer can identify a valid assertion of 

an error in a submission that is 

otherwise overbroad or unduly 

burdensome, the servicer shall comply 

with the requirements of paragraphs (d) 

and (e) of this section with respect to 

that asserted error. 

(iii) Untimely notice of error. An error 

is untimely if the error is asserted more 

than one year after: 

(A) Servicing for the mortgage loan 

that is the subject of asserted error was 

transferred from the servicer receiving 

the notice of error to a transferee 

servicer; or 

(B) The mortgage loan amount was 

paid in full. 

(2) Notice to borrower. A servicer 

shall notify the borrower of its 

determination that the servicer is not 

required to comply with the 

requirements of paragraphs (d) and (e) 

of this section in writing not later than 

five days (excluding legal public 

holidays, Saturdays, and Sundays) after 

making its determination. The notice to 

the borrower shall set forth the basis 

that is permitted under paragraph (g)(1) 

of this section upon which the servicer 

has made such determination. 

(h) Payment requirements prohibited. 

A servicer shall not charge a fee, or 

require a borrower to make any payment 

that may be owed on a borrower’s 

account, as a condition of investigating 

and responding to a notice of error. 


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(i) Effect on servicer remedies. (1) 

Adverse information. After receipt of a 

notice of error, a servicer may not, for 

60 days, furnish adverse information to 

any consumer reporting agency 

regarding any payment that is the 

subject of the notice of error. 

(2) Remedies permitted. Except as set 

forth in this section with respect to an 

error identified in paragraph (b)(9) of 

this section, nothing in this section shall 

limit or restrict a lender or servicer from 

pursuing any remedy it has under 

applicable law, including initiating 

foreclosure or proceeding with a 

scheduled foreclosure sale. 

§ 1024.36 Requests for information. 

(a) Information request. A servicer 

shall comply with the requirements of 

this section for any oral or written 

request for information (including a 

qualified written request for information 

related to the servicing of the mortgage 

loan) from a borrower that includes the 

name of the borrower, information that 

enables the servicer to identify the 

borrower’s mortgage loan account, and 

states the information the borrower is 

requesting with respect to the 

borrower’s mortgage loan. A request on 

a payment coupon or other payment 

form supplied by the servicer need not 

be treated by the servicer as a request for 

information. A qualified written request 

that requests information relating to the 

servicing of the mortgage loan is 

considered a request for information 

and must comply with all requirements 

applicable to a request for information. 

(b) Contact information for borrowers 

to request information. A servicer may, 

by notice provided to a borrower, 

establish a telephone number and 

address that a borrower must use to 

request information in accordance with 

the procedures in this section. The 

notice shall include a statement that a 

borrower should request information by 

contacting the servicer through the 

telephone number or address 

established for that purpose. If a servicer 

designates a specific telephone number 

and address for receiving information 

requests, a servicer shall designate the 

same telephone number and address for 

receiving notices of error pursuant to 

§ 1024.35(c) of this part. A servicer shall 

provide notice to a borrower before any 

change in the telephone number or 

address used for receiving an 

information request. 

(c) Acknowledgment of receipt. 

Within five days (excluding legal public 

holidays, Saturdays, and Sundays) of a 

servicer receiving an information 

request from a borrower, the servicer 

shall provide to the borrower a response 

acknowledging receipt of the 

information request. 

(d) Response to information request. 

(1) Investigation and response 

requirements. A servicer must respond 

to an information request by either: 

(i) Providing the borrower with the 

requested information and contact 

information for further assistance either 

orally or in writing; or 

(ii) Conducting a reasonable search for 

the requested information and providing 

the borrower with a notification that 

states that the servicer has determined 

that the requested information is not 

available to the servicer, provides the 

basis for the servicer’s determination, 

and provides contact information for 

further assistance. 

(2) Time limits. (i) In general. A 

servicer must comply with the 

requirements of paragraph (d)(1) of this 

section: 

(A) Not later than 10 days (excluding 

legal public holidays, Saturdays, and 

Sundays) after the servicer receives an 

information request for the identity of, 

and address or other relevant contact 

information for, the owner or assignee of 

a mortgage loan; and 

(B) For all other information requests, 

not later than 30 days (excluding legal 

public holidays, Saturdays, and 

Sundays) after the servicer receives an 

information request. 

(ii) Extension of time limit. For 

information requests governed by the 

time limit set forth in paragraph 

(d)(2)(i)(B) of this section, the servicer 

may extend the time period for 

completing its search for information by 

an additional 15 days (excluding legal 

public holidays, Saturdays, and 

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

period, the servicer notifies the 

borrower of the extension and the 

reasons for the extension. 

(e) Alternative compliance. A servicer 

is not required to comply with 

paragraphs (c) and (d) of this section if 

the servicer provides the borrower with 

the information requested and contact 

information for further assistance within 

five days (excluding legal public 

holidays, Saturdays, and Sundays) of 

receiving an information request. A 

servicer may provide the borrower such 

information orally or in writing. 

(f) Requirements not applicable. (1) In 

general. A servicer is not required to 

comply with the requirements of 

paragraphs (c) and (d) of this section if 

the servicer reasonably determines that 

any of the following applies: 

(i) Duplicative information. A 

borrower requests information that is 

substantially the same as information 

previously requested by the borrower 

for which the servicer has previously 

complied with its obligation pursuant to 

paragraph (d)(1) of this section. 

(ii) Confidential, proprietary, or 

general corporate information. The 

borrower requests confidential, 

proprietary, or general corporate 

information. 

(iii) Irrelevant information. The 

borrower requests information that is 

not directly related to the borrower’s 

mortgage loan account. 

(iv) Overbroad or unduly burdensome 

information request. An information 

request is overbroad or unduly 

burdensome. An information request is 

overbroad if a borrower requests a 

servicer provide an unreasonable 

volume of documents or information to 

a borrower. An information request is 

unduly burdensome if a diligent 

servicer could not respond to the 

information request without either 

exceeding maximum timeframe 

permitted by paragraph (d)(2)(ii) of this 

section or incurring costs (or dedicating 

resources) that would be unreasonable 

in light of the circumstances. To the 

extent a servicer can identify a valid 

information request in a submission that 

is otherwise overbroad or unduly 

burdensome, the servicer shall comply 

with the requirements of paragraphs (c) 

and (d) of this section with respect to 

that requested information. 

(v) Untimely information request. An 

information request is delivered to a 

servicer more than one year after: 

(A) Servicing for the mortgage loan 

that is the subject of the information 

request was transferred from the 

servicer receiving the request for 

information to a transferee servicer; or 

(B) The mortgage loan amount was 

paid in full. 

(2) Notice to borrower. A servicer 

shall notify the borrower of its 

determination that the servicer is not 

required to comply with the 

requirements of paragraphs (c) and (d) 

of this section in writing not later than 

five days (excluding legal public 

holidays, Saturdays, and Sundays) after 

making its determination. The notice to 

the borrower shall set forth the basis 

that is permitted under paragraph (f)(1) 

upon which the servicer has made such 

determination. 

(g) Payment requirement limitations. 

(1) Fees prohibited. Except as set forth 

in paragraph (g)(2) of this section, a 

servicer may not charge a fee, or require 

a borrower to make any payment that 

may be owed on a borrower’s account, 

as a condition of responding to a valid 

information request. 

(2) Fees permitted. Nothing in this 

section shall prohibit a servicer from 

charging a fee for providing a payoff 

statement or a beneficiary notice under 


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57302 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

applicable State law, if such fees are not 

otherwise prohibited by applicable law. 

(h) Servicer remedies. Nothing in this 

section shall prohibit a servicer from 

furnishing adverse information to any 

consumer reporting agency or pursuing 

any of its remedies, including initiating 

foreclosure or proceeding with a 

scheduled foreclosure sale, allowed by 

the underlying mortgage loan 

instruments, during the time period that 

response to an information request 

notice is outstanding. 

§ 1024.37 Force-placed insurance. 

(a) Definition of force-placed 

insurance. (1) In general. For the 

purposes of this section, the term 

‘‘force-placed insurance’’ means hazard 

insurance obtained by a servicer on 

behalf of the owner or assignee of a 

mortgage loan on a property securing 

such loan. 

(2) Types of insurance not considered 

force-placed insurance. The following 

insurance does not constitute ‘‘forceplaced insurance’’ under this section: 

(i) Hazard insurance to protect against 

flood loss obtained by a servicer as 

required by the Flood Disaster 

Protection Act of 1973. 

(ii) Hazard insurance obtained by a 

borrower but renewed by the borrower’s 

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

(k)(2), or (k)(5). 

(iii) Hazard insurance obtained by the 

borrower but renewed by the servicer at 

its discretion if the servicer is not 

required to renew the borrower’s hazard 

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

(k)(2), or (k)(5). 

(b) Basis for obtaining force-placed 

insurance. A servicer may not obtain 

force-placed insurance unless the 

servicer has a reasonable basis to believe 

that the borrower has failed to comply 

with the mortgage loan contract’s 

requirement to maintain hazard 

insurance. 

(c) Requirements for charging 

borrower for force-placed insurance. (1) 

In general. A servicer may not charge a 

borrower for force-placed insurance 

unless: 

(i) The servicer delivers to the 

borrower or places in the mail a written 

notice with the disclosures set forth in 

paragraph (c)(2) of this section at least 

45 days before the premium charge or 

any fee is assessed; 

(ii) The servicer delivers to the 

borrower or places in the mail a written 

notice in accordance with paragraph 

(d)(1) of this section; and 

(iii) During the 45-day notice period, 

the servicer has not received verification 

that the borrower has hazard insurance 

in place continuously. Determining 

whether the borrower has hazard 

insurance in place continuously shall 

take account of any grace period 

provided under State or other applicable 

law. 

(2) Content of notice. The notice 

required under paragraph (c)(1)(i) of this 

section shall include the following: 

(i) The date of the notice; 

(ii) The servicer’s name and mailing 

address; 

(iii) The borrower’s name and mailing 

address; 

(iv) A statement that requests the 

borrower to provide hazard insurance 

information for the borrower’s property 

and identifies the property by its 

address; 

(v) A statement that the borrower’s 

hazard insurance is expiring or expired, 

as applicable, and that the servicer does 

not have evidence that the borrower has 

hazard insurance coverage past the 

expiration date. For a borrower who has 

obtained more than one type of hazard 

insurance on the property, the servicer 

must identify the type of hazard 

insurance for which the servicer lacks 

evidence of coverage; 

(vi) A statement that: 

(A) Hazard insurance is required on 

the borrower’s property; and 

(B) The servicer has obtained or will 

obtain, as applicable, insurance at the 

borrower’s expense; 

(vii) A statement requesting the 

borrower to promptly provide the 

servicer with the insurance policy 

number, and the name, mailing address 

and phone number of the borrower’s 

insurance company or the borrower’s 

insurance agent; 

(viii) A description of how the 

borrower may provide the information 

requested pursuant to paragraph 

(c)(2)(vii) of this section. A servicer that 

will only accept the requested 

information in writing must disclose 

that fact in the notice; 

(ix) The cost of the force-placed 

insurance, stated as an annual premium. 

If the cost of the force-placed insurance 

is not known as of the date of the 

disclosure, a good faith estimate shall be 

disclosed and be identified as such; 

(x) A statement that insurance the 

servicer obtains may: 

(A) Cost significantly more than 

hazard insurance obtained by the 

borrower; and 

(B) Not provide as much coverage as 

hazard insurance obtained by the 

borrower; and 

(xi) The servicer’s telephone number 

for borrower questions. 

(3) Format. The disclosures set forth 

in paragraph (c)(2) of this section must 

be in a format substantially similar to 

form MS–3(A), set forth in Appendix 

MS–3 of this part. Disclosures made 

pursuant to paragraphs (c)(2)(vi) and 

(c)(2)(ix) of this section must be in bold 

text. Disclosure made pursuant to 

paragraph (c)(2)(iv) of this section must 

be in bold text, except that the physical 

address of the borrower’s property may 

be in regular text. 

(d) Reminder notice. (1) In general. 

One written notice in addition to the 

written notice required pursuant to 

paragraph (c)(1)(i) of this section must 

be delivered to the borrower or placed 

in the mail prior to the servicer charging 

a borrower for force-placed insurance. 

The servicer may not deliver to the 

borrower or place the written notice 

required pursuant to this paragraph 

(d)(1) in the mail until 30 days after 

delivering to the borrower or placing in 

the mail the written notice set forth in 

paragraph (c)(1)(i) of this section. A 

servicer that receives no insurance 

information after delivering to the 

borrower or placing in the mail the 

written notice set forth in paragraph 

(c)(1)(i) of this section must provide the 

disclosures set forth in paragraph 

(d)(2)(i) of this section. A servicer that 

receives insurance information after 

delivering to the borrower or placing in 

the mail the written notice set forth in 

paragraph (c)(1)(i) of this section but 

does not receive verification that the 

borrower has hazard insurance in place 

continuously must provide the 

disclosures set forth in paragraph 

(d)(2)(ii) of this section. 

(2) Content of the reminder notice. (i) 

Servicer receiving no insurance 

information. A servicer that has not 

received any insurance information after 

delivering to the borrower or placing in 

the mail the written notice set forth 

paragraph (c)(1)(i) of this section must 

provide a written notice that shall 

include the following: 

(A) The date of the notice; 

(B) A statement that the notice is the 

second and final notice; and 

(C) The disclosures set forth in 

paragraphs (c)(2)(ii) to (c)(2)(xi) of this 

section. 

(ii) Servicer not receiving verification 

of continuous coverage. A servicer that 

has received insurance information after 

delivering to the borrower or placing in 

the mail the written notice required 

pursuant to paragraph (c)(1)(i) of this 

section, but not verification that the 

borrower has hazard insurance in place 

continuously, must deliver or place in 

the mail a written notice that shall 

include the following: 

(A) The date of the notice; 

(B) A statement that the notice is the 

second and final notice; 

(C) The disclosures set forth in 

paragraphs (c)(2)(ii), (c)(2)(iii), (c)(2)(iv), 

and (c)(2)(xi) of this section; 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
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(D) A statement that the servicer has 

received the hazard insurance 

information that the borrower provided; 

(E) A statement that indicates to the 

borrower that the servicer is unable to 

verify that the borrower has hazard 

insurance in place continuously; and 

(F) A statement that the borrower will 

be charged for insurance the servicer 

obtains for the period of time where the 

servicer is unable to verify hazard 

insurance coverage unless the borrower 

provides the servicer with hazard 

insurance information for such period. 

(3) Format. The disclosures set forth 

in paragraph (d)(2)(i) of this section 

must be in a format substantially similar 

to form MS–3(B), and the disclosures set 

forth in paragraph (d)(2)(ii) of this 

section must be in a format substantially 

similar to form MS–3(C). Both MS–3(B) 

and MS–3(C) are set forth in Appendix 

MS–3 of this part. Disclosures required 

by paragraphs (d)(2)(i)(B), (d)(2)(ii)(B), 

and (d)(2)(ii)(F) of this section must be 

in bold text. 

(4) Updating notice with borrower 

information. If a servicer receives 

hazard insurance information from a 

borrower after a written notice required 

pursuant to paragraph (d)(1) of this 

section has been put into production, 

the servicer is not required to update the 

notice so long as the notice was put into 

production within a reasonable time 

prior to the servicer delivering the 

notice to the borrower or placing the 

notice in the mail. 

(e) Renewal or replacing force-placed 

insurance. (1) In general. A servicer may 

not charge a borrower for renewing or 

replacing existing force-placed 

insurance unless: 

(i) The servicer delivers or places in 

the mail a written notice to the borrower 

with the disclosures set forth in 

paragraph (e)(2) of this section at least 

45 days before the premium charge or 

any fee is assessed; and 

(ii) During the 45-day notice period, 

the servicer has not received evidence 

that the borrower has obtained hazard 

insurance. 

(iii) Charging a borrower before end of 

notice period. Notwithstanding 

paragraphs (e)(1)(i) and (e)(1)(ii) of this 

section, a servicer that has renewed or 

replaced existing force-placed insurance 

during the 45-day notice period may 

charge the borrower for the renewal or 

replacement promptly after the servicer 

receives verification that hazard 

insurance obtained by the borrower did 

not provide the borrower with insurance 

coverage for any period of time 

following the expiration of the existing 

force-placed insurance. 

(2) Content of renewal notice. A 

servicer must provide the following 

information in the notice required under 

paragraph (e)(1) of this section: 

(i) The date of the notice; 

(ii) The servicer’s name and mailing 

address; 

(iii) The borrower’s name and mailing 

address; 

(iv) A statement that requests the 

borrower to update the hazard insurance 

information for the borrower’s property 

and identifies the borrower’s property 

by its address; 

(v) A statement that the servicer 

previously obtained insurance on the 

borrower’s property and assessed the 

cost of the insurance to the borrower 

because the servicer did not have 

evidence that the borrower had hazard 

insurance coverage for the property; 

(vi) A statement that: 

(A) The insurance the servicer 

obtained previously has expired or is 

expiring, as applicable; and 

(B) Because hazard insurance is 

required on the borrower’s property, the 

servicer has the right to maintain 

insurance on the property by renewing 

or replacing the insurance it previously 

obtained; 

(vii) The cost of the force-placed 

insurance, stated as an annual premium. 

If the cost of the force-placed insurance 

is not known as of the date of the 

disclosure, a good faith estimate shall be 

disclosed and be identified as such; 

(viii) A statement reminding the 

borrower that insurance the servicer 

obtains may: 

(A) Cost significantly more than 

hazard insurance obtained by the 

borrower; and 

(B) Not provide as much coverage as 

hazard insurance obtained by the 

borrower. 

(ix) A statement that if the borrower 

obtains hazard insurance, the borrower 

should promptly provide the servicer 

with the insurance policy number, and 

the name, mailing address and phone 

number of the borrower’s insurance 

company or the borrower’s insurance 

agent. 

(x) A description of how the borrower 

may provide the information requested 

pursuant to paragraph (e)(2)(ix) of this 

section. A servicer that will only accept 

the requested information in writing 

must disclose that fact in the notice; and 

(xi) The servicer’s telephone number 

for borrower questions. 

(3) Format. The disclosures set forth 

in paragraph (e)(2) of this section must 

be in a format substantially similar to 

form MS–3(D), set forth in Appendix 

MS–3 to this part. Disclosures made 

pursuant to paragraphs (e)(2)(vi)(B) and 

(e)(2)(vii) of this section must be in bold 

text. Disclosures made pursuant to 

paragraph (e)(2)(iv) of this section must 

be in bold text, except that the physical 

address of the property may be in 

regular text. 

(4) Compliance. Before the first 

anniversary of a servicer obtaining 

force-placed insurance on a borrower’s 

property, the servicer shall deliver to 

the borrower or place in the mail the 

notice required by paragraph (e)(1) of 

this section. Subsequently, a servicer is 

not required to comply with paragraph 

(e)(1) of this section before charging a 

borrower for renewing or replacing 

existing force-placed insurance more 

than once every 12 months. 

(f) Mailing the notices. If a servicer 

mails a notice required pursuant to 

paragraphs (c)(1)(i), (d)(1) and (e)(1) of 

this section, as applicable, the servicer 

must use a class of mail not less than 

first-class mail. 

(g) Cancellation of force-placed 

insurance. Within 15 days of receiving 

verification that the borrower has 

hazard insurance in place, a servicer 

must: 

(1) Cancel force-placed insurance 

obtained for a borrower’s property; and 

(2) For any period during which the 

borrower’s hazard insurance was in 

place, refund to the borrower all forceplaced insurance premium charges and 

related fees paid by the borrower for 

such period and remove from the 

borrower’s account all force-placed 

insurance charges and related fees for 

such period that the servicer has 

assessed to the borrower. 

(h) Limitations on force-placed 

insurance charges. (1) In general. Except 

for charges subject to State regulation as 

the business of insurance and charges 

authorized by the Flood Disaster 

Protection Act of 1973, all charges 

related to force-placed insurance 

assessed to a borrower by or through the 

servicer must be bona fide and 

reasonable. 

(2) Bona fide and reasonable charge. 

A bona fide and reasonable charge is a 

charge for a service actually performed 

that bears a reasonable relationship to 

the servicer’s cost of providing the 

service, and is not otherwise prohibited 

by applicable law. 

(i) Relationship to Flood Disaster 

Protection Act of 1973. If permitted by 

regulation under section 102(e) of the 

Flood Disaster Protection Act of 1973, a 

servicer subject to the requirements of 

this section may deliver to the borrower 

or place in the mail any notice required 

by this section together with the notice 

required by section 102(e) of the Flood 

Disaster Protection Act of 1973. 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
57304 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

§ 1024.38 Reasonable information 

management policies and procedures. 

(a) In general. (1) Reasonable policies 

and procedures. A servicer shall 

establish reasonable policies and 

procedures for maintaining and 

managing information and documents 

related to borrower mortgage loan 

accounts. A servicer meets this 

requirement if: 

(i) The servicer’s policies and 

procedures are reasonably designed to 

achieve the objectives set forth in 

paragraph (b) of this section; and 

(ii) The servicer’s policies and 

procedures are reasonably designed to 

ensure compliance with the standard 

requirements in paragraph (c) of this 

section. 

(2) Safe harbor. A servicer satisfies 

the requirements in this section if it 

does not engage in a pattern or practice 

of failing to achieve any of the 

objectives set forth in paragraph (b) of 

this section and does not engage in a 

pattern or practice of failing to comply 

with any of the standard requirements 

in paragraph (c) of this section. 

(b) Objectives. (1) Accessing and 

providing accurate information. 

(i) Provide accurate and timely 

disclosures to borrowers as required by 

this subpart or other applicable law; 

(ii) Investigate, respond to, and, as 

appropriate, correct errors asserted by 

borrowers in accordance with the 

procedures set forth in § 1024.35, 

including asserted errors resulting from 

actions of service providers; 

(iii) Provide borrowers with accurate 

and timely information and documents 

in response to borrower requests made 

in accordance with the procedures set 

forth in § 1024.36; 

(iv) Provide owners or assignees of 

mortgage loans with accurate and 

current information and documents 

about any mortgage loans they own; and 

(v) Submit documents or filings 

required for a foreclosure process, 

including documents or filings required 

by a court of competent jurisdiction, 

that reflect accurate and current 

information and that comply with 

applicable law. 

(2) Evaluating loss mitigation options. 

(i) Provide accurate information 

regarding loss mitigation options 

available to borrowers pursuant to 

§§ 1024.39 and 1024.40; 

(ii) Identify all loss mitigation options 

for which a borrower may be eligible 

pursuant to any requirements imposed 

by an owner or assignee of a mortgage 

loan; 

(iii) Provide prompt access to all 

documents and information submitted 

by a borrower in connection with a loss 

mitigation option to servicer personnel 

that are assigned to assist the borrower 

pursuant to § 1024.40; 

(iv) Identify documents and 

information that a borrower is required 

to submit to make a loss mitigation 

application complete so that prompt 

notice of such requirements can be 

provided to the borrower pursuant to 

§ 1024.41(b)(2); and 

(v) Evaluate loss mitigation 

applications, and any appeals, pursuant 

to the requirements in § 1024.41. 

(3) Facilitating oversight of, and 

compliance by, service providers. (i) 

Provide appropriate servicer personnel 

with access to accurate and current 

documents and information reflecting 

actions performed by service providers; 

(ii) Facilitate periodic reviews of 

service providers, including by 

providing appropriate servicer 

personnel with documents and 

information necessary to audit 

compliance by service providers with 

the servicer’s contractual obligations 

and applicable law; and 

(iii) Facilitate the sharing of accurate 

and current information regarding the 

status of an evaluation of a borrower’s 

completed loss mitigation application 

and the status of any foreclosure 

proceeding among servicer personnel 

assigned to a borrower pursuant to 

§ 1024.40 and service providers 

responsible for handling foreclosure 

proceedings. 

(4) Facilitating servicing transfers. 

Timely transfer all information and 

documents relating to a transferred 

mortgage loan to a transferee servicer in 

a form and manner that ensures the 

accuracy of the information and 

documents transferred and that enables 

a transferee servicer to comply with the 

requirements of this subpart and the 

terms of the transferee servicer’s 

contractual obligation to the owner or 

assignee of the mortgage loan. Such 

information and documents shall 

include any information reflecting the 

current status of discussions with a 

borrower regarding loss mitigation 

options, any agreements entered into 

with a borrower on a loss mitigation 

option, and any analysis by a servicer 

with respect to potential recovery from 

a non-performing mortgage loan, as 

appropriate. 

(c) Standard requirements. (1) Record 

retention. A servicer shall retain records 

that document actions taken by the 

servicer with respect to a borrower’s 

mortgage loan account until one year 

after the date a mortgage loan is 

discharged or servicing of a mortgage 

loan is transferred by the servicer to a 

transferee servicer. 

(2) Servicing file. A servicer shall 

provide a borrower with a servicing file 

upon request in accordance with the 

procedures set forth in § 1024.36. The 

servicing file shall contain: 

(i) A schedule of all payments 

credited or debited to the mortgage loan 

account, including any escrow account 

as defined in § 1024.17(b) and any 

suspense account; 

(ii) A copy of the borrower’s mortgage 

note; 

(iii) A copy of the borrower’s deed of 

trust; 

(iv) Any collection notes created by 

servicer personnel reflecting 

communications with borrowers about 

the mortgage loan account; 

(v) A report of any data fields relating 

to a borrower’s mortgage loan account 

created by a servicer’s electronic 

systems in connection with collection 

practices, including records of 

automatically or manually dialed 

telephonic communications; and 

(vi) Copies of any information or 

documents provided by a borrower to a 

servicer in accordance with the 

procedures set forth in §§ 1024.35 or 

1024.41. 

§ 1024.39 Early intervention requirements 

for certain borrowers. 

(a) Oral notice. If a borrower is late in 

making a payment sufficient to cover 

principal, interest, and, if applicable, 

escrow for a given billing cycle, a 

servicer shall notify or make good faith 

efforts to notify the borrower orally not 

later than 30 days after the payment due 

date that the borrower is late and that 

loss mitigation options, if applicable, 

may be available. If the servicer 

attempts to notify the borrower by 

telephone, good faith efforts require 

calling the borrower on at least three 

separate days in order to reach the 

borrower. A servicer is not required to 

notify or make good faith efforts to 

notify the borrower under this 

paragraph if the borrower makes the 

payment within 30 days after the 

payment due date. 

(b) Written notice. (1) In general. If a 

borrower is late in making a payment 

sufficient to cover principal, interest, 

and, if applicable, escrow for a given 

billing cycle, a servicer shall provide to 

the borrower a written notice that 

complies with paragraph (b)(2) of this 

section not later than 40 days after the 

payment due date. A servicer is not 

required to provide the written notice if 

the borrower makes the payment within 

40 days after the payment due date. A 

servicer is not required to provide the 

written notice more than once during 

any 180-day period. 

(2) Content of the written notice. The 

notice required by paragraph (b)(1) of 

this section shall include: 


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(i) A statement encouraging the 

borrower to contact the servicer; 

(ii) The servicer’s mailing address and 

telephone number; 

(iii) A statement, if applicable, 

providing a brief description of loss 

mitigation options that may be available 

from the servicer; 

(iv) A statement, if applicable, 

informing the borrower how to obtain 

more information about loss mitigation 

options from the servicer; 

(v) A statement explaining that 

foreclosure is a legal process to end the 

borrower’s ownership of the property 

and an estimate, expressed in a number 

of days from the date of a missed 

payment, of when the servicer makes 

the referral to foreclosure; and 

(vi) The Web site address, if 

applicable, and telephone number to 

access: 

(A) Any State housing finance 

authority (as defined in section 1301 of 

the Financial Institutions Reform, 

Recovery, and Enforcement Act of 1989) 

for the State in which the borrower’s 

property is located; and 

(B) Either the Bureau list of 

homeownership counselors or 

counseling organizations or the HUD list 

of homeownership counselors or 

counseling organizations. 

(3) Model clauses. Model Clauses MS– 

4(A), MS–4(B), MS–4(C), MS–4(D), and 

MS–4(E) in Appendix MS–4 to this part 

may be used to comply with the 

requirements of paragraphs (b)(1) and 

(b)(2) of this section. 

§ 1024.40 Continuity of contact. 

(a) Continuity of contact 

requirements. (1) In general. No later 

than five days after a servicer has 

notified or made a good faith effort to 

notify a borrower as required by 

§ 1024.39(a), the servicer must assign 

personnel to respond to the borrower’s 

inquiries, and as applicable, assist the 

borrower with loss mitigation options. If 

a borrower has been assigned personnel 

as required by this paragraph and the 

assignment has not ended when 

servicing for borrower’s mortgage loan 

has transferred to a transferee servicer, 

subject to paragraphs (c)(1)–(c)(4) of this 

section, the transferee servicer must 

assign personnel to respond to the 

borrower’s inquiries, and as applicable, 

assist the borrower with loss mitigation 

options, within reasonable time of the 

transfer of servicing for the borrower’s 

mortgage loan. 

(2) Access to assigned personnel. A 

servicer shall make access to the 

assigned personnel available via 

telephone. If a borrower contacts the 

servicer and does not receive a live 

response from the assigned personnel, 

the borrower must be able to record his 

or her contact information. The servicer 

must respond to the borrower within a 

reasonable time. 

(b) Functions of servicer personnel. (1) 

Reasonable policies and procedures. A 

servicer shall establish policies and 

procedures reasonably designed to 

ensure the servicer personnel it makes 

available to the borrower pursuant to 

paragraph (a) of this section perform the 

following functions where applicable: 

(i) Provide the borrower with accurate 

information about: 

(A) Loss mitigation options offered by 

the servicer and available to the 

borrower, based on information in the 

servicer’s possession; 

(B) Actions the borrower must take to 

be evaluated for such options, including 

actions the borrower must take to 

submit a complete loss mitigation 

application, as defined in § 1024.41, and 

if applicable, actions the borrower must 

take to appeal the servicer’s denial of 

the borrower’s loss mitigation 

application; 

(C) The status of any loss mitigation 

application that the borrower has 

submitted to the servicer; 

(D) The circumstances under which 

the servicer may make a referral to 

foreclosure; and 

(E) Any loss mitigation deadlines 

established by the servicer that the 

borrower must meet. 

(ii) Access: 

(A) A complete record of the 

borrower’s payment history in the 

servicer’s possession; 

(B) All documents the borrower has 

submitted to the servicer in connection 

with the borrower’s application for a 

loss mitigation option offered by the 

servicer; and 

(C) If applicable, documents the 

borrower has submitted to prior 

servicers in connection with the 

borrower’s application for loss 

mitigation options offered by those 

servicers, to the extent that those 

documents are in the servicer’s 

possession; 

(iii) Provide the documents in 

paragraphs (b)(2)(ii)(B) and (b)(2)(ii)(C) 

of this section to persons authorized to 

evaluate a borrower for loss mitigation 

options offered by the servicer if the 

servicer personnel assigned to the 

borrower are not authorized to evaluate 

a borrower for loss mitigation options; 

and 

(iv) Within a reasonable time after a 

borrower request, as applicable, provide 

the information to the borrower or 

inform the borrower of the telephone 

number and address the servicer has 

established for borrowers to assert an 

error pursuant to § 1024.35 or make an 

information request pursuant to 

§ 1024.36. 

(2) Safe harbor. A servicer’s policies 

and procedures satisfy the requirements 

in paragraph (b)(1) of this section if 

servicer personnel do not engage in a 

pattern or practice of failing to perform 

the functions set forth in paragraph 

(b)(1) of this section where applicable. 

(c) Duration of continuity of contact. 

A servicer shall ensure that the 

personnel it assigns and makes available 

to a borrower pursuant to paragraph (a) 

of this section remain assigned and 

available to the borrower until any of 

the following occurs: 

(1) The borrower refinances the 

mortgage loan; 

(2) The borrower pays off the 

mortgage loan; 

(3) A reasonable time has passed 

since: 

(i) The borrower has brought the 

mortgage loan current by paying all 

amounts owed in arrears; or 

(ii) The borrower and the servicer 

have entered into a permanent loss 

mitigation agreement in which the 

borrower keeps the property securing 

the mortgage loan; or 

(4) Title to the borrower’s property 

has been transferred to a new owner 

through, for example, a deed-in-lieu of 

foreclosure, a sale of the borrower’s 

property, including, as applicable, a 

short sale, or a foreclosure sale; or 

(5) If applicable, a reasonable time has 

passed since servicing for the borrower’s 

mortgage loan was transferred to 

transferee servicer. 

(d) Conditions beyond a servicer’s 

control. A servicer has not violated this 

section if the servicer’s failure to 

comply with this section is caused by 

conditions beyond a servicer’s control. 

§ 1024.41 Loss mitigation procedures. 

(a) Scope. This section applies to any 

servicer that makes loss mitigation 

options available to borrowers in the 

ordinary course of business with respect 

to the procedures for reviewing and 

responding to a loss mitigation 

application. Nothing in this section 

shall be construed to impose an 

obligation on an owner, assignee, 

guarantor, or insurer of a mortgage loan, 

unless such entity is also a servicer of 

a mortgage loan. 

(b) Loss mitigation application. (1) 

Complete loss mitigation application. A 

complete loss mitigation application 

means a borrower’s submission 

requesting evaluation for a loss 

mitigation option for which a servicer 

has received all the information the 

servicer regularly obtains and considers 

in evaluating loss mitigation 

applications by the deadline established 


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57306 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

by the servicer pursuant to paragraph (f) 

of this section. 

(2) Incomplete loss mitigation 

application. (i) Upon receipt of an 

incomplete loss mitigation application, 

a servicer shall exercise reasonable 

diligence in obtaining information from 

a borrower to make the loss mitigation 

application complete. 

(ii) If a servicer receives an 

incomplete loss mitigation application 

earlier than 5 days (excluding legal 

public holidays, Saturdays, or Sundays) 

before the deadline established pursuant 

to paragraph (f) of this section, the 

servicer shall notify the borrower orally 

or in writing within 5 days (excluding 

legal public holidays, Saturdays, or 

Sundays) after receiving the incomplete 

loss mitigation application, of the 

following: 

(A) That the loss mitigation 

application is incomplete; 

(B) The additional documents and 

information the borrower must submit 

to make the loss mitigation application 

complete; and 

(C) The date by which the borrower 

must submit the additional documents 

and information. 

(c) Review of loss mitigation 

applications. Within 30 days of 

receiving a borrower’s complete loss 

mitigation application that is submitted 

prior to the deadline established 

pursuant to paragraph (f) of this section, 

a servicer shall: 

(1) Evaluate the borrower for all loss 

mitigation options available from the 

servicer for which the borrower may 

qualify; and 

(2) Provide the borrower with a notice 

stating the servicer’s determination of 

whether it will offer the borrower a loss 

mitigation option. 

(d) Denial of loan modification 

options. A servicer that denies a 

borrower’s loss mitigation application 

for any trial or permanent loan 

modification program offered by the 

servicer shall state in the notice 

provided to the borrower pursuant to 

paragraph (c)(2) of this section: 

(1) The specific reasons for the 

servicer’s determination for each such 

trial or permanent loan modification 

program; and 

(2) The fact that the borrower may 

appeal the servicer’s determination, the 

deadline for the borrower to make an 

appeal, and any requirements for 

making an appeal. 

(e) Borrower response. (1) In general. 

A servicer may require that a borrower 

accept or reject an offer of a loss 

mitigation option by a deadline 

established by the servicer that is no 

earlier than 14 days after the servicer 

communicates the loss mitigation 

option to the borrower. 

(2) Acceptance. A borrower that does 

not satisfy the servicer’s requirements 

for accepting a loss mitigation option, 

but submits the first payment that 

would be owed pursuant to any such 

loss mitigation option within the 

deadline established by the servicer, 

shall be deemed to have accepted the 

offer of a loss mitigation option. 

(3) Rejection. A servicer may deem a 

borrower that has not accepted an offer 

of a loss mitigation option within 14 

days after the servicer offers the loss 

mitigation option to the borrower to 

have rejected the offer of a loss 

mitigation option. 

(4) Interaction with appeal process. A 

servicer shall permit a borrower to 

accept or reject a loss mitigation option 

concurrently with making an appeal 

pursuant to paragraph (h) of this 

section. 

(f) Deadline for loss mitigation 

applications. A servicer may establish a 

deadline for a borrower to provide a 

complete loss mitigation application, 

which shall be no earlier than 90 days 

before a scheduled foreclosure sale. 

(g) Prohibition on foreclosure sale. A 

servicer shall not conduct a foreclosure 

sale if a borrower has provided a 

complete loss mitigation application to 

the servicer for a loss mitigation option 

within the deadline established by the 

servicer pursuant to paragraph (e) of this 

section, unless: 

(1) The servicer has provided the 

borrower a notice pursuant to paragraph 

(c)(2) of this section that the borrower is 

not eligible for a loss mitigation option 

and the appeal process in paragraph (h) 

of this section is not applicable, the 

borrower has not requested an appeal, 

or the time for requesting an appeal has 

expired; 

(2) The servicer denies the borrower’s 

appeal, as applicable; 

(3) The borrower rejects the servicer’s 

offer of a loss mitigation option; 

(4) The borrower fails to perform 

under an agreement on a loss mitigation 

option. 

(h) Appeal process. (1) Appeal 

process required for loan modification 

denials. A servicer that denies a 

borrower’s loss mitigation application 

for any trial or permanent loan 

modification program offered by the 

servicer shall permit a borrower to 

appeal the servicer’s determination. 

(2) Deadlines. A servicer shall permit 

a borrower to make an appeal within at 

least 14 days after providing the notice 

required pursuant to paragraph (c)(2) of 

this section. 

(3) Independent evaluation. An 

appeal shall be reviewed by different 

personnel than those responsible for 

evaluating the borrower’s complete loss 

mitigation application. 

(4) Appeal determination. Within 30 

days of a borrower making an appeal, 

the servicer shall provide a notice to the 

borrower stating the servicer’s 

determination of whether the servicer 

will offer the borrower a loss mitigation 

option. A servicer’s offer of a loss 

mitigation option after appeal shall be 

subject to paragraph (e) of this section. 

A servicer’s decision under this 

paragraph is not subject to another 

appeal. 

(i) Duplicative requests. A servicer is 

only required to comply with the 

requirements of this provision for a 

single complete loss mitigation 

application for a borrower’s mortgage 

loan account. 

(j) Other liens. (1) Duty to identify 

other servicers. Any servicer that 

receives a loss mitigation application 

shall: 

(i) Within 5 days, determine if any 

other servicers service mortgage loans 

that have senior or subordinate liens 

encumbering the property that is the 

subject of the loss mitigation 

application; and 

(ii) Provide any other servicers 

identified pursuant to paragraph (j)(1)(i) 

with a copy of the loss mitigation 

application. 

(2) Receipt of loss mitigation 

application. A servicer that offers loss 

mitigation options in the ordinary 

course of business shall comply with 

the requirements of this section with 

respect to any loss mitigation 

application received pursuant to 

paragraph (j)(1)(ii) of this section as if 

such loss mitigation application was 

provided by a borrower.fi 

16. Revise Appendix MS–2 to Part 

1024 to read as follows: 

flAPPENDIX MS–2 to PART 1024 

Notice of Servicing Transfer 

The servicing of your mortgage loan is 

being transferred, effective [Date]. This 

means that after this date, a new servicer will 

be collecting your mortgage loan payments 

from you. Nothing else about your mortgage 

loan will change. 

[Name of present servicer] is now 

collecting your payments. [Name of present 

servicer] will stop accepting payments 

received from you after [Date]. 

[Name of new servicer] will collect your 

payments going forward. Your new servicer 

will start accepting payments received from 

you on [Date]. 

Send all payments due on or after [Date] 

to [Name of new servicer] at this address: 

[New servicer address]. 

If you have any questions for your present 

servicer, [Name of present servicer], about 

your mortgage loan or this transfer, please 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57307 

contact [Individual or Department] at 

[Telephone Number]. You may also write to 

your present servicer at the following 

address: [Address]. 

If you have any questions for your new 

servicer, [Name of new servicer], about your 

mortgage loan or this transfer, please contact 

[Individual or Department] at [Telephone 

Number]. You may also write to your new 

servicer at the following address: [Address]. 

[Use this paragraph if appropriate; 

otherwise omit.] Important note about 

insurance: If you have mortgage life or 

disability insurance or any other type of 

optional insurance, the transfer of servicing 

rights may affect your insurance in the 

following way: 

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

You should do the following to maintain 

coverage: 

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

[NAME OF PRESENT SERVICER] 

lllllllllllllllllllll

Date 

[and] 

lllllllllllllllllllll

[NAME OF NEW SERVICER] 

lllllllllllllllllllll

Datefi 

17. Add Appendix MS–3 to part 1024 

to read as follows: 

flAppendix MS–3 to part 1024—Model 

Force-Placed Insurance Notice Forms 

Table of Contents 

MS–3(A)—Model Form for Force-Placed 

Insurance Notice Required Pursuant to 

§ 1024.37(c)(2) 

MS–3(B)—Model Form for Force-Placed 

Insurance Notice Pursuant to 

§ 1024.37(d)(2)(i) 

MS–3(C)—Model Form for Force-Placed 

Insurance Notice Pursuant to 

§ 1024.37(d)(2)(ii) 

MS–3(D)—Model Form for Renewal or 

Replacement of Force-Placed Insurance 

Notice pursuant to § 1024.37(e)(2) 

MS–3(A)—Model Form for Force-Placed 

Insurance Notice Required Pursuant to 

§ 1024.37(c)(2) 

[Name and Mailing Address of Servicer] 

[Date of Notice] 

[Borrower’s Name] 

[Borrower’s Mailing Address] 

Subject: Please provide insurance 

information for [Property Address] 

Dear [Borrower’s Name]: 

Our records show that your [hazard] 

[Insurance Type] insurance [is expiring] 

[expired], and we do not have evidence that 

you have obtained new coverage. Because 

[hazard] [Insurance Type] insurance is 

required on your property, [we bought 

insurance for your property] [we plan to buy 

insurance for your property]. You must pay 

us for any period during which the insurance 

we buy is in effect but you do not have 

insurance. 

You should immediately provide us with 

your insurance policy number and the name, 

mailing address and phone number of your 

insurance company or insurance agent. 

[Describe how the borrower may provide the 

insurance information]. [The information 

must be provided in writing.] 

The insurance we [bought] [buy]: 

• [Costs $[premium charge]] [Will cost an 

estimated $[premium charge]] annually, 

which is probably more expensive than 

insurance you can buy yourself. 

• May not provide as much coverage as 

insurance policy you buy yourself. 

If you have any questions, please contact 

us at [telephone number]. 

MS–3(B)—Model Form for Force-Placed 

Insurance Notice Pursuant to 

§ 1024.37(d)(2)(i)) 

[Name and Mailing Address of Servicer] 

[Date of Notice] 

[Borrower’s Name] 

[Borrower’s Mailing Address] 

Subject: Second and final notice—please 

provide insurance information for 

[Property Address] 

Dear [Borrower’s Name]: 

This is your second and final notice that 

our records show that your [hazard] 

[Insurance Type] insurance [is expiring] 

[expired], and we do not have evidence that 

you have obtained new coverage. Because 

[hazard] [Insurance Type] insurance is 

required on your property, [we bought 

insurance for your property] [we plan to buy 

insurance for your property]. You must pay 

us for any period during which the insurance 

we buy is in effect but you do not have 

insurance. 

You should immediately provide us with 

your insurance policy number and the name, 

mailing address and phone number of your 

insurance company or insurance agent. 

[Describe how the borrower may provide the 

insurance information]. [The information 

must be provided in writing.] 

The insurance we [bought] [buy]: 

• [Costs $[premium charge]] [Will cost an 

estimated $[premium charge]] annually, 

which is probably more expensive than 

insurance you can buy yourself. 

• May not provide as much coverage as 

insurance policy you buy yourself. 

If you have any questions, please contact 

us at [telephone number]. 

MS–3(C)—Model Form for Force-Placed 

Insurance Notice Pursuant to 

§ § 1024.37(d)(2)(ii) 

[Name and Mailing Address of Servicer] 

[Date of Notice] 

[Borrower’s Name] 

[Borrower’s Mailing Address] 

Subject: Second and final notice—please 

provide insurance information for 

[Property Address] 

Dear [Borrower’s Name]: 

We received the insurance information you 

provided but we are unable to verify coverage 

from [Date Range]. 

Please provide us with insurance 

information for [Date Range] immediately. 

We will charge you for insurance we 

[bought] [plan to buy] for [Date Range] unless 

we can verify that you have insurance 

coverage for [Date Range]. 

If you have any questions, please contact 

us at [telephone number]. 

MS–3(D)—Model Form for Renewal or 

Replacement of Force-Placed Insurance 

Notice Pursuant to § 1024.37(e)(2) 

[Name and Mailing Address of Servicer] 

[Date of Notice] 

[Borrower’s Name] 

[Borrower’s Mailing Address] 

Subject: Please update insurance 

information for [Property Address] 

Dear [Borrower’s Name]: 

Because we did not have evidence that you 

had [hazard] [Insurance Type] insurance on 

the property listed above, we bought 

insurance on your property and added the 

cost to your mortgage loan account. 

The policy that we bought [expired] [is 

scheduled to expire]. Because 

[hazard][Insurance Type] insurance] is 

required on your property, we have the right 

to maintain insurance on your property by 

renewing or replacing the insurance we 

bought. 

The insurance we buy: 

• [Costs $[premium charge]] [Will cost an 

estimated $[premium charge]], which is 

probably more expensive than insurance you 

can buy yourself. 

• May not provide as much coverage as an 

insurance policy you buy yourself. 

If you buy [hazard] [Insurance Type] 

insurance, you should immediately provide 

us with your insurance policy number and 

the name, mailing address and phone 

number of your insurance company or 

insurance agent. [Describe how the borrower 

may provide the insurance information]. [The 

information must be provided in writing.] 

If you have any questions, please contact 

us at [telephone number].fi 

18. Add Appendix MS–4 to part 1024 to 

read as follows: 

flMS–4—Model Clauses for the Written 

Early Intervention Notice Pursuant to 

§ 1024.39(b)(2) 

MS–4(A)—Statement Encouraging the 

Borrower To Contact the Servicer 

(§ 1024.39(b)(2)(i) and (ii)) 

Please contact us. [We may be able to make 

your mortgage more affordable. The longer 

you wait, or the further you fall behind on 

your payments, the harder it will be to find 

a solution.] 

[Servicer Name] 

[Servicer Address] 

[Servicer Telephone Number] 

[For more information, visit [Servicer Web 

Site or Email Address]]. 

MS–4(B)—Available Loss Mitigation Options 

(§ 1024.39(b)(2)(iii)) 

[You may have options that could help 

make your mortgage more affordable, 

including:] 

[Forbearance. This is a temporary 

reduction or suspension of your mortgage 

payments. Forbearance might be available if 


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recent events have made it difficult for you 

to make your payments—for example, if you 

recently lost your job, suffered from a 

disaster, or had an illness or injury that 

increased your health care costs. If this 

option is available, your lender could create 

a payment plan to make up any missed 

payments over a period of time.] 

[Mortgage modification. Your lender may 

be able to change your loan terms, such as 

your interest rate, the amount of principal 

you owe, or the number of years you have to 

repay the loan.] 

[If you are not able to continue paying your 

mortgage, your best option may be to find 

more affordable housing. As an alternative to 

foreclosure, you might be able to transfer 

ownership of your home without having to 

pay off the full amount of your mortgage, 

although you would be required to leave your 

home. For example, you may be eligible for 

the following option[s]:] 

• [Short-sale. With your lender’s 

permission, you might be able to sell your 

home and pay off your mortgage even if the 

sale price is less than your remaining 

balance. You might also be eligible to receive 

money to help you move.] 

• [Deed-in-lieu of foreclosure. Your lender 

may release you from your mortgage if you 

transfer ownership of your home to your 

lender. As with a short sale, you might also 

be eligible to receive money to help you 

move.] 

MS–4(C)—Additional Information About 

Loss Mitigation Options (§ 1024.39(b)(2)(iv)) 

[Call us today to learn more about your 

options and for instructions on how to 

apply.] 

MS–4(D)—Foreclosure Statement 

(§ 1024.39(b)(2)(v)) 

Foreclosure is a legal process a lender can 

use to take ownership of a property from a 

borrower who is behind on his or her 

mortgage payments. The foreclosure process 

usually begins approximately [l] days after 

you miss a mortgage payment, although it 

may begin earlier or later. The foreclosure 

process depends on the laws of the state 

where your home is located, the terms of 

your loan, whether you are covered by the 

Servicemembers Civil Relief Act, and other 

factors. 

MS–4(E)—State Housing Finance Authorities 

and Housing Counselors (§ 1024.39(b)(2)(vi)) 

For help exploring your options, Federal 

government agencies provide contact 

information for housing counselors, which 

you can access by contacting [the Consumer 

Financial Protection Bureau at [Bureau 

Housing Counselor List Telephone Number] 

or [Bureau Housing Counselor List Web Site]] 

[the Department of Housing and Urban 

Development at [HUD Housing Counselor 

List Telephone Number] or [HUD Housing 

Counselor List Web Site]]. 

Your State housing finance authority may 

also be able to help. You can reach them at 

[State Housing Finance Authority Telephone 

Number] or [State Housing Finance Authority 

Web Site].fi 

19. In part 1024, add Supplement I to 

read as follows: 

flSupplement I to Part 1024—Official 

Bureau Interpretations 

Introduction 

1. Official status. This commentary is the 

primary vehicle by which the Bureau of 

Consumer Financial Protection issues official 

interpretations of Regulation X. Good faith 

compliance with this commentary affords 

protection from liability under section 19(b) 

of the Real Estate Settlement Procedures Act 

(RESPA) (12 U.S.C. 2617(b)). 

2. Requests for official interpretations. A 

request for an official interpretation shall be 

in writing and addressed to the Associate 

Director, Research, Markets, and Regulations, 

Bureau of Consumer Financial Protection, 

1700 G Street NW., Washington, DC 20552. 

The requests shall contain a complete 

statement of all relevant facts concerning the 

issue, including copies of all pertinent 

documents. Except in unusual 

circumstances, such official interpretations 

will not be issued separately but will be 

incorporated in the official commentary to 

this part, which will be amended 

periodically. No official interpretations will 

be issued approving financial institutions’ 

forms or statements. This restriction does not 

apply to forms or statements whose use is 

required or sanctioned by a government 

agency. 

3. Unofficial oral interpretations. 

Unofficial oral interpretations may be 

provided at the discretion of Bureau staff. 

Written requests for such interpretations 

should be sent to the address set forth for 

official interpretations. Unofficial oral 

interpretations provide no protection under 

section 19(b) of RESPA. Ordinarily, staff will 

not issue unofficial oral interpretations on 

matters adequately covered by this part or the 

official Bureau interpretations. 

Section 1024.17—Escrow Accounts 

17(k) Timely payments. 

Paragraph 17(k)(5). 

1. Reasonable basis. The receipt by a 

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

company before the insurance premium is 

due provides a servicer with a reasonable 

basis to believe that the borrower’s hazard 

insurance has been canceled or not renewed 

for reasons other than nonpayment of 

premium charges. 

2. Reasons other than nonpayment of 

premium charges. A borrower’s hazard 

insurance may be canceled or not renewed 

for a number of reasons other than the 

nonpayment of premium charges, to the 

extent permitted by State or other applicable 

law. Such reasons may include, for example: 

i. The borrower cancels the hazard 

insurance before its expiration date or 

chooses to not renew the insurance. 

ii. The insurance company cancels the 

hazard insurance before its expiration date or 

chooses to not renew the insurance because 

it decides to stop writing insurance for all 

properties in the community where the 

borrower’s property is located. 

iii. The insurance company cancels or 

chooses not to renew the borrower’s hazard 

insurance based on its underwriting criteria, 

which may include, for example, borrower’s 

claim history, or a change in the occupancy 

status of the property (e.g., changing from 

occupied to non-occupied), or a change in 

the probability of the property being exposed 

to loss caused certain hazards (e.g., a change 

in the property’s exposure to loss by 

windstorm). 

3. Advancement of premium. A servicer 

that advances the premium payment as 

required by § 1024.17(k)(5) may advance the 

payment on a month-to-month basis, if 

permitted by State or other applicable law 

and accepted by the borrower’s hazard 

insurance company. 

Section 1024.31—Definitions 

Loss mitigation application. 

1. Borrower’s representative. A loss 

mitigation application is deemed to be 

submitted by a borrower if the loss mitigation 

application is submitted by an agent of the 

borrower. Servicers may undertake 

reasonable procedures to determine if a 

person that claims to be an agent of a 

borrower has authority from the borrower to 

act on the borrower’s behalf. 

Loss mitigation options. 

1. Types of loss mitigation options. Loss 

mitigation options include temporary and 

long-term relief, and options that allow 

borrowers to remain in or leave their homes, 

such as, without limitation, refinancing, trial 

or permanent modification, repayment of the 

amount owed over an extended period of 

time, forbearance of future payments, shortsale, deed-in-lieu of foreclosure, and loss 

mitigation programs sponsored by a State or 

the Federal Government. 

2. Available from the servicer. Loss 

mitigation options available from the servicer 

include options offered by the owner or 

assignee of the loan that are made available 

through the servicer. 

Qualified written request. 

1. A qualified written request is a written 

notice a borrower provides to request a 

servicer either correct an error relating to the 

servicing of a loan or to request information 

relating to the servicing of the loan. A 

qualified written request is not required to 

include both types of requests. For example, 

a qualified written request may request 

information relating to the servicing of a 

mortgage loan but not assert that an error 

relating to the servicing of a loan has 

occurred. 

Service provider. 

1. Service providers may include attorneys 

retained to represent a servicer or an owner 

or assignee of a mortgage loan in a 

foreclosure proceeding, as well as other 

professionals retained to provide appraisals 

or inspections of properties. 

Section 1024.33—Mortgage Servicing 

Transfers 

33(a) Servicing disclosure statement. 

Paragraph 33(a)(1). 

1. Terminology. Although the servicing 

disclosure statement must be clear and 

conspicuous pursuant to § 1024.32(a)(1), 

§ 1024.33(a)(1) does not set forth any specific 

rules for the format of the statement, and the 

specific language of the servicing disclosure 

statement in Appendix MS–1 is not required 

to be used. The model format may be 


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supplemented with additional information 

that clarifies or enhances the model language. 

2. Delivery address for co-applicants. 

When an application involves more than one 

applicant, notification need only be given to 

one applicant but must be given to the 

primary applicant where one is readily 

apparent. 

Paragraph 33(a)(2). 

1. Lender servicing. If the lender, table 

funding mortgage broker, or dealer in a first 

lien dealer loan will service the mortgage 

loan for which the applicant has applied, the 

disclosure should state that such entity will 

service such loan and does not intend to sell, 

transfer, or assign the servicing of the loan. 

2. Lender not servicing. If the lender, table 

funding mortgage broker, or dealer in a first 

lien dealer loan will not service the mortgage 

loan for which the applicant has applied, the 

disclosure should state that such entity 

intends to assign, sell, or transfer servicing of 

such mortgage loan before the first payment 

is due. 

3. Other circumstances. In all other 

instances, a disclosure that states that the 

servicing of the loan may be assigned, sold, 

or transferred while the loan is outstanding 

complies with § 1024.33(a). 

33(b) Notices of transfer of loan servicing. 

Paragraph 33(b)(3). 

1. Notice given at settlement. Notices of 

transfer provided at settlement by the 

transferor servicer and transferee servicer, 

whether as separate notices or as a combined 

notice, satisfy the timing requirements. 

2. Delivery. A servicer should deliver the 

notice of transfer to the mailing address 

listed by the borrower in the mortgage loan 

documents, unless the borrower has notified 

the servicer of a new address pursuant to the 

servicer’s requirements for receiving a notice 

of a change of address. When a mortgage loan 

has more than one borrower, the notice of 

transfer need only be given to one borrower, 

but must be given to the primary borrower 

where one is readily apparent. 

Section 1024.34—Timely Payments by 

Servicer 

34(b)(2) Servicer may credit funds to a new 

escrow account. 

1. A servicer is not required to credit funds 

in an escrow account to an escrow account 

for a new mortgage loan and may, in all 

circumstances, comply with the requirements 

of § 1024.34 by refunding the funds in the 

escrow account to the borrower pursuant to 

§ 1024.34(a). 

Section 1024.35—Error Resolution 

Procedures 

35(a) Notice of error. 

1. Borrower’s representative. A notice of 

error is deemed to be submitted by a 

borrower if the notice of error is submitted 

by an agent of the borrower. Servicers may 

undertake reasonable procedures to 

determine if a person that claims to be an 

agent of a borrower has authority from the 

borrower to act on the borrower’s behalf. 

2. Information request. A servicer should 

not solely rely on the borrower’s description 

of a request to determine whether the notice 

constitutes a notice of error, an information 

request or both. For example, a borrower may 

submit a letter that claims to be a ‘‘Notice of 

Error’’ that indicates that the borrower wants 

to receive the information set forth in an 

annual escrow account statement and asserts 

an error for the servicer’s failure to provide 

the borrower an annual escrow statement. 

Although the servicer’s failure to provide the 

borrower an annual escrow statement is not 

defined as an error pursuant to § 1024.35(b), 

such a letter may constitute an information 

request under § 1024.36(a) that triggers an 

obligation by the servicer to provide an 

annual escrow statement. A servicer should 

not rely on the borrower’s characterization of 

the letter as a ‘‘Notice of Error,’’ but should 

evaluate whether the letter fulfills the 

substantive requirements of a notice of error 

or an information request. 

35(b) Scope of error resolution. 

1. Excluded errors. A servicer is not 

required to comply with sections 1024.35(d) 

and (e) with respect to a borrower’s assertion 

of an error that is not defined as a covered 

error in section 1024.35(b). For example, the 

following are not covered errors: 

i. An error relating to the origination of a 

mortgage loan; 

ii. An error relating to the underwriting of 

a mortgage loan; 

iii. An error relating to a subsequent sale 

or securitization of a mortgage loan; 

iv. An error relating to a determination to 

sell, assign, or transfer the servicing of a 

mortgage loan. 

35(c) Contact information for borrowers to 

assert errors. 

1. Exclusive telephone number and address 

not required. A servicer is not required to 

designate a specific telephone number and 

address that a borrower must use to assert an 

error. If a servicer does not designate a 

specific telephone number and address that 

a borrower must use to assert an error, a 

servicer must respond to a notice of error 

received by any office of the servicer. 

2. Notice of an exclusive telephone number 

and address. A notice establishing a 

telephone number and address that a 

borrower must use to assert an error may be 

included with a different disclosure, such as 

on a notice of transfer, periodic statement, or 

coupon book. The notice is subject to the 

clear and conspicuous requirement in 

§ 1024.32(a)(1). If a servicer establishes a 

telephone number and address that a 

borrower must use to assert an error, a 

servicer should provide that telephone 

number and address to the borrower in any 

communication in which the servicer 

provides the borrower with contact 

information for assistance from the servicer. 

3. Multiple offices. The purpose of the 

designation of an exclusive telephone 

number and address is to distinguish offices 

that are capable of receiving errors from other 

offices maintained by a servicer. A servicer 

may designate multiple office addresses and 

phone numbers for receiving errors. 

However, a servicer is required to comply 

with the requirements of § 1024.35 with 

respect to a notice of error received at any 

such address and phone number regardless of 

whether that specific address or phone 

number was provided to a specific borrower 

asserting an error. For example, a servicer 

may designate a phone number and address 

to receive errors for borrowers located in 

California and a separate phone number and 

address to receive errors for borrowers 

located in Texas. If a borrower located in 

California asserts an error through the phone 

number or address used by the servicer for 

borrowers located in Texas, a servicer is still 

considered to have received a notice of error 

and must comply with the requirements of 

§ 1024.35. 

4. Internet intake of information requests. 

A servicer may, but is not required to, 

establish a process for receiving error notices 

through email, Web site form, or other online 

intake method. Any such process shall be in 

addition to, and not in lieu of, any process 

for receiving error notices by phone or mail. 

The process established by the servicer for 

receiving errors through an online intake 

method shall be considered the exclusive 

online intake process for receiving errors. A 

servicer is not required to provide a separate 

notice to a borrower to establish a specific 

online intake process as an exclusive process 

for receiving such errors. 

5. Automated systems. Servicers may use 

toll-free telephone numbers that connect 

borrowers to automated systems, such as an 

interactive voice response system, through 

which consumers may assert errors by 

inputting information using a touch-tone 

telephone or similar device. The prompts for 

asserting errors must be clear and provide the 

borrower the option to connect to a live 

representative. 

35(e) Response to notice of error. 

35(e)(1) Investigation and response 

requirements. 

Paragraph 35(e)(1)(i). 

1. Notices alleging multiple errors; separate 

responses permitted. A servicer may respond 

to a notice of error that alleges multiple 

errors through either a single response or 

separate responses that address each asserted 

error. 

Paragraph 35(e)(1)(ii). 

1. Different or additional errors; separate 

responses permitted. A servicer may provide 

the response required for § 1024.35(e)(1)(ii) 

in the same notice that responds to errors 

asserted by the borrower pursuant to 

§ 1024.35(e)(1)(i) or in a separate response 

that addresses the different or additional 

errors identified by the servicer. 

35(e)(3) Time limits. 

Paragraph 35(e)(3)(i)(B). 

1. Foreclosure sale timing. If a servicer 

cannot comply with its obligations pursuant 

to § 1024.35(e) by the earlier of a scheduled 

foreclosure sale or 30 days, a servicer may 

cancel or postpone a scheduled foreclosure 

sale, in which case, the servicer meets the 

time limits in § 1024.35(i)(B) by complying 

with the requirements of § 1024.35(e) before 

the earlier of 30 days or the date of the 

rescheduled foreclosure sale. 

35(e)(3)(ii) Extension of time limits. 

1. Notices alleging multiple errors; 

extension of time. A servicer may treat a 

notice of error that alleges multiple errors as 

separate notices of error and may extend the 

time period for responding to each asserted 

errors for which an extension is permissible. 

35(e)(4) Copies of documentation. 

1. Types of documents to be provided. A 

servicer is only required to provide those 


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57310 Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 

documents actually relied upon by the 

servicer to determine that no error occurred. 

Such documents may include documents 

reflecting information entered in a servicer’s 

collection system. For example, in response 

to an asserted error regarding payment 

allocation, a servicer may provide a printed 

screen capture showing amounts credited to 

principal, interest, escrow, or other charges 

in the servicer’s system for the borrower’s 

mortgage loan account. 

35(g) Requirements not applicable. 

Paragraph 35(g)(1)(i). 

1. New and material information. A 

dispute between a borrower and a servicer 

with respect to (i) whether information was 

previously reviewed by a servicer or (ii) 

whether a servicer properly determined that 

information reviewed was not material to its 

determination of the existence of an error, 

does not itself constitute new and material 

information. 

Paragraph 35(g)(1)(ii). 

1. Indicia of overbroad or unduly 

burdensome notices of error. The following 

are indicia of notices of error that are 

overbroad or unduly burdensome: 

i. Assertions of errors regarding 

substantially all aspects of a mortgage loan, 

including errors relating to all aspects of 

mortgage origination, mortgage servicing, and 

foreclosure, as well as errors relating to the 

crediting of substantially every borrower 

payment and escrow account transaction; 

ii. Assertions of errors in the form of a 

judicial action complaint, subpoena, or 

discovery request that purports to require 

servicers to respond to each numbered 

paragraph; and 

iii. Assertions of errors in a form that is not 

reasonably understandable or is included 

with voluminous tangential discussion or 

requests for information, such that a servicer 

cannot reasonably identify from the notice of 

error any covered error asserted by a 

borrower. 

35(h) Payment requirements prohibited. 

1. Borrower obligation to make payments. 

Section 1024.35(g) prohibits a servicer from 

requiring a borrower to make a payment that 

may be owed on a borrower’s account as a 

prerequisite for complying with its 

obligations regarding a notice of error 

submitted by a borrower, but does not alter 

or otherwise affect a borrower’s obligation to 

make payments owed pursuant to the terms 

of a mortgage loan. For example, if a 

borrower makes a monthly payment in 

February for a mortgage loan, but asserts an 

error relating to the servicer’s acceptance of 

the February payment, § 1024.35(g) does not 

alter a borrower’s obligation to make a 

monthly payment that the borrower owes for 

March. A servicer, however, may not require 

that a borrower make the March payment as 

a condition for complying with its 

obligations under § 1024.35 with respect to 

the notice of error on the February payment. 

Section 1024.36—Requests for Information 

36(a) Information request. 

1. Borrower’s representative. An 

information request is deemed to be 

submitted by a borrower if the information 

request is submitted by an agent of the 

borrower. Servicers may undertake 

reasonable procedures to determine if a 

person that claims to be an agent of a 

borrower has authority from the borrower to 

act on the borrower’s behalf. 

2. Owner or assignee of a mortgage loan. 

A servicer responds to an information request 

for the owner or assignee of a mortgage loan 

by identifying the entity that holds the legal 

obligation to receive payments from the 

borrower. For example: 

i. A servicer services a mortgage loan that 

is owned by the servicer, or an affiliate of the 

servicer, in portfolio. A servicer responds to 

the borrower’s information request with the 

name, address, and appropriate contact 

information for the servicer or the affiliate, as 

applicable. 

ii. A servicer services a mortgage loan that 

has been securitized. In general, in a 

securitization transaction, a special purpose 

vehicle, such as a trust, is the owner or 

assignee of a mortgage loan. If a 

securitization transaction is structured such 

that a trust is the owner or assignee of a 

mortgage loan and the trust is administered 

by an appointed trustee, a servicer responds 

by providing the borrower with the name of 

the trust and the name, address, and 

appropriate contract information for the 

trustee. Assume a mortgage loan is owned by 

Mortgage Loan Trust, Series ABC–1, for 

which XYZ Trust Company is the trustee. 

The servicer responds by identifying the 

owner as Mortgage Loan Trust, Series ABC– 

1, and providing the name, address, and 

appropriate contact information for XYZ 

Trust Company as the trustee. 

Although investors or guarantors, 

including, among others, Federal National 

Mortgage Association, the Federal Home 

Loan Mortgage Corporation, or the 

Government National Mortgage Association, 

may be exposed to risks related to the 

mortgage loans held by the trust either in 

connection with an investment in securities 

issued by the trust or the issuance of a 

guaranty agreement to the trust, entities that 

act as investors or guarantors should not be 

considered the owner or assignee of the 

mortgage loans solely as a result of their roles 

as investors or guarantors. In certain 

circumstances, however, a party such as a 

guarantor may assume multiple roles for a 

securitization transaction. For example, the 

Federal National Mortgage Association may 

act as trustee, master servicer, and guarantor 

in connection with a securitization 

transaction in which a trust owns a mortgage 

loan subject to a request. In this example, 

because Federal National Mortgage 

Association is the trustee of the trust that 

owns the mortgage loan, a servicer responds 

to a borrower’s request for information 

regarding the owner or assignee of the 

mortgage loan by providing the name of the 

trust, and the name, address, and appropriate 

contact information for Federal National 

Mortgage Association as the trustee. 

36(b) Contact information for borrowers to 

request information. 

1. Exclusive telephone number and address 

not required. A servicer is not required to 

designate a specific telephone number and 

address that a borrower must use to request 

information. If a servicer does not designate 

a specific telephone number and address that 

a borrower must use to request information, 

a servicer must respond to an information 

request received by any office of the servicer. 

2. Notice of an exclusive telephone number 

and address. A notice establishing a 

telephone number and address that a 

borrower must use to request information 

may be included with a different disclosure, 

such as on a notice of transfer, periodic 

statement, or coupon book. The notice is 

subject to the clear and conspicuous 

requirement in § 1024.32(a)(1). If a servicer 

establishes a telephone number and address 

that a borrower must use to request 

information, a servicer should provide that 

telephone number and address to the 

borrower in any communication in which the 

servicer provides the borrower with contact 

information for assistance from the servicer. 

3. Multiple offices. The purpose of the 

designation of an exclusive telephone 

number and address is to distinguish offices 

that are capable of receiving information 

requests from other offices maintained by a 

servicer. A servicer may designate multiple 

office addresses and phone numbers for 

receiving information requests. However, a 

servicer is required to comply with the 

requirements of § 1024.36 with respect to a 

notice of error received at any such address 

and phone number regardless of whether that 

specific address or phone number was 

provided to a specific borrower that is 

requesting information. For example, a 

servicer may designate a phone number and 

address to receive information requests for 

borrowers located in California and a 

separate phone number and address to 

receive information requests for borrowers 

located in Texas. If a borrower located in 

California requests information through the 

phone number or address used by the 

servicer for borrowers located in Texas, a 

servicer is still considered to have received 

an information request and must comply 

with the requirements of § 1024.35. 

4. Internet intake of information requests. 

A servicer may, but is not required to, 

establish a process for receiving information 

requests through email, Web site form, or 

other online method. Any such process shall 

be in addition to, and not in lieu of, any 

process for receiving information requests by 

phone or mail. The process established by 

the servicer for receiving information 

requests through an online intake method 

shall be considered the exclusive online 

intake process for receiving information 

requests. A servicer is not required to provide 

a separate notice to a borrower to establish 

a specific online intake process as an 

exclusive process for receiving information 

requests. 

5. Automated systems. Servicers may use 

toll-free telephone numbers that connect 

borrowers to automated systems, such as an 

interactive voice response system, through 

which consumers may request information 

by using a touch-tone telephone or similar 

device, so long as the prompts for requesting 

information are clear and the borrower has 

the option to connect to a live representative. 

36(d) Response to information request 

notice. 

36(d)(1) Investigation and response 

requirements. 


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Paragraph 36(d)(1)(ii). 

1. Information not available. Information is 

not available if: 

i. The information is not in the servicer’s 

control or possession, or 

ii. The information cannot be retrieved in 

the ordinary course of business through 

reasonable efforts. 

2. Examples: 

i. A borrower requests a copy of a 

telephonic communication from a servicer. 

Assume the servicer’s personnel have access 

in the ordinary course of business to audio 

recording files with organized recordings or 

transcripts of borrower telephone calls and 

can identify the communication referred to 

by the borrower through reasonable business 

efforts. The information requested by the 

borrower should be considered readily 

accessible. 

ii. A borrower requests information stored 

on electronic back-up media. Access to 

information on electronic back-up media is 

not available to that servicer’s personnel in 

the ordinary course of business without 

undertaking extraordinary efforts to identify 

and restore the information from the 

electronic back-up media. The information 

requested by the borrower should not be 

considered readily accessible. 

iii. A borrower requests information stored 

at an offsite document storage facility. A 

servicer has a right to access documents at 

the offsite document storage facility and 

servicer personnel can access those 

documents through reasonable efforts in the 

ordinary course of business. The information 

requested by the borrower should be 

considered readily accessible. 

36(e) Alternative compliance. 

1. A servicer may provide the information 

requested either orally or in writing. If a 

servicer provides the information requested 

orally, a servicer may demonstrate that it has 

complied with its requirements by, among 

others, setting forth a notation in a servicer 

file that information requested by a borrower 

was provided, or maintaining a copy of a 

recorded telephone conversation in which 

the information requested by the borrower 

was provided to the borrower. 

36(f) Requirements not applicable. 

Paragraph 36(f)(1)(i). 

1. A borrower’s request for a type of 

information that can change over time should 

not be considered as substantially the same 

as a previous information request for the 

same type of information. 

Paragraph 36(f)(1)(ii). 

1. Confidential, proprietary, or general 

corporate information. A request for 

confidential, proprietary or general corporate 

information of a servicer is not an 

information request for which the servicer is 

required to comply with the requirements of 

§ 1024.36(c) and (d). Confidential, 

proprietary or general corporate information 

includes information requests relating to, for 

example: 

i. Information regarding management or 

profitability of a servicer, including 

information provided to investors of the 

servicer. 

ii. Information that relates to the servicing 

of mortgage loans other than a borrower’s 

mortgage loan, including information 

reported to the owner of a mortgage loan 

regarding individual or aggregate collections 

for mortgage loans owned by that entity. 

iii. Compensation, bonuses, or personnel 

actions relating to servicer personnel, 

including personnel responsible for servicing 

a borrower’s mortgage loan account; 

iv. The servicer’s training program for 

servicing personnel; 

v. The terms of any agreement relating to 

the sale of a mortgage loan, including, an 

indenture, purchase agreement, or pooling 

and servicing agreement; 

vi. The evaluation or exercise of any 

remedy of the owner of a mortgage loan 

including a foreclosure action, a mortgage 

insurance payment claim, or a claim relating 

to mortgage loan’s compliance with a seller’s 

representations and warranties; 

vii. The servicer’s servicing program guide; 

viii. Investor instructions or requirements 

for servicers regarding criteria for negotiating 

or approving any program with a borrower, 

including any loss mitigation option; or 

ix. Records of examination reports, 

compliance audits, consumer complaints, 

and internal investigations or external 

investigations. 

Paragraph 36(f)(1)(iv). 

1. Indicia of overbroad or unduly 

burdensome requests for information. The 

following are indicia of requests for 

information that are overbroad or unduly 

burdensome: 

i. Requests for information that seek 

documents relating to substantially all 

aspects of mortgage origination, mortgage 

servicing, mortgage sale or securitization, and 

foreclosure, including, for example, requests 

for all mortgage loan file documents, 

recorded mortgage instruments, servicing 

information and documents, and sale or 

securitization information and documents; 

ii. Requests for information that substitute 

for discovery in a judicial action, such as 

information requests in the form of a 

discovery request that purports to require a 

servicer to respond to each numbered 

paragraph; 

iii. Requests for information that are not 

reasonably understandable or are included 

with voluminous tangential discussion or 

assertions of errors; 

iv. Requests for information that purport to 

require servicers to provide information in 

specific formats, such as in a transcript, letter 

form in a columnar format, or spreadsheet, 

when such information is not ordinarily 

stored in such format; or 

v. Requests for information that are not 

reasonably likely to assist a mortgage loan 

borrower with the mortgage loan borrower’s 

account, including, for example, a request for 

copies of the front and back all physical 

payment instruments (such as checks, drafts, 

or wire transfer confirmations) that show 

payments made by the borrower to the 

servicer and payments made by a servicer to 

an owner or assignee of a mortgage loan. 

Section 1024.37—Force-Placed Insurance 

37(b) Basis for obtaining force-placed 

insurance. 

1. Borrowers with escrow. A servicer has a 

reasonable basis to believe that a borrower 

with an escrow account established for 

hazard insurance has failed to maintain 

hazard insurance if, for example, by a 

reasonable time prior to the expiration date 

of the borrower’s hazard insurance (e.g., 30 

days before the expiration date), the servicer 

has not received a renewal bill. The receipt 

by a servicer of a notice of cancellation or 

non-renewal from the borrower’s insurance 

company before payment is due on the 

borrower’s hazard insurance premium also 

provides a servicer with a reasonable basis to 

believe that the borrower has failed to 

maintain hazard insurance. 

2. Borrowers without escrow. A servicer has 

a reasonable basis to believe the borrower 

without an escrow account established for 

hazard insurance has failed to maintain 

hazard insurance if, for example, a servicer 

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

company. 

37(c) Requirements for charging borrower 

for force-placed insurance. 

37(c)(1) In general. 

1. The notice period begins on the day that 

the servicer delivers or mails the notice to the 

borrower and expires 45 days later. The 

servicer may charge a borrower for forceplaced insurance beginning on the 46th day 

if the servicer has fulfilled the requirements 

of § 1024.37(c) and (d). If not prohibited by 

State or other applicable law, the servicer 

may retroactively charge a borrower for forceplaced insurance obtained during the 45-day 

notice period. 

Paragraph 37(c)(1)(iii). 

1. Examples of continuous insurance 

coverage. A borrower’s prior hazard 

insurance might have expired on January 2. 

But so long as a borrower’s current hazard 

insurance takes effect January 3, then the 

borrower has hazard insurance in place 

continuously. When there is a grace period, 

§ 1024.37(c)(1)(iii) requires the servicer to 

take the grace period into account when 

determining whether the borrower has 

hazard insurance in place continuously. For 

example, a borrower’s prior hazard insurance 

might have an expiration date of June 1, but 

a grace period extends the effectiveness of 

the borrower’s prior hazard insurance to June 

10. Accordingly, so long as the borrower 

obtains hazard insurance, effective June 11, 

then the borrower has hazard insurance in 

place continuously. 

Paragraph 37(c)(2)(v). 

1. Identifying of type hazard insurance. If 

a borrower has purchased a homeowner’s 

insurance policy and a separate hazard 

insurance policy to insure loss against 

hazards not covered under his or her 

homeowner’s insurance policy, the servicer 

must disclose whether it is the borrower’s 

homeowner’s insurance policy or the 

separate hazard insurance policy for which it 

lacks evidence of coverage to comply with 

§ 1024.37(c)(2)(v). 

Paragraph 37(c)(2)(ix). 

1. Good faith estimate of the cost of forceplaced insurance. The good faith estimate of 

the cost of the force-placed insurance the 

servicer may obtain should be consistent 

with the best information reasonably 

available to the servicer at the time the 

disclosure is provided. Differences between 

the amount of the estimated cost disclosed 


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under § 1024.37(c)(2)(ix) and the actual cost 

later assessed to the borrower do not 

necessarily constitute a lack of good faith, so 

long as the estimated cost was based on the 

best information reasonably available to the 

servicer at the time the disclosure was 

provided. For example, a mortgage investor’s 

requirements may provide that the amount of 

coverage for force-placed insurance depends 

on the borrower’s delinquency status (the 

number of days the borrower’s mortgage 

payment is past due). The amount of 

coverage affects the cost of force-placed 

insurance. A servicer that provides an 

estimate of the cost of force-placed insurance 

based on the borrower’s delinquency status at 

the time the disclosure is made complies 

with § 1024.37(c)(2)(ix). 

37(d) Reminder notice. 

37(d)(1) In general. 

1. When a servicer is required to deliver or 

place in the mail the written notice pursuant 

to § 1024.37(d)(1), the content of the 

reminder notice will be different depending 

on the insurance information the servicer has 

received from the borrower. For example, on 

June 1, the servicer places in the mail the 

written notice required pursuant to 

§ 1024.37(c)(1)(i) to Borrower A. The servicer 

does not receive any insurance information 

from Borrower A. The servicer must deliver 

to Borrower A or place in the mail one 

written notice, with the content set forth in 

§ 1024.37(d)(2)(i), 15 days before the servicer 

charges Borrower A for force-placed 

insurance. Take the example above, except 

that Borrower A provides the servicer with 

insurance information on June 18. But the 

servicer cannot verify that Borrower A has 

hazard insurance in place continuously 

based on the information Borrower A 

provided (e.g., the servicer cannot verify that 

Borrower A had coverage between June 10 

and June 15). The servicer must either deliver 

to Borrower A or place in the mail one 

reminder notice, with the content set forth in 

§ 1024.37(d)(2)(ii), 15 days before charging 

Borrower A for force-placed insurance it 

obtains for the period between June 10 and 

June 15. 

37(d)(4) Updating notice with borrower 

information. 

1. Reasonable time. A servicer may have to 

prepare the written notice required pursuant 

to § 1024.37(d)(1) in advance of delivering or 

placing the notice in the mail. If the notice 

has already been put into production, the 

servicer is not required to update the notice 

with insurance information received from the 

borrower after production has started so long 

as the notice was put into production within 

a reasonable time prior to the servicer 

delivering or placing the notice in the mail. 

For purposes of § 1024.37(d)(4), five days is 

a reasonable time. 

37(e) Renewal or replacing force-placed 

insurance. 

37(e)(1)(iii) Charging before end of notice 

period. 

1. Example illustrating charging before end 

of notice period. On January 2, the servicer 

sends the notice required by 

§ 1024.37(e)(1)(i). On January 12, the existing 

force-placed insurance the servicer had 

obtained on the borrower’s property expires 

and the servicer replaces the expired forceplaced insurance policy with a new forceplaced insurance policy effective January 13. 

On February 5, the servicer receives 

verification that the borrower obtained 

hazard insurance effective January 31. The 

servicer may charge the borrower for forceplaced insurance from January 13 to January 

30, as early as February 5. 

Paragraph 37(e)(2)(vii). 

1. Good faith estimate of the cost of forceplaced insurance. The good faith 

requirement set forth in § 1024.37(e)(2)(vii) is 

the same good faith requirement set forth in 

§ 1024.37(c)(2)(ix). See commentary to 

§ 1024.37(c)(2)(ix) regarding the good faith 

requirement. 

37(g) Cancellation of force-placed 

insurance. 

1. Example of providing a refund and 

removing charges. Assume that a servicer 

obtains force-placed insurance, effective 

January 1, and the premium charge and 

related fees are paid by the borrower in 

monthly installments, due on the first of each 

month. After the borrower paid the April 

installment, the servicer receives insurance 

information from the borrower, and verifies 

that the borrower had obtained hazard 

insurance and that the insurance had been in 

place since March 15. To comply with 

§ 1024.37(g), within 15 days of receiving such 

verification, the servicer must: (1) Cancel the 

force-placed insurance; (2) provide a refund 

for force-placed insurance premium charges 

and related fees paid by the borrower for the 

period between March 15 and April 30; and 

(3) remove from the borrower’s account any 

force-placed insurance premium charges and 

related fees for the period after March 15 that 

the servicer has assessed to the borrower but 

the borrower has not yet paid. 

Section 1024.38—Reasonable Information 

Management Policies and Procedures 

38(a) In general. 

1. Policies and procedures. A servicer may 

determine the specific methods by which it 

will implement information management 

policies and procedures that are reasonably 

designed to achieve the objectives set forth in 

§ 1024.38(b) and are reasonably designed to 

ensure compliance with the standard 

requirements in § 1024.38(c). Servicers have 

flexibility to do so in light of the size, nature, 

and scope of the servicer’s operations, 

including, for example, the volume and 

aggregate unpaid principal balance of 

mortgage loans serviced, the credit quality, 

including the default risk, of the mortgage 

loans serviced, and the servicer’s history of 

consumer complaints. 

Paragraph 38(a)(1). 

1. Examples of pattern or practice failures. 

A servicer may exhibit a pattern or practice 

of failing to achieve the objectives in 

§ 1024.38(b) in the following circumstances: 

i. Disclosures provided to borrowers 

regularly contain inaccurate information or 

are not provided by required deadlines; 

ii. Multiple covered errors as defined in 

§ 1024.35(b) are documented with respect to 

the same or similar types of processes and a 

servicer does not modify its policies and 

procedures to seek to reduce the frequency or 

severity of such errors over a reasonable 

timeframe; 

iii. Documents provided by borrowers are 

lost or misplaced on a regular basis and 

borrowers are requested to provide the same 

documents on multiple occasions; 

iv. Servicer personnel regularly do not 

have access to accurate account information 

(such as information about credited 

payments, current balances, and reasons for 

fees) when responding to borrower inquiries, 

and thus provide borrowers with inaccurate 

information; or 

v. Servicer personnel regularly do not have 

access to information regarding the substance 

of prior communications with borrowers. 

38(a)(2) Safe harbor. 

1. Impact of the safe harbor. A servicer is 

not liable for a violation under § 1024.38 if 

the servicer is in compliance with the safe 

harbor set forth in § 1024.38(a)(2). If a 

servicer is not in compliance with 

§ 1024.38(a)(2), a servicer may be liable for a 

violation under § 1024.38. The servicer’s 

liability in the event of a pattern or practice 

of failing to achieve the objectives in 

§ 1024.38(b) or to ensure compliance with the 

standard requirements in § 1024.38(c) is 

based on whether the servicer’s policies and 

procedures were reasonably designed to 

achieve the objectives in § 1024.38(b) and to 

ensure compliance with the standard 

requirements in § 1024.38(c), as appropriate. 

Section 1024.39—Early Intervention 

Requirements for Certain Borrowers 

39(a) Oral notice. 

1. In general. 

i. Live contact. The notice required under 

§ 1024.39(a) must be made through live 

contact or good faith efforts to make live 

contact, such as by telephoning or 

conducting an in-person meeting with the 

borrower, but not by leaving a recorded 

phone message. 

ii. A servicer is not required to describe 

specific loss mitigation options; the servicer 

need only inform the borrower that loss 

mitigation options may be available, if 

applicable. The servicer may provide more 

detailed information that the servicer 

believes would be helpful. 

2. Good faith efforts to notify—telephone 

calls. In order to make a good faith effort by 

telephone, the servicer must have made the 

phone calls to the borrower on three separate 

days by the end of the 30-day period after the 

payment due date. Thus, if the servicer 

attempts to reach the borrower by telephone, 

the servicer should make the first call not 

later than the 28th day after the payment due 

date in order to make a good faith effort by 

the 30th day, assuming the first two calls are 

unsuccessful. 

3. Timing requirements. Under 

§ 1024.39(a), a servicer must notify or make 

good faith efforts to notify the borrower if the 

borrower is late in making the payment 

during the 30-day period after the payment 

due date, unless the borrower satisfies the 

payment during that time. See comment 

39(a)–4. For purposes of § 1024.39, a 

payment is considered late the day after the 

payment due date, even if the borrower is 

afforded a grace period before the servicer 

assesses a late fee. For example, if a payment 

due date is January 1 and the full payment 

remains due during the 30-day period after 


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January 1, the servicer is required to notify 

or make good faith efforts to notify the 

borrower not later than 30 days after January 

1—i.e., by January 31. 

4. Borrower makes the payment. A servicer 

is not required to notify the borrower unless 

the borrower is late in paying the amount 

owed in full during the 30 days after the 

payment due date. If the borrower satisfies 

the payment in full before the end of the 30- 

day period, the servicer is not required to 

notify or make good faith efforts to notify the 

borrower. For example, if a borrower misses 

a January 1 due date but makes that payment 

on January 20, a servicer would not be 

required to provide the oral notice by January 

31. 

5. Borrower contacts the servicer about a 

late payment. If the borrower contacts the 

servicer at any time prior to the end of the 

30-day period in § 1024.39(a) to explain that 

the borrower is or expects to be late in 

making a particular payment, the servicer 

may satisfy the notification requirement in 

§ 1024.39(a) by informing the borrower orally 

at that time that loss mitigation options, if 

applicable, may be available. 

i. Examples. 

A. A borrower contacts a servicer on 

January 25 to explain that he expects to miss 

a payment due February 1. The borrower 

makes the required payment on February 8 

and the servicer did not notify or make good 

faith efforts to notify the borrower that loss 

mitigation may be available on January 25 or 

by February 8. The servicer is not required 

to provide the oral notice about loss 

mitigation options because the borrower 

made the required payment within the 30- 

day period after February 1. See comment 

39(a)–4. 

B. The borrower in comment 39(a)–5.i.A 

subsequently misses a payment due March 1 

but does not contact the servicer to explain 

that he expects to become or acknowledges 

that he is late on that payment. The borrower 

remains late on that payment during the 30 

days after March 1. Not later than 30 days 

after March 1, the servicer is required to 

notify or make good faith efforts to notify the 

borrower orally that he has missed the March 

1 payment and that loss mitigation options, 

if applicable, may be available to assist him. 

6. Borrower performing under a loss 

mitigation option. A servicer is not required 

under § 1024.39(a) to notify a borrower who 

is performing as agreed under a loss 

mitigation option designed to bring the 

borrower current on a previously missed 

payment. 

39(b) Written notice. 

39(b)(1) In general. 

1. Relationship to § 1024.39(a). The written 

notice required under § 1024.39(b)(1) must be 

provided even if the servicer provided 

information about loss mitigation and 

foreclosure previously during an oral 

communication with the borrower under 

§ 1024.39(a). 

2. Timing requirements. As noted in 

comment 39(a)–3, a payment is considered 

late the day after the payment due date, even 

if the borrower is afforded a grace period 

before the servicer assesses a late fee. For 

example, if a payment due date is January 1 

and the payment remains due during the 40- 

day period after January 1, the servicer is 

required to provide the written notice not 

later than 40 days after January 1—i.e., by 

February 10. 

3. Borrower satisfies the payment. A 

servicer is not required to provide the written 

notice unless the borrower has not made the 

payment during the 40 days after the 

payment due date. For example, a servicer 

contacts a borrower on January 20 to notify 

him that he has missed a January 1 payment 

and that loss mitigation options may be 

available. The borrower explains that he 

forgot to send payment and will send the 

payment to the servicer. The servicer receives 

the full payment on January 30 and has not 

yet provided the written notice. Because the 

borrower has satisfied the January 1 payment 

within the 40-day time period, the servicer is 

not required to provide the written notice by 

February 10. 

4. Frequency of the written notice. A 

servicer is not required to provide the written 

notice more than once during a 180-day 

period beginning on the date on which the 

written notice is provided. Notwithstanding 

this limitation, a servicer must still provide 

the oral notice required under § 1024.39(a) 

for each payment that is overdue. For 

example, a borrower is late in making a 

payment due March 1. The borrower remains 

late on that payment during the 40 days after 

March 1 and the servicer provides the written 

disclosure 40 days after March 1—i.e., by 

April 10. If the borrower subsequently fails 

to make a payment due April 1 and remains 

late on that payment during the 40 days after 

April 1, the servicer is not required to 

provide the written notice again for the 180- 

day period beginning on April 10. However, 

the servicer is required to provide the oral 

notice under § 1024.39(a) for each of the 30- 

day periods beginning on March 1 and April 

1. 

5. Borrower performing under a loss 

mitigation option. A servicer is not required 

to provide the written notice to a borrower 

who is performing as agreed under a loss 

mitigation option designed to bring the 

borrower current on a previously missed 

payment. 

39(b)(2) Content of the written notice. 

1. Minimum requirements. Section 

1024.39(b)(2) contains minimum content 

requirements for the written notice. A 

servicer may provide additional information 

that the servicer determines would be 

helpful. 

2. Format. Any color, number of pages, size 

and quality of paper, size and type of print, 

and method of reproduction may be used, so 

long as the disclosure is clearly legible. 

Paragraph 39(b)(2)(i). 

1. Statement encouraging the borrower to 

contact the servicer. The servicer is not 

required to specifically request the borrower 

to contact the servicer about any particular 

loss mitigation option. 

Paragraph 39(b)(2)(ii). 

1. Servicer’s mailing address and 

telephone number. If applicable, the servicer 

should provide contact information for the 

personnel assigned to the borrower pursuant 

to § 1024.40. 

Paragraph 39(b)(2)(iii). 

1. Number of examples. The regulation 

does not mandate that a specific number of 

examples be disclosed, but borrowers are 

likely to benefit from examples of options 

that would permit them to retain ownership 

of their home and examples of options may 

require the borrower to end their ownership 

in order to avoid foreclosure. The servicer 

may include a generic list of loss mitigation 

options that it offers to borrowers. The 

servicer may include a statement that not all 

borrowers will qualify for the listed options. 

2. Brief description. An example of a loss 

mitigation option may be described in one or 

more sentences. If a servicer offers loss 

mitigation programs, the servicer may 

provide a generic description of each option 

without providing detailed descriptions of 

each program. For example, if the servicer 

offers several loan modification programs, 

the servicer may provide a generic 

description of ‘‘loan modification.’’ 

Paragraph 39(b)(2)(iv). 

1. Explanation of how the borrower may 

obtain more information about loss 

mitigation options. A servicer may comply 

with this requirement by directing the 

borrower to contact the servicer for more 

detailed information on how to apply for loss 

mitigation options. For example, a general 

statement such as, ‘‘contact us for 

instructions on how to apply’’ would satisfy 

§ 1024.39(b)(2)(iv). However, to expedite the 

borrower’s timely application for any loss 

mitigation options, servicers may provide 

more detailed instructions, such as by listing 

representative documents the borrower 

should make available to the servicer (such 

as tax filings or income statements), and an 

estimate for how quickly the servicer expects 

to evaluate a completed application and 

make a decision on loss mitigation options. 

Servicers may also supplement the written 

notice required by § 1024.39(b)(1) with a loss 

mitigation application form. 

Paragraph 39(b)(2)(v). 

1. Foreclosure statement. The servicer may 

explain that a foreclosure may proceed in 

different ways depending on the 

circumstances, such as the location of the 

borrower’s property that secures the loan, 

whether the borrower is covered by the 

Servicemembers Civil Relief Act (50 U.S.C. 

App. 501 et seq.), and the requirements of the 

owner or assignee of the borrower’s loan. 

2. Estimated foreclosure timelines. The 

servicer may qualify its estimate with a 

statement that different timelines may vary 

depending on the circumstances, such as 

those listed in comment 39(b)(2)(v)–1. The 

servicer may provide its estimate as a range 

of days. 

Section 1024.40—Continuity of Contact 

40(a)(1) In general. 

1. For purposes of responding to borrower 

inquiries and assisting the borrower with loss 

mitigation options as required pursuant to 

§ 1024.40, the term ‘‘borrower’’ includes a 

person the borrower has authorized to act on 

behalf of the borrower (a borrower’s agent), 

which may include, for example, a housing 

counselor or attorney. Servicers may 

undertake reasonable procedures to 

determine if such person has authority from 

the borrower to act on the borrower’s behalf. 

2. For purposes of § 1024.40(a)(1), a 

reasonable time for a transferee servicer to 


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assign personnel to a borrower is by the end 

of the 30-day period of the transfer of 

servicing for the borrower’s mortgage loan. 

3. Implementation of continuity of contact. 

i. A servicer has discretion to determine 

the manner by which continuity of contact is 

implemented. For purposes of 

§ 1024.40(a)(1), a servicer may assign a single 

person or a team of personnel to respond to 

a borrower. 

ii. Section 1024.40(a)(1) requires servicers 

to assign personnel to borrowers whom 

servicers are required to notify pursuant to 

§ 1024.39(a). If a borrower whom a servicer 

is not required to notify pursuant to 

§ 1024.39(a) contacts the servicer to explain 

that he or she expects to make be late in 

making a particular payment, the servicer, at 

its election, may assign personnel to the 

borrower. 

4. Section 1024.40(a)(1) does not permit or 

require a servicer to take any action 

inconsistent with applicable bankruptcy law 

or a court order in a bankruptcy case. 

40(a)(2) Access to assigned personnel. 

1. For purposes of § 1024.40(a)(2), three 

days (excluding legal public holidays, 

Saturdays, and Sundays) is a reasonable time 

to respond. 

40(b) Functions of servicer personnel. 

40(b)(1) Reasonable policies and 

procedures. 

Paragraph 40(b)(1)(iv). 

1. For purposes of § 1024.40(b)(1)(iv), three 

days (excluding legal public holidays, 

Saturdays, and Sundays) is a reasonable time 

to provide the information the borrower has 

requested or inform the borrower of the 

telephone number and address the servicer 

has established for borrowers to assert an 

error pursuant to § 1024.35 or make an 

information request pursuant to § 1024.36. 

40(b)(2) Safe harbor. 

1. For purposes of § 1024.40(b)(2), a 

servicer may exhibit a pattern or practice: 

i. With respect to a single borrower, if 

servicer personnel assigned to the borrower 

pursuant to § 1024.40(a) fail to perform any 

of the functions listed in § 1024.40(b)(1) 

where applicable on multiple occasions, such 

as, for example, repeatedly providing the 

borrower with inaccurate information about 

the status of the loss mitigation application 

the borrower has submitted. 

ii. With respect to a large number of 

borrowers, if servicer personnel assigned to 

the borrowers pursuant to § 1024.40(a) fail to 

perform any of the functions listed in 

§ 1024.40(b)(1) where applicable in similar 

ways, such as, for example, providing a large 

number of borrowers with inaccurate 

information about the status of the loss 

mitigation applications the borrowers have 

submitted. 

40(c) Duration of continuity of contact. 

Paragraph 40(c)(3). 

1. For purposes of § 1024.40(c)(3), a 

reasonable time has passed when the 

borrower has made on-time mortgage 

payments for three consecutive months. 

Paragraph (40)(c)(5). 

1. For purposes of § 1024.40(c)(5), a 

reasonable time has passed when servicing 

for the borrower’s mortgage loan was 

transferred to a transferee borrower 30 days 

ago. 

40(d) Conditions beyond a servicer’s 

control. 

1. The term ‘‘conditions beyond a 

servicer’s control’’ include natural disasters, 

wars, riots or other major upheaval, delays or 

failures caused by persons other than the 

servicer, disruptions in telephone service, 

computer system malfunctions, and labor 

disputes, such as strikes. 

Section 1024.41—Loss Mitigation Options 

41(a) Scope 

1. Loss mitigation not required. Nothing in 

section 1024.41 imposes a duty on a servicer 

to offer loss mitigation options to borrowers 

in the ordinary course of business or to 

provide any borrower with a right to a loss 

mitigation option. Nothing in section 1024.41 

should be construed to permit a borrower to 

enforce the terms of any agreement between 

a servicer and any owner, assignee, 

guarantor, or insurer of a mortgage loan, 

including any agreement with respect to the 

evaluation for, or provision of, any loss 

mitigation option. 

2. Ordinary course of business. A servicer 

that does not engage in a practice of offering 

loss mitigation to borrowers in the ordinary 

course of business is not covered by this 

section 1024.41. A servicer offers loss 

mitigation options in the ordinary course of 

business if the servicer either (1) has a duty 

to an owner or assignee of a mortgage loan 

to engage in loss mitigation to improve the 

recovery to the owner or assignee of the 

mortgage loan, or (2) engages in a practice of 

evaluating borrowers for loss mitigation 

options. A servicer that (1) does not have 

policies or procedures for evaluating 

borrowers for loss mitigation options, or (2) 

engages only in temporary or pilot programs 

designed to evaluate the impact of 

implementing loss mitigation options is not 

considered to offer loss mitigation options in 

the ordinary course of business. For example, 

the following practices should not be 

considered offering loss mitigation in the 

ordinary course of business: 

a. A servicer waives adverse consequences 

to individual borrowers for missed payments, 

such as by providing a waiver of late fees. 

b. A servicer participates in a targeted pilot 

program for which only a relatively small 

percentage of mortgage loans serviced by the 

servicer are potentially eligible. 

3. Eligibility requirements. A servicer that 

engages in evaluations of borrowers for loss 

mitigation options for some mortgage loans it 

services offers loss mitigation in the ordinary 

course of business even though the servicer’s 

loss mitigation programs are not available to 

other borrowers, including borrowers subject 

to different investor or guarantor 

requirements. Any such servicer that receives 

a complete loss mitigation application is 

required to comply with its obligations 

pursuant to section 1024.41(c) and (d). Such 

compliance may include informing the 

borrower that the borrower is not eligible for 

loss mitigation options, including loan 

modifications, as a result of investor 

requirements, as set forth in sections 

1024.41(c) and (d). 

41(b) Loss mitigation application. 

41(b)(2) Incomplete loss mitigation 

application. 

Paragraph 41(b)(2)(i) 

1. Obtain additional documents and 

information before submitted information 

becomes stale. A servicer should undertake 

reasonable diligence to obtain information to 

constitute a complete loss mitigation 

application by the earlier of (i) the deadline 

established by the servicer pursuant to 

section 1024.41(f) or (ii) the earliest time any 

documents or information submitted by the 

borrower will no longer be considered 

current or valid for evaluation for a loss 

mitigation option pursuant to applicable loss 

mitigation program guidelines. For example, 

if a servicer’s guidelines require that income 

information must be no older than 90 days, 

the servicer should undertake reasonable 

diligence to obtain information that 

constitutes a complete loss mitigation 

application earlier than the date when the 

income information would be considered 

stale where such deadline is earlier than the 

deadline established by the servicer pursuant 

to section 1024.41(f). 

41(c) Review of loss mitigation 

applications. 

Paragraph 41(c)(1). 

1. Evaluation for all loss mitigation options 

offered. A servicer should evaluate a 

borrower for all loss mitigation options for 

which a borrower may qualify based upon 

eligibility criteria applicable to each loss 

mitigation option, as established by the 

servicer, guarantor, owner, or assignee of a 

mortgage loan. A servicer is not required to 

evaluate a borrower for a loss mitigation 

option for which the borrower does not meet 

threshold eligibility criteria, including any 

pilot program, temporary program, or loss 

mitigation program that is limited to a certain 

percentage or number of participants. 

41(d) Denial of loan modification options. 

Paragraph 41(d)(1). 

1. Investor requirements. If a trial or 

permanent loan modification is denied 

because of a requirement of an owner or 

assignee of a mortgage loan, the specific 

reasons in the notice provided to the 

borrower should identify the owner or 

assignee of the mortgage loan and the 

requirement that is the basis of the denial. 

2. Net present value calculation. If a trial 

or permanent loan modification is denied 

because of a net present value calculation, 

the specific reasons in the notice provided to 

the borrower should include the monthly 

gross income and property value used in the 

net present value calculation. 

41(e) Borrower response and performance. 

Paragraph 41(e)(4). 

1. Acceptance pending appeal. A borrower 

may accept an offer of a different loan 

modification or other loss mitigation option 

pending appeal of a denial of any loan 

modification program for which a borrower 

was denied. 

41(f) Deadline for loss mitigation 

applications. 

1. No scheduled foreclosure sale. If a 

foreclosure sale has not been scheduled, or 

where a foreclosure sale may occur less than 

90 days after the foreclosure sale is 

scheduled, a servicer should set a deadline 

that is no earlier than 90 days before the day 

a servicer reasonably anticipates that a 

foreclosure sale may occur. 


tkelley on DSK3SPTVN1PROD with PROPOSALS4
Federal Register / Vol. 77, No. 180 / Monday, September 17, 2012 / Proposed Rules 57315 

2. Servicing transfers. If servicing for a 

mortgage loan is transferred, the transferee 

servicer is subject to the requirements of 

§ 1024.41 unless the effective date of the 

servicing transfer occurs after the deadline 

that the transferee servicer establishes 

pursuant to section 1024.41(f). 

41(g) Prohibition on foreclosure sale. 

Paragraph 41(g)(4). 

1. Short sale listing period. An agreement 

for a short sale transaction, or other similar 

loss mitigation option, typically includes 

marketing or listing periods during which a 

servicer will allow a borrower to market a 

short sale transaction. A borrower is deemed 

to be performing under an agreement on a 

short sale, or other similar loss mitigation 

option, during the term of a marketing or 

listing period. 

2. Short sale agreement. A borrower is 

deemed to be performing under an agreement 

on a loss mitigation option if a short sale 

transaction has been approved by all relevant 

parties, including the servicer, other affected 

lienholders, or insurers, if applicable, and the 

servicer has received proof of funds or 

financing. 

41(h) Appeal process. 

Paragraph 41(h)(3). 

1. Supervisory personnel. The appeal may 

be evaluated by supervisory personnel that 

are responsible for oversight of the personnel 

that conducted the initial evaluation, as long 

as the supervisory personnel were not 

directly involved in the initial evaluation. 

41(j) Other liens. 

Paragraph 41(j)(1)(i). 

1. Reasonable diligence to identify other 

servicers. A servicer should undertake 

reasonable diligence to determine if a 

property is encumbered by liens as a result 

of other senior or subordinate mortgage loans 

serviced by other servicers. Servicers may 

obtain this information by, among other 

things, requesting that the borrower provide 

information in a loss mitigation application 

regarding any other mortgage loans with liens 

encumbering the property, conducting a 

search of the land records, reviewing a 

consumer report from a consumer reporting 

agency, or consulting a database designed to 

match senior and subordinate lien records. 

Appendix MS—Mortgage Servicing 

Model Forms and Clauses 

1. In general. This appendix contains 

model forms and clauses for mortgage 

servicing disclosures. Each of the model 

forms is designated for uses in a particular 

set of circumstances as indicated by the title 

of that model form or clause. Although use 

of the model forms and clauses is not 

required, servicers using them appropriately 

will be deemed to be in compliance with 

disclosure requirements of the regulation. To 

use the forms appropriately, information 

required by regulation must be set forth in 

the disclosures. 

2. Permissible changes. Servicers may 

make certain changes to the format or content 

of the forms and clauses and may delete any 

disclosures that are inapplicable without 

losing the protection from liability so long as 

those changes do not affect the substance, 

clarity, or meaningful sequence of the forms 

and clauses. Servicers making revisions to 

that effect will lose their protection from civil 

liability. Except as otherwise specifically 

required, acceptable changes include, for 

example: 

i. Use of ‘‘borrower’’ and ‘‘servicer’’ instead 

of pronouns. 

ii. Substitution of the words ‘‘lender’’ and 

‘‘servicer.’’ 

iii. Addition of graphics or icons, such as 

the servicer’s corporate logo. 

Appendix MS–3—Model Force-Placed 

Insurance Notice Forms 

1. Model MS–3(A). The model form MS– 

3(A) illustrates how a servicer may comply 

with § 1024.37(c)(2). 

2. Model MS–3(B). The model form MS– 

3(B) illustrates how a servicer may comply 

with § 1024.37(d)(2)(i). 

3. Model MS–3(C). The model form MS– 

3(C) illustrates how a servicer may comply 

with § 1024.37(d)(2)(ii). 

4. Model MS–3(D). The model form MS– 

3(D) illustrates how a servicer may comply 

with § 1024.37(e)(2). 

5. Where the model forms MS–3(A), MS– 

3(B), MS–3(C), and MS–3(D) use the term 

‘‘hazard insurance,’’ the servicer may 

substitute ‘‘hazard insurance’’ with 

‘‘homeowner’s insurance.’’ 

Appendix MS–4—Model Clauses for the 

Written Early Intervention Notice 

1. Model MS–4(A). These model clauses 

illustrate how a servicer may provide its 

contact information and how a servicer may 

request that the borrower contact the 

servicer, as required by paragraphs (b)(2)(i) 

and (b)(2)(ii) of § 1024.39. 

2. Model MS–4(B). These model clauses 

illustrate how the servicer may inform the 

borrower of loss mitigation options that may 

be available, as required by 

§ 1024.39(b)(2)(iii), if applicable. Model MS– 

4(B) does not contain sample clauses for all 

loss mitigation options that may be available. 

The language in the model clauses contained 

in square brackets is optional; a servicer may 

comply with the disclosure requirements of 

§ 1024.39(b)(2)(iii) by using language 

substantially similar to the language in the 

model clauses or by adding or substituting 

applicable loss mitigation options for options 

not represented in these model clauses, as 

long as the information required to be 

disclosed is accurate and clear and 

conspicuous. 

3. Model MS–4(C). These model clauses 

illustrate how the servicer may inform the 

borrower how to obtain additional 

information about loss mitigation options, 

required by § 1024.39(b)(2)(iv), if applicable. 

A servicer that offers no loss mitigation 

options may not include the model clauses 

in MS–4(C). 

4. Model MS–4(D). These model clauses 

illustrate the foreclosure statement, as 

required by § 1024.39(b)(2)(v). To use the 

model clauses, the servicer must fill in the 

estimated number of days following a missed 

payment in which the servicer may refer the 

borrower to foreclosure. 

5. Model MS–4(E). These model clauses 

illustrate how a servicer may provide contact 

information for housing counselors and State 

housing finance authorities, as required by 

§ 1024.39(b)(2)(vi). A servicer may, at its 

option, provide the Web site and telephone 

number for either the Bureau’s or the 

Department of Housing and Urban 

Development’s housing counselors list, as 

provided by paragraphs (b)(2)(vi)(A) and 

(b)(2)(vi)(B) of § 1024.39. A servicer would be 

required to provide the telephone number 

and, if applicable, the Web site, for the 

appropriate State housing finance authority, 

as required by § 1024.39(b)(2)(vi).fi 

Dated: August 9, 2012. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

[FR Doc. 2012–19974 Filed 9–7–12; 4:15 pm] 

BILLING CODE 4810–AM–P 


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