The mortgage industry is anticipating significant changes when it implements
the Consumer Financial Protection Bureau's 2016 Servicing Rule, but
determining how those changes will affect operations will have to wait
until the rule is fully implemented.
The CFPB will not allow early compliance with the new regulations, which
leaves the mortgage servicing industry left questioning how and when the
sector should respond to the regulation. That question may not be answered
until the general effective date of Oct. 29, 2017. We may even have to
wait until the successor in interest, and periodic statements for debtors
in bankruptcy provisions take effect on April 19, 2018.
Previously, the CFPB has allowed servicers an option to begin early compliance
for new rules. However, the CFPB has stated that they are not offering
an early adaptation of the rule due to a risk of confusion for both regulators
and consumers, considering not all of the provisions would be included
with early compliance. The agency is hoping that this decision will prevent
any unwarranted litigation caused by inconsistent implementation policies.
However, there are three instances recognized by the Bureau where early
compliance is permitted, making CFPB’s decision not to allow early
compliance in this instance even more questionable by industry insiders.
First, the CFPB permits servicers to maintain current operations provided
the new rule adopts new commentary on an existing regulation that “clarifies,
reinforces or does not conflict with the existing rule and commentary.”
So, in these unconfirmed situations, the agency is allowing servicers to
continue normal operations if the new rule merely reinforces or enhances
the existing regulations. By taking this approach, the Bureau leaves open
the possibility that servicers might also decline to participate in particular
aspects of the rule if it is not deemed improper or illegal.
The ambiguity of some portions of the new rule leaves servicers with the
duty of interpreting current practices against the commentary of the new
rule, in determining how they will approach the servicing requirements
of a loan. Industry stakeholders worry that this gap in direction will
cause confusion and uncertainty in how new loans should be structured
prior to the full rule going into effect.
A second instance, according to the CFPB, calls for servicers to be able
to continue to provide beneficial practices for customers even though
it is not mandated by the current regulation, while being careful not
to infringe upon the new rule. Non-required practices that follow the
new rule may include offering periodic statements to consumers in bankruptcy,
reassessing debtors for loss mitigation options, or providing notices
of submission of a complete loan modification application. While these
seem like reasonable practices, the concern remains that part of these
practices may be questioned with changes from the new rule.
The third situation is meant to include circumstances not covered in the
previous examples. The CFPB acknowledges "practices that will be
mandated by the final rule are in compliance with the current rule or
are not in violation of the current rule, servicers may continue those
practices in accordance with the existing rule without necessarily adopting
all of the specific requirements of the final rule before their effective
Although the bureau is attempting to provide some guidance before the effective
date, some of the new rule requirements are not included on the list –
such as the allowance of a servicer to take up to 10 days to acknowledge
a pending loss mitigation application at a servicing transfer. Current
regulations do not offer that grace period, and if a servicer that takes
ten days before the new rule goes into effect, it could be in violation
of current regulations. There are other similar situations that are giving
pause to servicers regarding compliance with the new rule.
Servicers should take the extra time to review the details of the new rule
before the Oct. 2017 effective date. Because there is no guarantee the
CFPB will offer early compliance, servicers should evaluate current practices,
assess what procedures fall in line with the new rule and which will need
to be modified to meet the regulations, and make changes to any documents
or practices as needed. While it is not entirely known all the changes
that will come with implementation and when compliance will be permitted,
a sound operational plan would be to identify areas of risk and prepare
your IT and compliance departments for the changes that will ultimately
arrive sometime in 2017.
Learn more abouy the author, Jaspreet Kaur by
reading her bio.