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Servicing Rule Coverage Confusion

By Jon Tavares, JD, LLM, CRCM, NCCO 4 Apr 2018

There seems to be quite a bit of confusion about the coverage of the Servicing Rule. Some of it stems from the CFPB's original compliance guides; and, unfortunately, I may be responsible for some. But a lot of it is just folks trying to understand a confusing rule. I hope that this article can clear up some of the confusion. It appears that the CFPB sensed that there was this confusion as well. They have updated the Small Entity Compliance Guide and have released a  Servicing Rule Coverage Chart.

 

First, a correction - in some of our webinars, I stated that the Servicing Rule did not apply to HELOCs. That is generally true but is an oversimplification of a complex rule that changes many provisions spread across two different regulations, Regulations X and Z. Generally, the Servicing Rule does not apply to HELOCs but there are a handful of provisions in the rule that will apply to them:

  • § 1024.17 (escrows) applies to Federally Related Mortgages, including HELOCs, for which an escrow account is established. If you establish an escrow account for a HELOC, a confirmed successor in interest would be entitled to receive any notices you send if you are not already providing to a borrower;
  •  § 1026.36(c)(3) (payoff statements) applies to consumer credit transactions secured by a dwelling, including HELOCs. If a confirmed successor in interest requests a payoff statement on a HELOC, you must provide it;
  •  § 1026.39 (mortgage transfer disclosures) applies to closed-end consumer credit transactions secured by a dwelling or real estate and open-end consumer credit transactions secured by the consumer's principal dwelling. If you sell or purchase a HELOC secured by the consumer's principal dwelling, you must provide a mortgage transfer disclosure to the confirmed successor in interest if you did not already send it to the borrower.

For closed-end loans, it may be easier to discuss these on a section-by-section basis. For small servicers, I will italicize the sections for which you are exempt: 

  • § 1024.17 (escrows) applies to Federally Related Mortgages for which an escrow account is established;
  •  §§ 1024.33(b)-(d) (servicing transfers), .35 (error resolution), (.36) (information requests) apply to Federally Related Mortgages, except for HELOCs;
  •  §§ 1024.38 (policies and procedures), .39 (early intervention), .40 (continuity of contact), and .41 (loss mitigation)[1] applies to Federally Related Mortgages, except for HELOCs and reverse mortgages as defined by § 1026.33(a);
  •  §§ 1026.20(c)-(d) (ARM rate change disclosures) apply to closed-end consumer credit transactions secured by the consumer's principal dwelling with and term of greater that one-year in which the annual percentage rate may increase after consummation;
  • § 1026.20(e) (escrow cancellation notices) applies to and closed-end consumer credit transaction secured by a first lien on real property or a dwelling, except a reverse mortgage as defined by § 1026.33(a), for which an escrow account was established in connection with the transaction and will be cancelled;
  • §§ 1026.36(c)(1)-(2) (prompt payment crediting and pyramiding of late fees) apply to closed-end consumer credit transactions secured by a consumer's principal dwelling;
  • § 1026.36(c)(3) (payoff statements) applies to consumer credit transactions secured by a dwelling;
  • § 1026.39 (mortgage transfer disclosures) applies to closed-end consumer credit transactions secured by a dwelling or real estate and open-end consumer credit transactions secured by the consumer's principal dwelling;
  • § 1026.41 (periodic statements) applies to closed-end consumer credit transactions secured by a dwelling, except for reverse mortgages as defined by § 1026.33(a) and transactions secured by a consumer's interest in a timeshare plan.

These tips should assist you in making more sense out of the confusing coverage of the Servicing Rule. 

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