Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement Procedures Act

242 Pages·2016·3.47 MB·English

72160 Federal Register/Vol. 81, No. 202/Wednesday, October 19, 2016/Rules and Regulations
BUREAU OF CONSUMER FINANCIAL Frank Wall Street Reform and Consumer contemporaneous compliance bulletin
PROTECTION Protection Act (Dodd-Frank Act), Public (October 2013 Servicing Bulletin).8In
Law 111–203, 124 Stat. 1376 (2010).1 addition, in October 2014, the Bureau
12 CFR Parts 1024 and 1026 Two of these rules were (1) the Mortgage added an alternative definition of small
Servicing Rules Under the Real Estate servicer in the Amendments to the 2013
[Docket No. CFPB–2014–0033]
Settlement Procedures Act (Regulation Mortgage Rules under the Truth in
RIN 3170–AA49 X) (2013 RESPA Servicing Final Rule);2 Lending Act (Regulation Z).9The
and (2) the Mortgage Servicing Rules purpose of each of these updates was to
Amendments to the 2013 Mortgage
Under the Truth in Lending Act address important questions raised by
Rules Under the Real Estate
(Regulation Z) (2013 TILA Servicing industry, consumer advocacy groups,
Settlement Procedures Act (Regulation
Final Rule).3 and other stakeholders. The 2013
X) and the Truth in Lending Act The Bureau clarified and revised RESPA Servicing Final Rule and the
(Regulation Z) those rules through notice and comment 2013 TILA Servicing Final Rule, as
AGENCY: Bureau of Consumer Financial rulemaking during the summer and fall amended in 2013 and 2014, are
Protection. of 2013 in the (1) Amendments to the collectively referred to herein as the
ACTION: Final rule. 2013 Mortgage Rules under the Real 2013 Mortgage Servicing Final Rules.
Estate Settlement Procedures Act On November 20, 2014, the Bureau
SUMMARY: The Bureau of Consumer (Regulation X) and the Truth in Lending issued a proposed rule that would have
Financial Protection (Bureau) is Act (Regulation Z) (July 2013 Mortgage further amended the 2013 Mortgage
amending certain mortgage servicing Final Rule)4and (2) Amendments to the Servicing Final Rules.10The proposal
rules issued by the Bureau in 2013. This 2013 Mortgage Rules under the Equal covered nine major topics, and focused
final rule clarifies, revises, or amends Credit Opportunity Act (Regulation B), primarily on clarifying, revising, or
provisions regarding force-placed Real Estate Settlement Procedures Act amending provisions regarding force-
insurance notices, policies and (Regulation X), and the Truth in placed insurance notices, policies and
procedures, early intervention, and loss Lending Act (Regulation Z) (September procedures, early intervention, and loss
mitigation requirements under 2013 Mortgage Final Rule).5In October mitigation requirements under
Regulation X’s servicing provisions; and 2013, the Bureau clarified compliance Regulation X’s servicing provisions; and
prompt crediting and periodic statement requirements in relation to successors in prompt crediting and periodic statement
requirements under Regulation Z’s interest, early intervention requirements under Regulation Z’s
servicing provisions. The final rule also requirements, bankruptcy law, and the servicing provisions. The proposal also
addresses proper compliance regarding Fair Debt Collection Practices Act addressed proper compliance regarding
(FDCPA),6through an Interim Final
certain servicing requirements when a certain servicing requirements when a
Rule (October 2013 IFR or IFR)7and a
person is a potential or confirmed person is a potential or confirmed
successor in interest, is a debtor in successor in interest, is a debtor in
bankruptcy, or sends a cease 1Specifically, on January 10, 2013, the Bureau bankruptcy, or sends a cease
issued Escrow Requirements Under the Truth in
communication request under the Fair Lending Act (Regulation Z), 78 FR 4725 (Jan. 22, communication request under the Fair
Debt Collection Practices Act. The final 2013) (2013 Escrows Final Rule), High-Cost Debt Collection Practices Act.
rule also makes technical corrections to Mortgage and Homeownership Counseling The Bureau is now finalizing the
Amendments to the Truth in Lending Act
several provisions of Regulations X and proposed amendments, with additional
(Regulation Z) and Homeownership Counseling
Z. The Bureau is issuing concurrently Amendments to the Real Estate Settlement clarifications and revisions, to revise
with this final rule an interpretive rule Procedures Act (Regulation X), 78 FR 6855 (Jan. 31, regulatory provisions and official
under the Fair Debt Collection Practices 2013) (2013 HOEPA Final Rule), and Ability to interpretations relating to the Regulation
Repay and Qualified Mortgage Standards Under the
Act relating to servicers’ compliance Truth in Lending Act (Regulation Z), 78 FR 6407 X and Z mortgage servicing rules.11The
with certain mortgage servicing rules. (Jan. 30, 2013) (January 2013 ATR Final Rule). The final rule also covers nine major topics,
DATES: This final rule is effective on Bureau concurrently issued a proposal to amend the summarized below, generally in the
January 2013 ATR Final Rule, which was finalized
October 19, 2017, except that the order they appear in the final rule. More
on May 29, 2013. See 78 FR 6621 (Jan. 30, 2013)
following amendments are effective on (January 2013 ATR Proposal) and 78 FR 35429 (June details can be found in the section-by-
April 19, 2018: Amendatory instructions 12, 2013) (May 2013 ATR Final Rule). On January section analysis below.
5, 6.b, 7, 8, 9, 11.b, 17.a.ii, 17.b.ii, 17.c, 17, 2013, the Bureau issued the Real Estate 1. Successors in interest. The Bureau
Settlement Procedures Act (Regulation X) and Truth
17.d.ii, 17.f.i, 17.i.i, 17.k, 19, 20, 22, in Lending Act (Regulation Z) Mortgage Servicing is finalizing three sets of rule changes
23.c, 25.a, 25.b, 25.c.ii, and 25.d.ii. For Final Rules, 78 FR 10901 (Feb. 14, 2013) relating to successors in interest. First,
additional discussion regarding the (Regulation Z) and 78 FR 10695 (Feb. 14, 2013) the Bureau is adopting definitions of
effective date of the rule, see part VI of (Regulation X) (2013 Mortgage Servicing Final successor in interest for purposes of
Rules). On January 18, 2013, the Bureau issued the
the SUPPLEMENTARYINFORMATIONbelow. Disclosure and Delivery Requirements for Copies of Regulation X’s subpart C and Regulation
FORFURTHERINFORMATIONCONTACT: Appraisals and Other Written Valuations Under the Z that are modeled on the categories of
Dania L. Ayoubi, David H. Hixson, Equal Credit Opportunity Act (Regulation B), 78 FR transfers protected under section 341(d)
7215 (Jan. 31, 2013) (2013 ECOA Valuations Final
Alexandra W. Reimelt, or Joel L. Rule) and, jointly with other agencies, issued of the Garn-St Germain Act. Second, the
Singerman, Counsels; or William R. Appraisals for Higher-Priced Mortgage Loans Bureau is finalizing rules relating to
Corbett, Laura A. Johnson, or Amanda E. (Regulation Z), 78 FR 10367 (Feb. 13, 2013) (2013
Quester, Senior Counsels; Office of Interagency Appraisals Final Rule). On January 20, 8Bureau of Consumer Fin. Prot., CFPB Bulletin
2013, the Bureau issued the Loan Originator 2013–12, Implementation Guidance for Certain
S2 Regulations, at (202) 435–7700. Compensation Requirements under the Truth in Mortgage Servicing Rules (Oct. 15, 2013), available
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GM markets in the United States (2013 Title 615 U.S.C. 1692 et seq. to ‘‘borrowers,’’ Regulation Z generally refers to
K3 XIV Final Rules), pursuant to the Dodd- 778 FR 62993 (Oct. 23, 2013). ‘‘consumers.’’
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Federal Register/Vol. 81, No. 202/Wednesday, October 19, 2016/Rules and Regulations 72161
how a mortgage servicer confirms a rights under the FDCPA, the Bureau is in which case the evaluation could take
successor in interest’s identity and finalizing exemptions for servicers from longer and the foreclosure protections
ownership interest.12Third, the Bureau complying with the live contact could end if the servicer does not
is applying the Regulation X and Z obligations but requiring servicers to receive the information as requested; (6)
mortgage servicing rules to successors in provide written early intervention sets forth how servicers must attempt to
interest once a servicer confirms the notices under certain circumstances. obtain information not in the borrower’s
successor in interest’s status. 6. Loss mitigation. The Bureau is control and evaluate a loss mitigation
2. Definition of delinquency. The finalizing several amendments relating application while waiting for third party
Bureau is finalizing a general definition to the loss mitigation requirements. The information; requires servicers to
of delinquency that applies to all of the final rule: (1) Requires servicers to meet exercise reasonable diligence to obtain
servicing provisions of Regulation X and the loss mitigation requirements more the information and prohibits servicers
the provisions regarding periodic than once in the life of a loan for from denying borrowers solely because
statements for mortgage loans in borrowers who become current on a servicer lacks required information not
Regulation Z. Delinquency means a payments at any time between the in the borrower’s control, except under
period of time during which a borrower borrower’s prior complete loss certain circumstances; requires servicers
and a borrower’s mortgage loan mitigation application and a subsequent in this circumstance to complete all
obligation are delinquent. A borrower loss mitigation application; (2) modifies possible steps in the evaluation process
and a borrower’s mortgage loan an existing exception to the 120-day within the 30 days, notwithstanding the
obligation are delinquent beginning on prohibition on foreclosure filing to lack of the required third-party
the date a periodic payment sufficient to allow a servicer to join the foreclosure information; requires that servicers
cover principal, interest, and, if action of a superior or subordinate promptly provide a written notice to the
applicable, escrow, becomes due and lienholder; (3) clarifies how servicers borrower if the servicer lacks required
unpaid, until such time as no periodic select the reasonable date by which a third party information 30 days after
payment is due and unpaid. borrower should return documents and receiving the borrower’s complete
3. Requests for information. The information to complete an application; application and cannot evaluate the
Bureau is finalizing amendments that (4) clarifies that, if the servicer has application in accordance with
change how a servicer must respond to already made the first notice or filing, applicable requirements established by
requests for information asking for and a borrower timely submits a the owner or assignee of the mortgage
ownership information for loans in trust complete loss mitigation application: (i) loan; and requires servicers to notify
for which the Federal National Mortgage The servicer must not move for borrowers of their determination on the
Association (Fannie Mae) or Federal foreclosure judgment or order of sale, or application in writing promptly upon
Home Loan Mortgage Corporation conduct a foreclosure sale, even where receipt of the third party information it
(Freddie Mac) is the owner of the loan the sale proceedings are conducted by a lacked; (7) permits servicers to offer a
or the trustee of the securitization trust third party, unless one of the specified short-term repayment plan based upon
in which the loan is held. circumstances is met (i.e., the an evaluation of an incomplete loss
4. Force-placed insurance. The borrower’s loss mitigation application is mitigation application; (8) clarifies that
Bureau is finalizing amendments to the properly denied, withdrawn, or the servicers may stop collecting documents
force-placed insurance disclosures and borrower fails to perform on a loss and information from a borrower for a
model forms to account for when a mitigation agreement); (ii) that absent particular loss mitigation option after
servicer wishes to force-place insurance one of the specified circumstances, receiving information confirming that,
when the borrower has insufficient, conduct of the sale violates the rule; (iii) pursuant to any requirements
rather than expiring or expired, hazard that the servicer must instruct established by the owner or assignee,
insurance coverage on the property. foreclosure counsel promptly not to the borrower is ineligible for that
Additionally, servicers now will have make any further dispositive motion, to option; and clarifies that servicers may
the option to include a borrower’s avoid a ruling or order on a pending not stop collecting documents and
mortgage loan account number on the dispositive motion, or to prevent information for any loss mitigation
notices required under §1024.37. The conduct of a foreclosure sale, unless one option based solely upon the borrower’s
Bureau also is finalizing several of the specified circumstances is met; stated preference but may stop
technical edits to correct discrepancies and (iv) that the servicer is not relieved collecting documents and information
between the model forms and the text of from its obligations by counsel’s actions for any loss mitigation option based on
§1024.37. or inactions; (5) requires that servicers the borrower’s stated preference in
5. Early intervention. The Bureau is provide a written notice to a borrower conjunction with other information, as
clarifying the early intervention live within five days (excluding Saturdays, prescribed by requirements established
contact obligations for servicers to Sundays, or legal holidays) after they by the owner or assignee of the mortgage
establish or make good faith efforts to receive a complete loss mitigation loan; and (9) addresses and clarifies
establish live contact so long as the application and requires that the notice: how loss mitigation procedures and
borrower remains delinquent. The (i) Indicate that the servicer has received timelines apply when a transferee
Bureau is also clarifying requirements a complete application; (ii) provide the servicer receives a mortgage loan for
regarding the frequency of the written date of completion, a statement that the which there is a loss mitigation
early intervention notices, including servicer expects to complete its application pending at the time of a
when there is a servicing transfer. In evaluation within 30 days from the date servicing transfer.
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72162 Federal Register/Vol. 81, No. 202/Wednesday, October 19, 2016/Rules and Regulations
pursuant to temporary loss mitigation Z that generally are not substantive in the summer and fall of 2013 and in the
programs must continue to be credited nature. fall of 2014.
according to the loan contract and
II. Background III. Summary of the Rulemaking
could, if appropriate, be credited as
Process
partial payments, while periodic Title XIV Rules Under the Dodd-Frank
payments made pursuant to a Act A. Implementation Plan for New
permanent loan modification must be Mortgage Rules
credited under the terms of the In response to an unprecedented cycle
On February 13, 2013, the Bureau
permanent loan agreement. of expansion and contraction in the
announced an initiative to support
8. Periodic statements. The Bureau is mortgage market that sparked the most
implementation of the new mortgage
finalizing several requirements relating severe U.S. recession since the Great rules (Implementation Plan),16under
to periodic statements. The final rule: Depression, Congress passed the Dodd- which the Bureau would work with the
(1) Clarifies certain periodic statement Frank Act, which was signed into law mortgage industry to ensure that the
disclosure requirements relating to
on July 21, 2010. In the Dodd-Frank Act, 2013 Title XIV Final Rules could be
mortgage loans that have been
Congress established the Bureau and implemented accurately and
accelerated, are in temporary loss
generally consolidated the rulemaking expeditiously. The Implementation Plan
mitigation programs, or have been
authority for Federal consumer financial included: (1) Coordination with other
permanently modified, to conform
laws, including the Truth in Lending agencies; (2) Publication of plain-
generally the disclosure of the amount
Act (TILA) and the Real Estate language guides to the new rules; (3)
due with the Bureau’s understanding of
Settlement Procedures Act (RESPA), in Ongoing conversations with
the legal obligation in each of those
the Bureau.13At the same time, stakeholders involved in
circumstances, including that the
Congress significantly amended the implementation with respect to
amount due may only be accurate for a
statutory requirements governing questions and concerns they had
specified period of time when a
mortgage loan has been accelerated; (2) mortgages with the intent to restrict the identified; (4) Publication of additional
requires servicers to send modified practices that contributed to and interpretive guidance and corrections or
periodic statements (or coupon books, exacerbated the crisis.14Under the clarifications of the new rules as
where servicers are otherwise permitted statute, most of these new requirements needed; (5) Publication of readiness
to send coupon books instead of would have taken effect automatically guides for the new rules; and (5)
periodic statements) to consumers who on January 21, 2013, if the Bureau had Education of consumers on the new
have filed for bankruptcy, subject to not issued implementing regulations by rules.
In the course of the implementation
certain exceptions, with content varying that date.15To avoid uncertainty and
process, the Bureau identified a number
depending on whether the consumer is potential disruption in the national
of respects in which the 2013 Mortgage
a debtor in a chapter 7 or 11 bankruptcy mortgage market at a time of economic
Servicing Final Rules posed
case, or a chapter 12 or 13 bankruptcy vulnerability, the Bureau issued several
implementation challenges. As a result,
case; and includes proposed sample final rules in January 2013 to implement
in July 2013 and September 2013,
periodic statement forms that servicers these new statutory provisions and
following notice and comment, the
may use for consumers in bankruptcy to provide for an orderly transition. These
Bureau issued two final rules amending
ensure compliance with §1026.41; and rules included the 2013 RESPA
(3) exempts servicers from the periodic discrete aspects of the 2013 Mortgage
Servicing Final Rule and the 2013 TILA
statement requirement for charged-off Servicing Final Rules. Among other
Servicing Final Rule, issued on January
mortgage loans if the servicer will not things, the July 2013 Mortgage Final
17, 2013. Pursuant to the Dodd-Frank
charge any additional fees or interest on Rule clarified, corrected, or amended
the account and provides a periodic Act, which permitted a maximum of one provisions on the relation to State law
statement including additional year for implementation, these rules to Regulation X’s servicing
disclosures related to the effects of became effective on January 10, 2014. requirements; implementation dates for
charge-off. The Bureau issued additional certain adjustable-rate mortgage
9. Small servicer. The Bureau is corrections and clarifications to the servicing notices under Regulation Z;
finalizing certain changes to the small 2013 RESPA Servicing Final Rule and and the small servicer exemption from
servicer determination. The small the 2013 TILA Servicing Final Rule in certain servicing rules. Among other
servicer exemption generally applies to things, the September 2013 Mortgage
servicers who service 5,000 or fewer 13See, e.g., sections 1011 and 1021 of the Dodd- Final Rule modified provisions of
mortgage loans for all of which the Frank Act, 12 U.S.C. 5491 and 5511 (establishing Regulation X related to error resolution,
and setting forth the purpose, objectives, and
servicer is the creditor or assignee. The information requests, and loss
functions of the Bureau); section 1061 of the Dodd-
final rule excludes certain seller- Frank Act, 12 U.S.C. 5581 (consolidating certain mitigation procedures. In October 2013,
financed transactions and mortgage rulemaking authority for Federal consumer the Bureau issued an IFR, which among
loans voluntarily serviced for a non- financial laws in the Bureau); section 1100A of the other things, provisionally suspended
Dodd-Frank Act (codified in scattered sections of 15
affiliate, even if the non-affiliate is not the effectiveness of certain requirements
U.S.C.) (similarly consolidating certain rulemaking
a creditor or assignee, from being authority in the Bureau). But see Section 1029 of of the 2013 Mortgage Servicing Final
counted toward the 5,000 loan limit, the Dodd-Frank Act, 12 U.S.C. 5519 (subject to Rules with respect to consumers in
allowing servicers that would otherwise certain exceptions, excluding from the Bureau’s bankruptcy and consumers who had
authority any rulemaking authority over a motor
S2 qualify for small servicer status to retain vehicle dealer that is predominantly engaged in the exercised their rights under the FDCPA
ULE their exemption while servicing those sale and servicing of motor vehicles, the leasing and to direct that debt collectors cease
D with R traInns aadctdiiotniosn. to the changes discussed ser1v4iSceine gt iotlfe m XoItVo ro vf ethheic Dleosd, do-rF broatnhk) .A ct, Public 16Press Release, Bureau of Consumer Fin. Prot.,
RO above, the final rule also makes Law 111–203, 124 Stat. 1376 (2010) (codified in CFPB Lays Out Implementation Plan for New
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K3 several provisions of Regulations X and 1601 note. implementation-plan-for-new-mortgage-rules/.
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Federal Register/Vol. 81, No. 202/Wednesday, October 19, 2016/Rules and Regulations 72163
contacting them with respect to interviews to test the Bureau’s proposed period ended on March 16, 2015. The
outstanding debts. In the October 2013 sample periodic statement forms for comment period on the report
Servicing Bulletin, the Bureau also consumers who have filed for summarizing the results of the
clarified compliance requirements bankruptcy. As described in detail in consumer testing of bankruptcy periodic
regarding successors in interest, early the report summarizing the testing,17 statement sample forms ended on May
intervention live contact requirements, between May 2015 and August 2015, the 26, 2016. The Bureau received more
and the FDCPA. In addition, in October Bureau worked with the firm to conduct than 160 comments on the proposed
2014, the Bureau issued a final rule that, three rounds of one-on-one cognitive rule and approximately 20 comments on
among other things, added an interviews with a total of 51 consumers the testing report. The comments were
alternative definition of small servicer in Arlington, Virginia, Fort Lauderdale, received from consumers, consumer
that applies to certain nonprofit entities Florida, and Chicago, Illinois. Efforts advocacy groups, government agencies,
that service, for a fee, only loans for were made to recruit a significant servicers, industry trade associations,
which the servicer or an associated number of participants who had filed and others. As discussed in more detail
nonprofit entity is the creditor. for bankruptcy, who had a mortgage below, the Bureau has considered these
(preferably when they filed for comments in adopting this final rule.
B. Ongoing Monitoring
bankruptcy), and who had trouble The Bureau notes that a number of
After the January 10, 2014 effective making mortgage payments in the last consumer advocacy group commenters
date of the rules, the Bureau has two years. discussed language access and
continued to engage in ongoing outreach During the interviews, participants communications with consumers with
and monitoring with industry, were shown sample modified periodic limited English proficiency (LEP) and
consumer advocacy groups, and other statements. In general, participants who indicated that this is an area that needs
stakeholders. As a result, the Bureau has had filed for chapter 7 bankruptcy further action and attention from the
identified further issues that continue to reviewed statements tailored to Bureau. One commenter urged the
pose implementation challenges or borrowers who are debtors in a chapter Bureau to consider additional
require clarification. The Bureau has 7 or chapter 11 bankruptcy case, while rulemaking to require servicers to
also recognized that there are instances participants who had filed for chapter respond effectively to the needs of LEP
in which the rules are creating 13 bankruptcy reviewed statements borrowers. Another commenter stated
unintended consequences or failing to tailored to borrowers who are debtors in that servicers’ failure to communicate
achieve desired objectives. a chapter 12 or chapter 13 bankruptcy effectively with LEP homeowners
The Bureau recognizes that industry case. Participants were asked specific remains a major unresolved issue, and
has incurred costs in the questions to test their understanding of said that servicers fail to provide written
implementation of the 2013 Mortgage the information presented in the sample communication in the homeowner’s
Servicing Final Rules. The Bureau statements and how easily they could preferred non-English language, fail to
believes that the majority of the find various pieces of information provide adequate oral translation for
provisions in this final rule would presented in the sample statements, as LEP homeowners, and refuse to accept
impose, at most, minimal new well as to learn about how they would official government documents in non-
compliance burdens, and in many cases use the information presented in the English languages. The commenter
would reduce the compliance burden sample statements. The Bureau and suggested that the Bureau should ensure
relative to the existing rules. Where the FMG jointly developed revisions to all that materials and points of contact are
Bureau is adding new requirements to of the forms between rounds to address available in homeowners’ preferred
the 2013 Mortgage Servicing Final any apparent usability or languages.
Rules, the Bureau is doing so after comprehension issues and in response The Bureau takes seriously the
careful weighing of incremental costs to public comments the Bureau received important considerations of language
and benefits. on the proposed rule. access. The Bureau believes that LEP
This final rule adopts the proposed The Bureau conducted the consumer consumers should be served fairly,
amendments with some additional testing after the close of the original equitably, and in a nondiscriminatory
clarifications and revisions. The comment period. The notice seeking manner. The Bureau recognizes that LEP
purpose of these updates is to address public comment specifically on the consumers face particular challenges
important questions raised by industry, report summarizing the methods and and obstacles in accessing effective loss
consumer advocacy groups, and other results of the testing was published in mitigation. The Bureau believes that
stakeholders. the Federal Register on April 26, servicers should communicate with
2016.18 borrowers clearly, including in the
C. Testing of Bankruptcy Periodic
consumer’s preferred language, where
Statement Sample Forms D. Comments on the Proposed Rule and
possible, and especially when lenders
Testing of Bankruptcy Periodic
In the proposed rule, the Bureau advertise in the consumer’s preferred
Statement Sample Forms
indicated that it would conduct language.
consumer testing of the proposed The Bureau issued the proposed rule The Bureau has not had the
sample periodic statement forms for on November 20, 2014, and the proposal opportunity, however, to test either the
consumers who have filed for was published in the Federal Register new disclosures that the Bureau is
bankruptcy and would publish and seek on December 15, 2014.19The comment adopting in this final rule or the pre-
comment on a report summarizing the existing RESPA and TILA servicing
methods and results of such testing 17Fors Marsh Group, Testing of Bankruptcy disclosures in languages other than
ULES2 prior to finalizing any sample forms. P(Feerbio. d2i0c1 S6t)a, taevmaeilnatb Fleo armt hs tftopr: /M/ortgage Servicing English. Nor has the Bureau had the
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RO Group (FMG), a research and consulting forms-mortgage-servicing/ (report on consumer operational challenges implicated in
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K3 conduct one-on-one cognitive 1979 FR 74175 (Dec. 15, 2014). Accordingly, the Bureau is not imposing
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72164 Federal Register/Vol. 81, No. 202/Wednesday, October 19, 2016/Rules and Regulations
mandatory language translation function’’ is defined to include ‘‘all This final rule also includes
requirements or other language access authority to prescribe rules or issue amendments to the official Bureau
requirements at this time with respect to orders or guidelines pursuant to any commentary in Regulation X. Section
the mortgage servicing disclosures and Federal consumer financial law, 19(a) of RESPA authorizes the Bureau to
other mortgage servicing requirements. including performing appropriate make such reasonable interpretations of
Although the Bureau declines at this functions to promulgate and review RESPA as may be necessary to achieve
time to implement requirements such rules, orders, and guidelines.’’ the consumer protection purposes of
regarding language access, the Bureau Section 1061 of the Dodd-Frank Act also RESPA. Good faith compliance with the
reiterates the importance of servicers transferred to the Bureau all of the interpretations affords servicers
communicating clearly and in a non- Department of Housing and Urban protection from liability under section
discriminatory manner with all Development’s (HUD’s) consumer 19(b) of RESPA.
consumers, including those with limited protection functions relating to RESPA.
English proficiency. Servicers should Title X of the Dodd-Frank Act, B. TILA
ensure they are in compliance with all including section 1061 of the Dodd-
applicable law. For instance, servicers Frank Act, along with RESPA, TILA, the Section 105(a) of TILA, 15 U.S.C.
may have separate responsibilities FDCPA, and certain subtitles and 1604(a), authorizes the Bureau to
under State law, which may, in certain provisions of title XIV of the Dodd- prescribe regulations to carry out the
circumstances, require that financial Frank Act, are Federal consumer purposes of TILA. Under section 105(a),
institutions provide foreign language financial laws.22 such regulations may contain such
services. As the Bureau has previously additional requirements, classifications,
A. RESPA
noted, the Final Servicing Rules do not differentiations, or other provisions, and
have the effect of prohibiting State law Section 19(a) of RESPA, 12 U.S.C. may provide for such adjustments and
from affording borrowers broader 2617(a), authorizes the Bureau to exceptions for all or any class of
consumer protections relating to prescribe such rules and regulations, to transactions, as in the judgment of the
mortgage servicing than those conferred make such interpretations, and to grant Bureau are necessary or proper to
under the mortgage servicing rules.20 such reasonable exemptions for classes effectuate the purposes of TILA, to
The Bureau will continue to consider of transactions, as may be necessary to prevent circumvention or evasion
language access generally in connection achieve the purposes of RESPA, which thereof, or to facilitate compliance
with mortgage servicing, including include its consumer protection therewith. Under section 102(a), 15
access to effective loss mitigation. The purposes. In addition, section 6(j)(3) of U.S.C. 1601(a), the purposes of TILA
Bureau continues to explore the RESPA, 12 U.S.C. 2605(j)(3), authorizes include assuring the meaningful
obstacles that LEP consumers face when the Bureau to establish any disclosure of credit terms to enable
attempting to access credit, as well as requirements necessary to carry out consumers to compare more readily the
the challenges that servicers and section 6 of RESPA, and section various credit terms available and avoid
creditors face when interacting with 6(k)(1)(E) of RESPA, 12 U.S.C.
the uninformed use of credit and to
those consumers.21The Bureau will 2605(k)(1)(E), authorizes the Bureau to
protect consumers against inaccurate
consider further requirements on prescribe regulations that are
and unfair credit billing practices. The
servicer communications with LEP appropriate to carry out RESPA’s
Bureau’s amendments to Regulation Z
consumers in the mortgage servicing consumer protection purposes. As
carry out TILA’s purposes and such
context, if appropriate. identified in the 2013 RESPA Servicing
additional requirements, adjustments,
Final Rule, the consumer protection
IV. Legal Authority and exceptions as, in the Bureau’s
purposes of RESPA include ensuring
judgment, are necessary and proper to
As discussed more fully in the that servicers respond to borrower
carry out the purposes of TILA, prevent
section-by-section analysis, the Bureau requests and complaints in a timely
circumvention or evasion thereof, or to
is issuing this final rule pursuant to manner and maintain and provide
facilitate compliance therewith.
RESPA, TILA, the FDCPA, and the accurate information, helping borrowers
Dodd-Frank Act. Section 1061 of the avoid unwarranted or unnecessary costs Section 105(f) of TILA, 15 U.S.C.
Dodd-Frank Act transferred to the and fees and facilitating review for 1604(f), authorizes the Bureau to exempt
Bureau the ‘‘consumer financial foreclosure avoidance options. Each of from all or part of TILA any class of
protection functions’’ previously vested the amendments or clarifications to transactions if the Bureau determines
in certain other Federal agencies, Regulation X is intended to achieve that TILA coverage does not provide a
including the Board of Governors of the some or all these purposes. meaningful benefit to consumers in the
Federal Reserve System (Board). The Additionally, as explained below, form of useful information or protection.
term ‘‘consumer financial protection certain of the amendments to Regulation For the reasons discussed in this notice,
X implement specific provisions of the Bureau exempts certain transactions
2078 FR 10696, 10706 (Feb. 14, 2013). RESPA. from the requirements of TILA pursuant
21The Bureau has created a Language Access to its authority under section 105(f) of
Task Force, which is an internal cross-divisional 22See Dodd-Frank Act section 1002(14), 12 U.S.C. TILA.
working group aimed at developing and executing 5481(14) (defining ‘‘Federal consumer financial
a Bureau-wide strategy to provide LEP consumers law’’ to include the ‘‘enumerated consumer laws,’’ Additionally, as explained below,
with meaningful access to information produced by the provisions of title X of the Dodd-Frank Act, and certain of the amendments to Regulation
the Bureau. The Language Access Task Force the laws for which authorities are transferred under
Z implement specific provisions of
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RUL Bureau’s policy and how the current language 5481(12) (defining ‘‘enumerated consumer laws’’ to This final rule also includes
D with aBcucreesasu a’sc toivpietriaetsi oanres ,i mprpolgermamenst, eadn dac sreorsvsi caells .o Bf tuhree au iUn.cSl.uCd. e5 4T8IL1A(1)2; )D noodtde -(Fdreafninki nAgc t‘‘ seencutmioenr a1t4e0d0 (b), 12 amendments to the official Bureau
RO of Consumer Fin. Prot. Language Access Plan, consumer laws’’ to include certain subtitles and commentary in Regulation Z. Good faith
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K3 protection-bureau. protection functions relating to RESPA). section 130(f) of TILA.
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Federal Register/Vol. 81, No. 202/Wednesday, October 19, 2016/Rules and Regulations 72165
C. FDCPA Bureau ‘‘may prescribe rules to ensure Regulations X and Z. The Bureau then
that the features of any consumer discusses each specific section of the
As explained in the section-by-section
financial product or service, both final rule relating to successors in
analysis, the Bureau also is issuing an
initially and over the term of the interest in more detail under the
FDCPA interpretive rule in a separate
product or service, are fully, accurately, heading designating the applicable
notice issued concurrently with this
and effectively disclosed to consumers regulation below.
Final Rule.23The Bureau exercises its
in a manner that permits consumers to Current §1024.38(b)(1)(vi) provides
authority to prescribe rules with respect
understand the costs, benefits, and risks that servicers are required to maintain
to the collection of debts by debt
associated with the product or service, policies and procedures that are
collectors pursuant to section 814(d) of
in light of the facts and circumstances.’’ reasonably designed to ensure that the
the FDCPA, 15 U.S.C. 1692l(d), and its
The authority granted to the Bureau in servicer can, upon notification of the
power to issue advisory opinions under
section 1032(a) of the Dodd-Frank Act is death of a borrower, promptly identify
section 813(e) of the FDCPA, 15 U.S.C.
broad and empowers the Bureau to and facilitate communication with the
1692k(e). Under that section, ‘‘[n]o
prescribe rules regarding the disclosure successor in interest of the deceased
provision of [the FDCPA] imposing any
of the ‘‘features’’ of consumer financial borrower with respect to the property
liability shall apply to any act done or
products and services generally. securing the deceased borrower’s
omitted in good faith in conformity with
Accordingly, the Bureau may prescribe mortgage loan. The Bureau adopted this
any advisory opinion of the Bureau,
rules containing disclosure requirement in the 2013 RESPA
notwithstanding that after such act or
requirements even if other Federal Servicing Final Rule because it
omission has occurred, such opinion is
consumer financial laws do not understood that successors in interest
amended, rescinded, or determined by
specifically require disclosure of such may encounter challenges in
judicial or other authority to be invalid
features. communicating with mortgage servicers
for any reason.’’ The Bureau relies on
Section 1032(c) of the Dodd-Frank about a deceased borrower’s mortgage
this authority to issue an FDCPA
Act, 12 U.S.C. 5532(c), provides that, in loan account.24
interpretive rule interpreting the
prescribing rules pursuant to section The Bureau provided guidance about
exceptions set forth in section 805(c)(2)
1032 of the Dodd-Frank Act, the Bureau this requirement in the October 2013
and (3) of the FDCPA to include the
‘‘shall consider available evidence about Servicing Bulletin. The Bureau noted
written early intervention notice
consumer awareness, understanding of, that it had received reports of servicers
required by proposed §1024.39(d)(2)(iii)
and responses to disclosures or either refusing to speak to a successor in
as well as providing that loss mitigation
communications about the risks, costs, interest or demanding documents to
information or assistance provided in
and benefits of consumer financial prove the successor in interest’s claim to
response to a borrower-initiated
products or services.’’ Accordingly, in the property that either did not exist or
communication should be considered
amending provisions authorized under were not reasonably available.25The
outside the scope of a borrower’s
section 1032(a) of the Dodd-Frank Act, Bureau stated that these practices often
invocation of the cease communication
the Bureau has considered available prevented a successor in interest from
right. The interpretive rule also
studies, reports, and other evidence pursuing assumption of the mortgage
interprets the term consumer for
about consumer awareness, loan and, if applicable, loss mitigation
purposes of FDCPA section 805 to
understanding of, and responses to options.26The October 2013 Servicing
include a confirmed successor in
disclosures or communications about Bulletin provided examples of servicer
interest, as that term is defined in
the risks, costs, and benefits of practices and procedures that would
Regulation X §1024.31 and Regulation
consumer financial products or services. accomplish the objectives set forth in
Z §1026.2(a)(27)(ii).
§1024.38(b)(1)(vi) and alleviate these
V. Section-by-Section Analysis
D. The Dodd-Frank Act problems.27
A. Overview of Sections Relating to Despite the Bureau’s guidance
Section 1022(b)(1) of the Dodd-Frank
Successors in Interest in Regulations X regarding the requirements of the
Act, 12 U.S.C. 5512(b)(1), authorizes the
and Z existing rule, housing counselors and
Bureau to prescribe rules ‘‘as may be
consumer advocacy groups continue to
necessary or appropriate to enable the Introduction
report, in both published reports and
Bureau to administer and carry out the
Several aspects of the final rule affect their comments on this rulemaking, that
purposes and objectives of the Federal
provisions in both Regulations X and Z.
consumer financial laws, and to prevent
For example, the definition of 2478 FR 10695, 10781 (Feb. 14, 2013).
evasions thereof.’’ RESPA, TILA, the
delinquency in §1024.31 affects 25October 2013 Servicing Bulletin at 2.
FDCPA, and title X of the Dodd-Frank requirements in §§1024.39 through 26Id.
Act are Federal consumer financial 1024.41 of Regulation X, as well as 27Id. On July 17, 2014, the Bureau also issued an
laws. §1026.41 of Regulation Z. Generally, the interpretive rule clarifying that where a successor
Section 1032(a) of the Dodd-Frank in interest who has previously acquired a legal
Bureau discusses each section of the
interest in a dwelling agrees to be added as obligor
Act, 12 U.S.C. 5532(a), provides that the
final rule under the heading designating on the mortgage loan, the servicer’s express
the applicable regulation below—part acknowledgment of the successor in interest as
23See Bureau of Consumer Fin. Prot., Official V.B. for Regulation X and part V.C. for obligor does not constitute an ‘‘assumption’’ as that
Bureau Interpretations: Safe Harbors from Liability term is used in Regulation Z. See 79 FR 41631,
Regulation Z. However, because the
under the Fair Debt Collection Practices Act for 41632–33 (July 17, 2014). Accordingly, the
Certain Actions Taken in Compliance with final rule and commentary relating to Regulation Z Ability-to-Repay Rule does not apply
Mortgage Servicing Rules under the Real Estate successors in interest are interspersed when a creditor expressly accepts a successor in
ULES2 STerutttlhem ine nLte nPdroincegd Aucret s( RAecgtu (lRateigounl aZt)i o(nA uXg). a4n, d2 0th1e6 ), throughout Regulations X and Z and icnirtceuremsts taasn ocbelsi.g Soer eo nid a. Tlohaen i nutnedrperr etthivesee r ule also
D with R apvoaliiclay-bcloe matp hlitatnpc:/e//wruwlwem.caoknisnugm/feinrfainl-arunlcees./gsoavf/e- mseacntiyo ncso mofm theen tperrosp aodsdarle asts eodn cme,u tlhtiips le nonotgeodin tgh aotb tlhigea stieornvisc pere rmtauinsti ncgo mtop cloyn wsuitmh earn cyr edit,
RO harbors-liability-under-fair-debt-collection- combined part V.A. provides an such as the ARM notice requirements (12 CFR
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K3 lending-act-regulation-z. issues raised by commenters for both note. Id.
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72166 Federal Register/Vol. 81, No. 202/Wednesday, October 19, 2016/Rules and Regulations
successors in interest face a variety of counselors reported that they had been protection purposes of RESPA and TILA
challenges, including difficulties in asked for probate documents despite and are similar to many of the problems
obtaining information about the status having provided the servicer with a that prompted the Bureau to adopt the
of mortgage loans on their homes or the right of survivorship deed, had been 2013 Mortgage Servicing Rules. As the
monthly payment amount, getting asked to supply the same documents Bureau noted in its 2013 RESPA
servicers to accept their payments, and regarding proof of successor status Servicing Final Rule, RESPA’s
finding out their options to avoid multiple times, had experienced a consumer protection purposes include
foreclosure.28Housing counselors and servicer refusing to communicate with a ensuring that servicers respond to
consumer advocacy groups have also successor in interest at all, or had dealt borrower requests and complaints in a
reported that servicers often refuse to with a servicer that was unclear about timely manner and maintain and
speak with successors in interest, tell what documents were needed to provide accurate information, helping
them they must assume the loan before establish successor status. These reports borrowers avoid unwarranted or
they can apply for a loss mitigation suggest that widespread confusion unnecessary costs and fees, and
option, or accept payments for several remains about the rights and options of facilitating review for foreclosure
months before telling a successor in successors in interest. avoidance options. The Dodd-Frank Act
interest that the servicer will no longer Moreover, the protections established provides the Bureau authority to
accept payments because the successor in the Bureau’s existing rules do not establish prohibitions on servicers of
in interest is not a borrower. apply to many categories of successors federally related mortgage loans
Consumer advocacy groups in interest in need of assistance. The appropriate to carry out the consumer
emphasized in their comments that office of a State Attorney General protection purposes of RESPA.29As the
successors in interest also continue to commented that it continues to receive proposal explained, the Bureau believes
face problems establishing their complaints on behalf of non-borrowers that further modifications to Regulation
successor status. For example, when who obtain property through divorce or X’s mortgage servicing rules relating to
surveyed by one consumer advocacy other types of family transfers that are successors in interest serve these
organization about their experiences not covered under the current rules. purposes, in particular with respect to
assisting successors in interest, a large The ability of successors in interest to preventing unnecessary foreclosure and
number of elder advocates including sell, encumber, or make improvements other homeowner harms, much as the
legal services attorneys and housing to their property is limited by the lien 2013 RESPA Servicing Final Rule
securing the mortgage loan. As served these consumer protection
28See, e.g., Alys Cohen, Nat’l Consumer Law Ctr., homeowners of property securing a purposes.
Snapshots of Struggle: Saving the Family Home mortgage loan, successors in interest The purposes of TILA are to assure a
After a Death or Divorce, Successors Still Face typically must satisfy the loan’s meaningful disclosure of credit terms so
Major Challenges in Obtaining Loan Modifications payment obligations to avoid that the consumers will be able to
(Mar. 2016), available at https://www.nclc.org/
foreclosure, even though a successor in compare more readily the various credit
images/pdf/pr-reports/report-snapshot-struggle.pdf;
Nat’l Hous. Res. Ctr., Servicer Compliance with interest will not necessarily have terms available and avoid the
CFPB Servicing Regulations (Feb. 2016), available assumed liability for the mortgage debt uninformed use of credit and to protect
at http://www.hsgcenter.org/wp-content/uploads/ under State law. A foreclosure or consumers against inaccurate and unfair
2016/02/NHRC-2016-Servicing-Survey-Report.pdf;
threatened foreclosure imperils a credit billing practices.30The Bureau
Nat’l Consumer Law Ctr., NCLC Survey Reveals
Ongoing Problems with Mortgage Servicing (May successor in interest’s ownership believes these purposes are served by
2015), available at http://www.nclc.org/images/pdf/ interest and poses significant risk of extending the protections of Regulation
foreclosure_mortgage/mortgage_servicing/ib- consumer harm. Successors in interest, Z’s mortgage servicing rules to
servicing-issues-2015.pdf; Nat’l Council of La Raza
like other homeowners, can face serious confirmed successors in interest, who,
& Nat’l Hous. Res. Ctr., Are Mortgage Servicers
Following the New Rules? A Snapshot of adverse consequences from foreclosure. as owners of dwellings securing
Compliance with CFPB Servicing Standards 3, 7 These consumer harms may include loss mortgage loans, have an interest in
(Jan. 9, 2015), available at http://www.nclr.org/ of the home and accumulated equity, obtaining timely and accurate account
Amsosrettgsa/guepsleoravdicse/sPruebploicrta_t1io1n2s1/5.pdf; Nat’l Consumer displacement, and damage to credit information as to the mortgage secured
Law Ctr., Examples of Cases Where Successors in scores. by their dwelling. The Dodd-Frank Act
Interest and Similar Parties Faced Challenges Successors in interest may also have authorizes the Bureau to modify or
Seeking Loan Modifications and Communicating difficulty, beyond that of other create an exemption from the disclosure
with Mortgage Servicers (July 1, 2014), available at homeowners, in avoiding foreclosure requirements of TILA regarding
http://www.nclc.org/images/pdf/foreclosure_
mortgage/mortgage_servicing/successor-stories- and may be more likely than other residential mortgage loans if the Bureau
2014.pdf; Cal. Reinvestment Coal., Chasm Between homeowners to have experienced determines that such exemption or
Words and Deeds X: How Ongoing Mortgage recently or to be experiencing an modification is in the interest of
Servicing Problems Hurt California Homeowners income disruption due to death or consumers and in the public interest.31
and Hardest-Hit Communities (May 2014), available
divorce. Successors in interest may also As explained in more detail in the
at http://www.calreinvest.org/publications/
california-reinvestment-coalition-research; Nat’l have more difficulty than other discussion that follows and in the
Hous. Res. Ctr., National Mortgage Settlement homeowners obtaining information section-by-section analysis of the final
Servicing Standards and Noncompliance: Results of about the status of the mortgage loan, rule sections,32the Bureau proposed
a National Housing Counselor Survey 8 (June 5,
options for loss mitigation, and payoff three sets of rules relating to successors
2013), available at http://www.hsgcenter.org/wp-
content/uploads/2013/06/NMS_Findings.pdf; Cal. information and may be more likely in interest. First, the Bureau proposed
Reinvestment Coal., Chasm Between Words and than other homeowners to experience rules to define successors in interest for
ULES2 wDCoewemwdm.sc uIaXlnr:ie tBiineasvn e(kAs tVp.oirorigll a/2pt0iuo1bn3ls)i, c Haautviarotin lHas/baclread leaifsto th rHnttiipat :-/ / dthifefiirc pualtyym weinthts ,t hrees purlotimngp ti nc ruendniteincegs osaf ry 2912 U.S.C. 5512(b)(1).
D with R reexianmveinstemrse hnat-vceo aallistoio onb-sreesrveaedrc nho. nT-hceo mBuprleiaanuc’se with fsourceccelsossourrse i. nF oinr taelrle tsht easree rae pasaortnisc,u larly 33011D5o dUd.S-F.Cra. n1k6 0A1c(ta )s.e ction 1405(b), 15 U.S.C.
RO Regulation X’s policy and procedure requirement vulnerable group at risk of substantial 1601 note.
GMQ082P CMreoolanrtstigunamgg eteo rS sFeuirncvc.i cePisnrsogot r.S,s p Sienuc piianerlt veEirsdeositrti.yo SnHe i(egI shBsluuigreeh 1atsu1 ) o aft 15– haTrmhess. e difficulties present significant §1§0321240S.23e49e.( 3sb0e)(c(1dti))o,, n110-0b22y44-..s43e11c(,tb i1o)0,n 21 a40n.23a66l.y(2is()ae, )s1( 10o12f )4,. 38(b)(1)(vi),
K3 16 (June 2016). problems related to the consumer 1026.2(a)(27), and 1026.41(a), infra.
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Federal Register/Vol. 81, No. 202/Wednesday, October 19, 2016/Rules and Regulations 72167
purposes of Regulation X’s subpart C two additional protections that were not categories of transfers: A transfer where
and Regulation Z as those persons who part of the proposal (§§1024.17 and the spouse or children of the borrower
acquired an ownership interest in the 1026.39). These provisions are referred become an owner of the property; a
property securing a mortgage loan in a to herein collectively as the Mortgage transfer resulting from a decree of a
transfer protected by the Garn-St Servicing Rules.34 dissolution of marriage, legal separation
Germain Depository Institutions Act of Consistent with the proposal, agreement, or from an incidental
1982 (the Garn-St Germain Act).33 coverage under the final rule does not property settlement agreement, by
Second, the Bureau proposed rules depend on whether a successor in which the spouse of the borrower
relating to how a mortgage servicer interest has assumed the mortgage loan becomes an owner of the property; a
confirms a successor in interest’s obligation (i.e., legal liability for the transfer into an inter vivos trust in
identity and ownership interest in the mortgage debt) under State law. which the borrower is and remains a
property. Third, the Bureau proposed to Whether a successor in interest has beneficiary and which does not relate to
apply certain mortgage servicing rules to assumed a mortgage loan obligation a transfer of rights of occupancy in the
successors in interest whose identity under State law is a fact-specific property; and any other transfer or
and ownership interest in the property question. The final rule does not affect disposition described in regulations
have been confirmed by the servicer. this question but applies with respect to prescribed by the Federal Home Loan
The Bureau received more comments a successor in interest regardless of Bank Board.38
on the successor in interest provisions whether that person has assumed the The Bureau proposed that, to the
than on any other aspect of the mortgage loan obligation under State extent that certain mortgage servicing
proposal. As noted above, in their law.35As explained in comment 30(d)– rules apply to successors in interest, the
comments, consumer advocacy groups 2 to Regulation X and in comment rules would apply to all successors in
reported that successors in interest 2(a)(11)–4 to Regulation Z, if a successor interest who acquired an ownership
continue to face challenges with respect in interest assumes a mortgage loan interest in the property securing a
to the servicing of mortgage loans obligation under State law or is mortgage loan in a transfer protected by
secured by their property. These otherwise liable on the mortgage loan the Garn-St Germain Act, rather than
commenters generally expressed obligation, the protections the successor only successors in interest who acquired
support for the Bureau’s proposal and, in interest enjoys under Regulations X an ownership interest upon a borrower’s
in many instances, urged the Bureau to and Z are not limited to the protections death. Accordingly, for the purposes of
adopt additional or broader protections that apply under §§1024.30(d) and Regulation X, the Bureau proposed to
for successors in interest. Servicers, 1026.2(a)(11) to a confirmed successor define successor in interest in §1024.31
trade associations, and other industry in interest. as a member of any of the categories of
commenters, however, raised a variety successors in interest who acquired an
Scope of Successor in Interest Rules
of concerns about the Bureau’s proposal, ownership interest in the property
including operational challenges, The Bureau proposed changes securing a mortgage loan in a transfer
privacy concerns, and questions about regarding who is considered a successor protected by the Garn-St Germain Act.
the Bureau’s legal authority and the in interest for purposes of Regulation The Bureau also proposed to modify
proposal’s interaction with other laws. X’s subpart C and Regulation Z. Current current §1024.38(b)(1)(vi) to account for
As explained in more detail in the §1024.38(b)(1)(vi) refers to the all transfers to successors in interest
discussion that follows and in the successor in interest of the deceased meeting this definition. Similarly, for
section-by-section analysis of the final borrower. The Bureau proposed to the purposes of Regulation Z, proposed
rule sections, the Bureau is finalizing define successor in interest using §1026.2(a)(27) would have defined
the three sets of rules relating to definitions based on section 341(d) of successor in interest to cover all
successors in interest with significant the Garn-St Germain Act, which categories of successors in interest who
adjustments to address concerns raised generally prohibits the exercise of due- acquired an ownership interest in the
in the comments. The Bureau believes on-sale clauses with respect to certain dwelling securing a mortgage loan in a
that the successor in interest provisions protected transfers.36The Act protects transfer protected by the Garn-St
in the final rule are necessary to address certain types of transfers involving the Germain Act.
the significant problems successors in death of a borrower.37In addition, the For the reasons that follow and that
interest continue to encounter with Garn-St Germain Act protects other are explained in the section-by-section
respect to the servicing of mortgage analyses of §§1024.31 and
loans secured by their property, such as 34The term Mortgage Servicing Rules has a 1026.2(a)(27)(i), the final rule includes
lack of access to information about the broader meaning as used herein than it did in the definitions of successor in interest in
mortgage loan. The Bureau also believes proposal, where the Bureau used it to refer to the §§1024.31 and 1026.2(a)(27)(i) that are
2013 Mortgage Servicing Rules as amended in 2013
that the rule, as finalized, addresses the modeled on categories of transfers
and 2014. The term Mortgage Servicing Rules as
operational, privacy, and other used herein includes §§1024.17 and 1026.39 in protected in the Garn-St Germain Act,
significant concerns raised by addition to the 2013 Mortgage Servicing Rules as but the definitions do not cross-
commenters. amended in 2013 and 2014. reference the Garn-St Germain Act itself.
35As noted, the Bureau has also clarified in an
As explained below, the final rule Specifically, after reviewing the
interpretive rule that where a successor in interest
defines successor in interest and who has previously acquired a legal interest in a comments, the Bureau is defining
establishes requirements relating to dwelling agrees to be added as obligor on the successor in interest for purposes of
confirming successors in interest. It also mortgage loan, the servicer’s express subpart C of Regulation X in §1024.31
acknowledgment of the successor in interest as
S2 extends to confirmed successors in obligor does not constitute an ‘‘assumption’’ as that to mean a person to whom an
ULE interest the protections of the mortgage term is used in Regulation Z. See 79 FR 41631, ownership interest in a property
D with R siderevnitcifiinegd r iunl etsh eth parto tphoes Balu (rReaeugu lation 413663122– 3U3. S(J.Cul. y1 71071, j2–031(4d)).. 38Id. The Garn-St Germain Act also prohibits
RO X’s subpart C and §§1026.20(c), (d), and 37Specifically, the Act protects a transfer to a exercise of due-on-sale clauses with respect to
Q082P (e), 1026.36(c), and 1026.41), as well as rae tlraatnivsefe rre bsuy ldtienvgi sfero, mde tshcee ndte, aotrh o opfe ar abtoiorrno owfe lra wan odn coef ratnai onw ontheersr hsiiptu ianttieorness tt hinat t dhoe pnroot pinervtoyl.v Ied .t rTahnes fer
GM the death of a joint tenant or tenant by the entirety. Bureau’s proposal would not have applied to these
K3 3312 U.S.C. 1701j–3(d). Id. situations.
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72168 Federal Register/Vol. 81, No. 202/Wednesday, October 19, 2016/Rules and Regulations
securing a mortgage loan subject to consumer advocacy group indicated categories of transfers. The legislative
subpart C is transferred from a borrower, that, for a large percentage of the history of the Garn-St Germain Act
provided that the transfer falls in one or successors in interest it has assisted, the reflects that Congress chose to create
more of the following categories: servicers’ refusal to provide any this broad exemption because it deemed
• A transfer by devise, descent, or information about the status of the such enforcement unfair and
operation of law on the death of a joint account to the successor in interest has inappropriate.42For the same reasons
tenant or tenant by the entirety; led to prolonged delinquency and that due-on-sale enforcement would be
• A transfer to a relative resulting unnecessary foreclosure proceedings. inappropriate in the context of these
from the death of a borrower; This group stated that it believes that transfers, the Bureau believes it is also
• A transfer where the spouse or the proposed definition of successor in important to ensure that servicers do not
children of the borrower become an interest would offer important interfere in other ways with the
owner of the property; protections to prevent unnecessary transferees’ ability to take advantage of
• A transfer resulting from a decree of foreclosures and reduce unnecessary their ownership interest in the property.
a dissolution of marriage, legal delays in reaching agreements. Another For example, just as due-on-sale
separation agreement, or from an consumer advocacy group indicated that enforcement can result in a successor in
incidental property settlement extending the rules to include all interest losing a property, a servicer’s
agreement, by which the spouse of the protected transfers under the Garn-St failure to provide information to a
borrower becomes an owner of the Germain Act would significantly benefit successor in interest about the status of
property; or its vulnerable clients. a mortgage loan or to evaluate the
• A transfer into an inter vivos trust The office of a State Attorney General successor in interest for available loss
in which the borrower is and remains a expressed support for extending mitigation options could result in
beneficiary and which does not relate to protections to the Garn-St Germain Act unnecessary foreclosure and loss of the
a transfer of rights of occupancy in the categories and indicated that servicers successor in interest’s ownership
property.39 often refuse to communicate with interest.
The Bureau is finalizing an analogous divorcees and other family transferees. Congress identified in the Garn-St
definition for Regulation Z in A local government commenter also Germain Act the categories that it felt
§1026.2(a)(27)(i).40 expressed strong support for including warranted protection from one type of
Whether to use the Garn-St Germain in the definition successors in interest foreclosure risk. The Bureau agrees that
Act categories at all in defining who meet the criteria set forth in the these general categories include the
successor in interest. Commenters Garn-St Germain Act based on its most vulnerable classes of transferees
offered different views on whether the experience running a mortgage and has concluded that it is important
Bureau should use the Garn-St Germain foreclosure diversion program over the to protect such transferees from other
Act categories at all in defining the term past seven years. types of foreclosure risk and servicing
successor in interest. Consumer Some industry commenters objected abuses.
to the use of the Garn-St Germain Act Notwithstanding the suggestion of one
advocacy groups and some State and
framework in defining who is a commenter to the contrary, the Bureau
local government commenters expressed
successor in interest. Two trade also believes that the categories
support for including the Garn-St
associations stated that Congress did not established in section 341(d) of the
Germain Act categories in the
intend for the Garn-St Germain Act to Garn-St Germain Act provide adequate
definition.41For example, one
protect against any consequences of protection for transfers from child to
delinquency. These commenters stated parent. Section 341(d)(5) includes
39The Bureau interprets ‘‘spouse’’ to include
married same-sex spouses. See Memorandum on that section 341 of the Garn-St Germain transfers from a relative (including from
Ensuring Equal Treatment for Same-Sex Married Act was designed to address when a child to a parent or from a parent to
Couples (Same-Sex Married Couple Policy) (June lenders may and may not require a loan a child) that occur upon the death of a
25, 2014), available at http:// modification. One of these trade borrower. Section 341(d)(6) also
files.consumerfinance.gov/f/201407_cfpb_memo_
associations suggested that the Garn-St includes ownership transfers from a
ensuring-equal-treatment-for-same-sex-married-
couples.pdf. Germain Act categories are not well- parent to a child and between spouses
40The final rule’s definition of successor in suited for use in the successor in that occur during the life of the
interest for Regulation Z is identical to the interest definitions because a child who borrower. The fact that section 341(d)
definition for subpart C of Regulation X, except that
buys a property from a parent would be does not include transfers from a child
the Regulation Z definition substitutes ‘‘a dwelling
securing a closed-end consumer credit transaction protected but a parent who buys a to a parent that occur during the life of
is transferred from a consumer’’ for ‘‘a property property from a child would not. the transferor reflects Congress’s
securing a mortgage loan is transferred from a Another trade association stated that the determination that transfers from parent
borrower’’ and substitutes ‘‘consumer’’ for sole purpose of the Garn-St Germain Act to child need greater protection from
‘‘borrower’’ throughout. Both definitions of
was to preempt acceleration based on due-on-sale enforcement. The Bureau
successor in interest are limited to transferees who
receive an ownership in property that secures certain transfers of ownership on
closed-end credit because §1024.31 defines residential properties. 42See S. Rep. No. 536, 97th Cong., at 24 (1982),
mortgage loan for purposes of Regulation X subpart Despite the concerns expressed by reprinted in 1982 U.S.C.C.A.N. 3054, 3078 (‘‘The
C to exclude open-end lines of credit and some commenters, the Bureau continues Committee believes that it would be unfair and
§1026.2(a)(27)(i) refers to closed-end consumer inappropriate for lenders to enforce due-on-sale
credit transactions. However, transferees of to believe that it is appropriate to align clauses under certain circumstances—such as
properties that secure open-end credit are entitled the successor in interest definitions in involuntary transfers resulting from the death of a
to protection as borrowers under RESPA and Regulations X and Z in large part with borrower, transfers which rearrange ownership
ULES2 RReegguullaattiioonn ZX iafn tdh ecyo nasssuummeers t huen dloearn T oILbAlig aantido n the categories in section 341(d) of the rsiegphatrsa wtioitnh ionr ad ifsasmoliulyt,i oonr torfa an smfearrsr iraegseu.l tSiinmg iflraormly ,a
D with R umnodretgra Sgtea tleo alnaw o bolri gaartei oonth aenrdw imsea yli abbel pe roonte tchtee d Ginadruns-Strty G ceormmmaienn Atecrts. aAttlethmoputgehd at of ew fsuerctohnedr emnocrutmgabgreasn wcehsi cohf tahree pofrtoepne urtsye,d s ubcyh f aams ilies
RO under other laws. characterize this provision differently, to send a child to college, or finance home
GMQ082P aplrso4o1p Afoassve oddri esdcdeu faisdnseditdiino ignn sfa rdoadf, sitthuioecscneea slcs ocoamrt eimnge oinrnitteeesrr set osgt et fhnoeer r ally tphreo vteidxet so fa sbercotaiodn e 3x4em1(pdt)i colne afrrolym due- iermenlfpaotrreoc vteoem mae etnrnta tnasss, fwleorin lolg f n arosig tt hhtrteisg eognef cro udcmcuuebp-roaannn-ccseya ldieno eths en ot
K3 Regulation X subpart C and Regulation Z. on-sale enforcement for various property.’’).
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Federal Register/Vol. 81, No. 202/Wednesday, October 19, 2016/Rules and Regulations 72169
believes that the same policy choice is within the Bureau’s definition of In restating the categories in the final
appropriate in defining successor in successor in interest. This trade rule, the Bureau has not incorporated
interest in Regulations X and Z because association said that its membership certain scope limitations imposed by the
lifetime transfers to children and indicated that servicers of non-FHA- Garn-St Germain Act itself or its
spouses are both more common than insured reverse mortgages follow similar implementing regulations. The Bureau
lifetime transfers to parents and more processes. It also noted that reverse notes that many of those limitations are
central to ensuring that familial mortgages are exempt from many of the similar in nature to those in the
homesteads and wealth will be available mortgage servicing requirements in Mortgage Servicing Rules themselves
to the next generation.43 Regulations X and Z. It suggested that and believes that it will be easier for
Whether to cross-reference the Garn- applying the successor in interest servicers and more protective for
St Germain Act in the definitions and requirements to reverse mortgage consumers to let the Mortgage Servicing
whether to incorporate limitations servicers would be burdensome and Rules’ limitations determine the scope
imposed by the Garn-St Germain Act would provide little if any practical of coverage consistently for confirmed
implementing regulations. Industry benefits given the servicing protocols successors in interest as for other
commenters asked whether the Bureau and requirements already in place in the borrowers under the Mortgage Servicing
intended to incorporate the occupancy reverse mortgage industry. Rules, rather than to import slightly
requirements of the Garn-St Germain A trade association requested that varying limitations in the Garn-St
Act implementing regulations small servicers be exempted from Germain Act or OCC regulations.46The
administered by the Office of the complying with the prescriptive Mortgage Servicing Rules thus generally
Comptroller of the Currency (OCC), 12 requirements of the successor in interest apply to confirmed successors in
CFR 191.5(b). The implementing provisions. It stated that tracking interest in the same manner that they do
regulations impose certain occupancy successors in interest could require to other borrowers.
requirements and expressly exclude For example, section 341(d) of the
costly system modifications. The
reverse mortgages from the scope of Garn St-Germain Act by its terms only
commenter indicated that an exemption
Garn-St Germain due-on-sale applies with respect to a real property
for small servicers would be consistent
protection.44Commenters indicated loan secured by a lien on residential real
with the Bureau’s approach to other
uncertainty about whether the Bureau property containing less than five
general servicing requirements for small
intended to apply the occupancy dwelling units, including a lien on the
servicers. By contrast, several consumer
requirements that appear only in the stock allocated to a dwelling unit in a
advocacy groups urged the Bureau to
Garn-St Germain Act implementing cooperative housing corporation, or on
expand the requirements for small
regulations and not in the Garn-St a residential manufactured home.47For
servicers beyond those in the proposal
Germain Act. ease of application and to align with
to require small servicers to comply
An industry commenter suggested other parts of Regulations X and Z, the
with all of the proposed requirements of
that the Bureau should omit reference to Bureau has not incorporated these
§1024.38(b)(1)(vi).
the Garn-St Germain Act in Regulations limitations into the definitions of
Upon consideration, the Bureau has
X and Z and instead enumerate the successor in interest in the final rule.
decided to incorporate the relevant
categories of transfers of ownership that Instead, the definitions of successor in
categories of transfers directly into the
would qualify for regulatory protection, interest in the final rule incorporate the
final rule, rather than relying on a cross-
in order to avoid unintended scope limitations from Regulations X
reference to the Garn-St Germain Act.
consequences. Other industry and Z respectively by, for example,
Accordingly, the final rule lists the
commenters asked the Bureau to clarify referring to a mortgage loan in the
specific categories of transfers that
in the final rule how the existing definition of successor in interest in
qualify a transferee to be a successor in
exemptions and scope limitations in §1024.31 and to a dwelling securing a
interest, using categories that are
Regulations X and Z would apply to the closed-end consumer credit transaction
modeled on categories protected by the
servicing of a mortgage loan with in §1026.2(a)(27)(i).48
Garn-St Germain Act. To ensure that the
respect to a successor in interest. The Bureau has also decided not to
A trade association urged the Bureau scope of the final rule does not change incorporate certain limitations imposed
to exempt reverse mortgages entirely. It over time without further rulemaking by by the Garn-St Germain Act
stated that existing guidelines, the Bureau, the Bureau has omitted the implementing regulations. The
protocols, and timelines governing Garn-St Germain Act category that implementing regulations issued by the
Home Equity Conversion Mortgages protects from due-on-sale enforcement OCC’s predecessor, the Federal Home
insured by the Federal Housing any other transfer or disposition
Administration (FHA) require servicers described in the Garn-St Germain Act 46While the Garn-St Germain Act and its
of such reverse mortgages to reach out implementing regulations.45The Bureau implementing regulations define a category of
to and deal with persons who might fall believes that listing the specific transactions that should receive protection from
foreclosure through the exercise of a due-on-sale
categories rather than including a cross-
clause, the focus of the Garn-St Germain Act and
43Another commenter suggested that using the reference makes the definitions in its implementing regulations is solely on operation
Garn-St Germain Act categories could create Regulations X and Z clearer and easier of due-on-sale protections, and the Bureau’s focus,
inequitable results, noting that if three descendants to apply. while related, is somewhat different.
inherit an unencumbered property that is later 4712 U.S.C. 1701j–3(d).
encumbered by only one descendant, there would 48See, e.g., §1024.31 (defining mortgage loan for
be no successor in interest, but if the parent had 4512 U.S.C. 1701j–3(d)(9). There are no such purposes of Regulation X subpart C as any federally
ES2 epnricourm tob ethreed i nthhee rpitraonpceer,t ya lwl tihthre ae mdeosrctgeangdea lnotasn oStehee 1r 2c aCtFegRo 1ri9e1s. 5cu(br)r(e1n).t lTyh ien Bthuer eOaCu Ch’ass r eaglsuol ation. r§e1la0t2e4d. 2m sourbtgjeacgte t olo tahne, eaxs etmhapt ttieornms iins d§e1f0in2e4d.5 i(nb ),
RUL would be successors in interest. The Bureau omitted several categories in the Garn-St Germain but not including open-end lines of credit (home
D with bcoelmiepvaersa,b hleo.w Inev tehre, tfhoramt tehro csaes sei,t wuahteioren st haer et rnaonts fer Ainctet rtehsatt adnod n tohta rt easruel tth iner ae ftorraen isrfreerl eovf aonwt nfoerr ship eRqeugiutlya tpiloann sZ) )a; s§ a1 r0e2s6id.2e(na)t(i1al9 )s t(rduecftiunrien gth dawt ceollnintagi nfosr
RO of ownership occurs before the encumbrance, the successor in interest status. See 12 U.S.C. 1701j– one to four units, whether or not that structure is
Q082P itnhtee mreostrstg oafg teh ief htheeirys haarev eg ecnoenrsaelnlyte odn tloy tshueb ject to 3(D(de)c(.1 1),5 (,2 2)0, (144)); (sneoe tainlsgo t h79at F tRhe 7 p4r1o7p6o, s7a4l1 w81o unl.d2 8n ot ainttcalcuhdeeds taon r ienadl ipvriodpuearlt cyo, nanddo mnointiinugm t huanti tt,h e term
GM mortgage. apply to the situations described in these cooperative unit, mobile home, and trailer, if it is
K3 4412 CFR 191.5(b). categories). used as a residence).
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