RSK.IQ Question of the Week 6/18/18
Mortgage Loan Periodic Statements and Bankruptcy
Issue/Inquiry
The CFPB Mortgage Servicing Rule changes that affect periodic statements include additional disclosures for consumers in bankruptcy that are now supported by the Bank’s core processing system. Is the Bank required to make changes to its loan bills for customers in bankruptcy? If so, what changes must the Bank make? Does the size of the institution or how many loans it has matter? If the Bank is required to make changes to its current loan billing verbiage and format, when do these changes need to be implemented?
Response Summary
The Mortgage Servicing Rules require the periodic statement to consumers in bankruptcy to be modified, though mortgage loans will be exempted in certain circumstances. The requirement went into effect on April 19, 2018. Small servicers do not have to comply with this requirement.
Response Detail
Under the Mortgage Servicing Rules prescribed by Regulation Z, certain modifications to the periodic statement are to be made when a consumer is in bankruptcy. The nature and extent of the modifications will depend on the chapter of the Bankruptcy Act (e.g., chapters 7, 11, 12, and 13) under which the bankruptcy was filed. 12 CFR §1026.41(f)(1),(2),(3).
The rules pertaining to periodic statements to consumers in bankruptcy took effect on April 19, 2018. CFPB, Small Entity Guide to Mortgage Servicing Rules, 2.2.
A servicer is exempt from the requirements of this section regarding a mortgage loan if:
- Any consumer on the mortgage loan is a debtor in bankruptcy under title 11 of the United States Code or has discharged personal liability for the mortgage loan
- Regarding any consumer on the mortgage loan:
- The consumer requests in writing that the servicer cease providing a periodic statement or coupon book
- The consumer’s bankruptcy plan provides that the consumer will surrender the dwelling securing the mortgage loan, provides for the avoidance of the lien securing the mortgage loan, or otherwise does not provide for, as applicable, the payment of pre-bankruptcy arrearage or the maintenance of payments due under the mortgage loan
- A court enters an order in the bankruptcy case providing for the avoidance of the lien securing the mortgage loan, lifting the automatic stay regarding the dwelling securing the mortgage loan, or requiring the servicer to cease providing a periodic statement or coupon book
- The consumer files with the court overseeing the bankruptcy case a statement of intention identifying an intent to surrender the dwelling securing the mortgage loan and a consumer has not made any partial or periodic payment on the mortgage loan after the commencement of the consumer’s bankruptcy case. 12 CFR §1026.41(e)(5).
In addition, small servicers are exempt from certain parts of the Mortgage Servicing Rules, including the periodic statement rules. For the purposes of the regulation, a “small servicer” includes a financial institution that, with any affiliates, services 5,000 or fewer mortgage loans that originated or were assigned to it. In determining whether a servicer satisfies this section, it is evaluated based on the mortgage loans serviced by the servicer as of January 1st and for the remainder of the calendar year. 12 CFR §1026.41(e)(4).
To be the creditor or assignee of a mortgage loan, the servicer (or an affiliate) must either currently own the mortgage loan or have been the entity to which the mortgage loan obligation was initially payable (i.e., the originator of the mortgage loan). A servicer is not a small servicer for the purposes of this exemption if it services any mortgage loans for which the servicer or an affiliate is not the creditor or assignee (i.e., the servicer or an affiliate is not the owner or was not the originator). Official Interpretations, 1026.41(e)(4)(2)(ii) – 2.
This means that if the Bank is a small servicer, it is not required to comply with the disclosure requirements for periodic statements to consumers in bankruptcy. Whether the Bank wishes to do so in the manner prescribed by the Mortgage Servicing Rules is a business decision at the Bank’s discretion. If the Bank is not a small servicer then it should already be providing the modified periodic statements to consumers in bankruptcy, unless the exemption for mortgage loans is applicable.
This entry was posted on Monday, June 18th, 2018 at 6:00 am.