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Mortgage Servicing and Loan Modifications: 3.6.6 Limitations of Fees

The Dodd-Frank Act provides that all charges related to force-placed insurance that are assessed to the borrower, other than charges subject to state regulation as the business of insurance, must be bona fide and reasonable.776 Regulation X implements this statutory language by defining a “bona fide and reasonable charge” as 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.”777

Mortgage Servicing and Loan Modifications: 3.6.7 Exemptions from Coverage

In addition to the exclusion for flood insurance discussed above, a partial exemption has been provided to small servicers from the duty to disburse funds from escrow to pay premiums on existing borrower insurance policies.778 Small servicers are exempted from the requirements in subsections 1024.17(k)(5)(i) and 1024.17(k)(5)(ii)(B) of Regulation X, but only if any force-placed insurance that is purchased by the small servicer and charged to the borrower is less than the amount the small servicer would need to disburse out of the borrower’s e

Mortgage Servicing and Loan Modifications: 3.7.1 Introduction

The 2013 RESPA servicing rule amendments to Regulation X, effective January 10, 2014, include provisions dealing with foreclosure avoidance and loss mitigation.793 Section 1024.39 focuses on the period soon after a borrower becomes delinquent. The regulation requires a servicer to attempt to establish contact with the borrower at this early stage in order inform the borrower about available options to avoid foreclosure.

Mortgage Servicing and Loan Modifications: 3.7.3 Live Contact with Borrower

A servicer is required to make good faith efforts to establish “live contact” with a delinquent borrower not later than the thirty-sixth day of the borrower’s delinquency.806 Promptly after establishing live contact, the servicer is to inform the borrower, or the borrower’s authorized agent, about the availability of loss mitigation options, if appropriate.807 If the borrower makes a payment in full before the end of the thirty-six-day period, the servicer need not establish live contact with th

Mortgage Servicing and Loan Modifications: 3.7.5.1 Generally

The early intervention requirements apply only to a closed-end mortgage loan that is secured by a property that is the debtor’s principal residence.847 In addition, the early intervention requirements do not apply to: (1) a servicer that qualifies as a small servicer;848 (2) a servicer with respect to a reverse mortgage transaction;849 or (3) a servicer with respect to a mortgage loan for which the servicer is a “qualified lender.”

Mortgage Servicing and Loan Modifications: 3.7.5.3 Borrowers Who Have Sent an FDCPA Cease Communication Letter

An exemption from the early intervention requirements was added to Regulation X by the 2013 interim final rule for a servicer subject to the FDCPA with respect to a mortgage loan for which the borrower has sent a cease communication notice to the servicer pursuant to the Fair Debt Collection Practices Act, 15 U.S.C. § 1692c(c).873 This provision was later modified and a partial exemption was made final as part of the 2016 mortgage servicing rule, effective October 17, 2017.

Mortgage Servicing and Loan Modifications: 3.7.6.2 Live Contact with Borrowers Not in Forbearance

Until October 1, 2022, when a servicer establishes live contact with a borrower based on the timing requirements found in existing section 1024.39(a),888 and the borrower is not in a loan forbearance program when that contact is made (and the owner or assignee of the loan generally makes loan forbearances available to borrowers), temporary section 1024.39(e)(1) requires that the servicer inform the borrower of the following information:

Mortgage Servicing and Loan Modifications: 3.7.6.3 Live Contact with Borrowers in Forbearance

Until October 1, 2022, if the borrower is in a COVID-19-related forbearance program additional information must be provided to the borrower depending upon when the live contact occurs. If the live contact occurs at least ten days—and no more than forty-five days—before the scheduled end of the forbearance, or during the first live contact made after August 31, 2021, if the scheduled end of the forbearance occurs between August 31, 2021, and September 10, 2021, then temporary section 1024.39(e)(2) provides that the servicer shall inform the borrower of the following information:

Mortgage Servicing and Loan Modifications: 3.7.6.4 Clarifications to CFPB Official Interpretations

The CFPB’s official interpretations of section 1024.39 provide examples of a servicer’s good faith efforts to establish live contact with the borrower and discuss how the early intervention requirements interact with the loss mitigation procedures covered by section 1024.41.897 These official interpretations provide that if the servicer has established and is maintaining ongoing contact with the borrower under the section 1024.41 loss mitigation procedures, such as by working with the borrower to complete a loss mitigation application or by e

Mortgage Servicing and Loan Modifications: 3.8.1 Introduction

In drafting the loss mitigation requirements in Regulation X § 1024.41, the CFPB drew a distinction between “substantive” and “procedural” regulation of servicers’ loss mitigation activities.908 The regulation expressly states that nothing in section 1024.41 imposes a duty on a servicer to provide any borrower with a specific loss mitigation option.909 The CFPB did not see itself as exerting control over a servicer’s approval or non-approval of particular loss mitigation options.

Mortgage Servicing and Loan Modifications: 3.8.2.1.2 Options offered without an application—“blind offers”

Upon receipt of a complete loss mitigation application, a servicer must evaluate the borrower for all available loss mitigation options.930 Servicers are generally not permitted to evade this duty to “evaluate a complete loss mitigation application for all loss mitigation options available to the borrower by offering a loss mitigation option based upon an evaluation of any information provided by a borrower in connection with an incomplete loss mitigation application.”931 However, the regulation

Mortgage Servicing and Loan Modifications: 3.8.2.3.1 Overview

When initially made aware of a communication that can reasonably be deemed to be an application for loss mitigation, the servicer must promptly conduct a review to determine whether the communication represents a complete or an incomplete application.948 If the servicer deems the application to be “incomplete” for any reason, the regulation requires two actions by the servicer. First, the servicer must act affirmatively to complete the application.

Mortgage Servicing and Loan Modifications: 3.8.2.3.2 Requirement to exercise reasonable diligence to complete application

The CFPB’s loss mitigation rule defines a loss mitigation application broadly, so that borrowers who request mortgage assistance in most cases have submitted applications to their servicers.951 However, many of the borrower protections under section 1024.41, such as the prohibition on dual tracking,952 do not apply until the borrower submits a complete (or facially complete) application.