On November 20, 2009, the Federal Reserve Board published an interim final rule providing guidance on how to comply with the mortgage transfer notice requirement under Section 404(a) of the Helping Families Save Their Homes Act of 2009 (Public Law 111-22, 123 Stat. 1632) (the “Act”), which became effective immediately upon its enactment on May 20, 2009. The interim final rule became effective on November 20, 2009, although covered persons have until January 19, 2010, to comply with the rule.
Section 404(a) of the Act amends Section 130(a) of the Truth in Lending Act (“TILA”) establishing a new notice requirement in connection with the sale or transfer of a mortgage loan secured by the consumer’s principal dwelling. The purchaser or assignee that acquires the loan must provide the consumer with the required disclosures no later than 30 days after the date on which the loan is acquired.
Covered Persons
The interim final rule clarifies that the disclosure requirements apply to any “covered person,” except as provided in the rule. A “covered person” means any person that becomes the owner of an existing mortgage loan by acquiring legal title to the debt obligation, whether through a purchase, assignment, or other transfer, and who acquires more than one mortgage loan in any 12-month period. The disclosure requirements do not apply to persons who acquire only a beneficial interest in the loan or a security interest in the loan. For example, an investor that acquires mortgage-backed securities and does not directly acquire legal title in the underlying mortgage loans is not subject to the disclosure requirements.
The interim final rule provides that a servicer of a mortgage loan is not treated as the owner of the obligation if the servicer holds title to the loan or the loan is assigned to the servicer solely for the administrative convenience of the servicer in servicing the obligation. Under such circumstances, the servicer is not subject to the disclosure requirements even if the servicer holds legal title to the loan.
The interim final rule does not provide an exception for transfers in the case of a merger, acquisition, or reorganization. The Board believes that the Act covers loan acquisitions that occur in these situations when ownership of the loan is transferred to a different legal entity.
Timing of Disclosures
The required disclosures must be mailed or delivered to the consumer on or before the 30th calendar day following the date that the covered person acquires the loan. The date that the covered person acquires the loan is deemed to be the acquisition date that is recognized in the books and records of the acquiring party. If there is more than one covered person, the interim final rule provides that only one disclosure must be given, and the covered persons must determine among themselves which person will provide the disclosure. If there is more than one consumer, a covered person may mail or deliver the disclosures to any consumer who is primarily liable on the obligation.
A covered person is not subject to the disclosure requirements with respect to a particular mortgage loan if the covered person sells or otherwise transfers or assigns legal title to the mortgage loan on or before the 30th calendar day following the date that the covered person acquired the mortgage loan. The Board believes that consumers may be confused if they receive outdated contact information for parties that no longer own the loan, and this exception is intended to prevent such confusion. The Board also believes that the disclosure of short-term holdings of the debt obligation that do not reflect the current ownership status at the time the consumer receives the notice would be of minimal value to consumers and does not provide meaningful disclosure consistent with the purposes of TILA or the Act.
Content of Disclosures
Under the interim final rule, the required disclosures must identify the loan that was acquired or transferred and, consistent with the Act, contain the following: (1) the identity, address, and telephone number of the covered person that owns the mortgage loan, (2) the date of the acquisition or transfer, (3) contact information that the consumer can use to reach an agent or party having authority to act on behalf of the covered person; and (4) the location of the place where the transfer of ownership of the debt is recorded.
Identity, address and telephone number. The acquiring party (covered person) must provide its name, address, and telephone number regardless of whether another party services the loan or otherwise acts as the covered person’s agent. The covered person has the option of also providing an electronic mail address or Internet Web site address, but is not required to do so. If there is more than one covered person, the required information must be provided for each of them.
Acquisition date. As noted above, the date that the covered person acquires the loan is deemed to be the acquisition date that is recognized in the books and records of the acquiring party.
Agent’s contact information. A covered person must identify and provide contact information for the agent or party having authority to act on behalf of the covered person. The notice must identify one or more persons who are authorized to receive legal notices on behalf of the covered person and resolve issues concerning the consumer’s payments on the loan. However, contact information for an agent is not required to be provided if the consumer can use the contact information provided for the covered person for these purposes.
The Board recognizes that separate entities may be authorized by the owner of the loan to act on the owner’s behalf for different purposes. Identifying the party authorized to receive legal notices is intended to ensure that consumers have sufficient information to assert legal claims, including a right to rescind the loan, if applicable. A covered person might appoint a different agent to resolve loan servicing issues. In such cases, the covered person must provide contact information for each agent, and the disclosure must state the extent to which the authority of each agent differs. The interim final rule provides that it is sufficient if the covered person provides only a telephone number that the consumer can use to obtain the address for the agent or other person identified. This is intended to allow covered persons to use a single disclosure form that contains a nationwide toll-free telephone number, even though there may be different physical locations to which documents should be sent in different regions of the country.
The covered person has the option of also providing the agent’s electronic mail address or Internet web site address, but is not required to do so.
Recording location. The Board recognizes that the transfer of ownership of the debt may not be recorded or, if it is recorded, it may not yet be recorded at the time the disclosure is sent. If the transfer of ownership has not been recorded in the public records at the time the disclosure is provided, the covered person can comply with the interim final rule by stating this fact. Whether or not the transfer of ownership has been recorded in the public records at the time the disclosure is made, the disclosure may state that the transfer “is or may be recorded” at the specified location. The covered person is not required to provide the postal address for the governmental office where the covered person’s ownership interest is recorded or the name of the jurisdiction where the property is located. It is sufficient to disclose that the transaction is or may be recorded in the office of public land records or the recorder of deeds office “for the county or local jurisdiction where the property is located.”
Optional disclosures. Section 404 of the Act provides that the party acquiring a loan shall notify the borrower of “any other relevant information” regarding the new owner of the loan. The Board interprets this language as permitting the Board to impose additional disclosure requirements to further the legislative purpose. Any additional disclosure requirements would be imposed by regulation after notice and comment. The Board doesn’t believe that the statutory language requires a covered person to determine independently what additional information a reviewing court might subsequently determine to be legally relevant in order to avoid liability. Under the interim final rule, covered persons may, at their option, provide additional information about the mortgage transaction that they consider relevant or helpful to consumers. For example, the covered person may inform consumers that the location where they should send mortgage payments has not changed.
The Board solicited comments on the interim final rule, and the comment period ends on January 19, 2010. We’ll continue to monitor developments related to the mortgage transfer notice and provide updates in future issues of Basis Points.
Sharon Bangert is a partner in the Washington, D.C., office of Hudson Cook, LLP. Basis Points readers can reach Sharon at 202-327-9703 or by email at sbangert@hudco.com.