Insights

On November 8th the Division of Banks published proposed revisions to its regulations governing the licensure and conduct of debt collectors and loan servicers. The proposed revisions aim to harmonize the debt collection rules under the administration of the Division with the changes recently made to the debt collection regulation under the administration of the Attorney General.

In addition to these changes, the Division has proposed an entirely new section of regulation to deal specifically the servicing of mortgage loans. The new mortgage servicing provisions focus on three key areas:

General Servicing Requirements: First, the regulation would generally prohibit “unfair or unconscionable” servicing practices. Without limiting the scope of this prohibition, the proposed rule highlights five specific activities that would be considered a violation:

• Failing to promptly accept and apply payments, including payments that may be non-conforming, trial modification payments and cure payments (where allowed by law or contract);
• Failing to comply with requirements of Massachusetts law that require the timely provision of a mortgage payoff statement;
• Collecting PMI beyond the date after which it is no longer required;
• Failing to comply with Massachusetts’s right to cure and right to modify statutes; or
• Facilitating the illegal foreclosure of property.
  

Loss Mitigation Procedures: Second, the proposed rule also would require servicers to take a number of remedial steps to help borrowers avoid foreclosure. Among them:

• Servicers would be required to evaluate borrowers and determine what loss mitigation options – including loan modification - might be available to them (within the boundaries established by the loan documents and the servicer’s servicing agreement with the mortgagee) and then communicate those options to the borrower;
• Within three business days of receiving paperwork from a borrower in connection with an application for modification, servicers would be required to provide an acknowledgment of receiving such information, as well as a list of what information remains outstanding – along with a deadline for providing it;
• Servicers would be prohibited from referring or initiating foreclosure proceedings while a government sponsored modification program or proprietary trial modification evaluation is in process, or while a borrower’s application for any loss mitigation program remains outstanding; and
• Servicers also would be required to provide borrowers with name and contact information (including direct dial telephone numbers, fax numbers and email addresses) of employees designated to handle all loss mitigation communications with such borrowers.

Despite these requirements, servicers would still be permitted to offer (and borrowers could still accept) alternative loss mitigation options, such as a short sale, a deed-in-lieu of foreclosure or forbearance if the borrower is not eligible for a modification or rejects the servicer’s offer of modification.

Foreclosure Documentation: Finally, the proposed revisions to the regulation would establish a series of new documentation requirements associated with foreclosure proceedings. Among them:

• Servicers would be required to ensure that all foreclosure affidavits or sworn statements are based on personal knowledge and must ensure that such materials include a detailed description of the basis for the affiant’s personal knowledge (including the sources of such information and reasons why those sources are accurate and reliable); and
• Servicers would be required to provide borrowers with a written certification of the basis for asserting why the foreclosing party has the right to foreclose – including a certification of the chain of title ownership of the note and mortgage from the date of recording and a copy of the note with all required endorsements.

Servicers would also be required to comply with applicable state and federal requirements providing rights to tenants residing in foreclosed residential properties.

One issue of note associated with the proposed servicing rules is that they would only apply to “third party loan servicers.” As defined in both the regulation and its underlying statute, this term only applies to parties that service loans owed or due (or asserted to be owed or due) to another party. As a result, none of the proposed servicing rules would reach a mortgagee that is holding and servicing its own mortgage loans. It is unclear how – or if – the Division will address this potential gap in coverage through additional rulemaking.

Written comments on the proposed regulation must be submitted no later than 5:00 P.M. on December 6th.

Thomas P. Quinn, Jr. is a partner in the Massachusetts office of Hudson Cook, LLP. Tom can be reached at 774-365-4758 or by email at tquinn@hudco.com.