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600 13TH STREET, N.W.
SUITE 400
WASHINGTON, D.C. 20005
Tel. 202.289.4322
Fax 202.589.2526
March 16, 2015
Ms. Monica Jackson
Office of the Executive Secretary
Consumer Financial Protection Bureau
1700 G Street, N.W.
Washington D.C. 20552
Re: Docket No. CFPB-2014-0033; RIN 3170-AA49; Amendments to the 2013 Mortgage
Rules under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in
Lending Act (Regulation Z).
Dear Ms. Jackson:
The Housing Policy Council 1of the Financial Services Roundtable (HPC) welcomes the
opportunity to comment on the Consumer Financial Protection Bureau’s (Bureau) proposed
amendments to the 2013 mortgage rules under the Real Estate Settlement Procedures Act’s
(RESPA) Regulation X and the Truth in Lending Act’s (TILA) Regulation Z.
I.
General Comments
We have reviewed the proposal amendments to the definition of delinquency (12 C.F.R. §
1024.31); the requests for information (12 C.F.R. §§ 1024(d) and (i)); force placed insurance (12
C.F.R. §§ 1024.37(c), (d), and (e) and prompt payment processing (12 C.F.R. § 1026.36). While
there are a few provisions within those amendments that we believe could be improved, we have
no major objections or suggestions with respect to these proposals.
We would like to focus instead on the four provisions with which we have substantial
objections – namely: (a) the changes in the successor in interest provisions (12 C.F.R. §§
1024.30(d) and 38(b); (b) the early intervention provisions (12. C.F.R. § 1024.39); (c) the loss
mitigation provisions (12 C.F.R. § 1024.41) and (d) the provisions relating to periodic statements
(12 C.F.R. § 1026.41).
II.
Proposals that Need Substantial Changes
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The Housing Policy Council of The Financial Services Roundtable consists of thirty-two of the leading national mortgage finance companies.
HPC members originate, service, and insure mortgages. We estimate that HPC member companies originate approximately 75% and service twothirds of mortgages in the United States. HPC's mission is to promote the mortgage and housing marketplace interests of member companies in
legislative, regulatory, and judicial forums.
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a. Successors in Interest
We believe there are major problems with this proposal including deciding who is a
successor in interest, applying mortgage servicing rules to these successors in interest and
offering loss mitigation to this defined group of successors in interest. We have an overriding
concern that the factual possibilities under these rules will not just be complicated (for example
children, adult or minor, of multi-spouse couples one of whom is the obligor on the loan), but in
many cases will be intrusive into other disputes between the parties unrelated to disclosures and
could create possible conflicts with other laws. Under the proposed amendments the successor in
interest may not necessarily have assumed the mortgage loan obligation under state law, and the
servicer may not necessarily have agreed to add the successor in interest as obligor on the
mortgage loan.
This places servicers in the very difficult position of affording non-borrowers (and often
completely unrelated individuals) statutory and regulatory protections and rights intended only
for signatories on the note. We respectfully suggest that this broadening of applicability be
reconsidered in light of all of the other federal, state and municipal requirements applicable to
mortgage servicers.
1. Deciding who is a successor in interest
It appears that the proposal would permit an individual who believes he has succeeded to
an interest in real property to write an unsolicited letter to the servicer asking for information that
normally is only available to a borrower on that loan, and that a servicer would have to treat that
as an indication that the author of the letter may in fact be a successor in interest. That is
extraordinarily unusual.
Having received that inquiry, the burden is then on the servicer to ask of the writer the
appropriate questions which, when answered, will permit the servicer to determine, under
specific laws and regulations and case precedent in each state, whether that individual really has
succeeded to the interests of the individual who had been identified by the servicer as the person
with ownership interests in the property. That is a difficult and complicated task, since the
entities or persons that can now be successors in interest under the proposal have expanded
extensively. Practically speaking, this means that for purposes of determining to whom the rules
apply a successor in interest may now include any one of several different categories of
individuals, or an entity such as a trust who obtains title to real property – no longer just through
the death of the borrower. This includes, for example, certain ownership exchanges between
parents and children, legally separated and divorced spouses and transfers to family trusts.
We believe this proposed expansion of those individuals who must be considered
successors in interest places additional and unnecessary burdens on servicers (1) to engage in
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determining what information and legal documents it needs in each fact-specific situation, (2) to
request and receive such information and documentation and (3) to make potentially life
changing decisions for individuals in an incredibly short period of time.
The variety of inquiries that must be made to seek answers that are dispositive of the
question of whether that individual is a valid successor, particularly when there is no indication
in writing from the individual on what basis he or she claims succession, is mind boggling. Even
when the basis of succession is stated there remain difficult questions of state law as to property
ownership including a variety of differences between jurisdictions and often a bewildering set of
factual questions in the context of modern spousal arrangements of varying kinds and numbers.
For example, partners now may move among many partners with a variety of formal or informal
arrangements, some recognized in certain states and not recognized in others, and compound
these arrangements with different numbers of children of the different arrangements and the
complexity of that one scenario becomes apparent.
We would urge the Bureau to limit those written communications to those that
specifically identify the writer as one claiming to be a successor in interest to property rights of
the mortgaged property, and the manner in which and under what authority that claim is made.
This is not a casual claim about incidental property, but a formal statement that the writer
believes that he has rights in real property, an expensive and valuable right. Real property laws in
the United States and other common law jurisdictions are among the most circumscribed and
legalistic laws of any that exist. It is only fitting that such a claim should place primary
responsibility on the claimant to make the claim and the authority for its validity as clear as
possible. The servicer should not have to act as the private investigator, accountant and lawyer
for the claimant and be expected to guide a claimant through a process in which the servicer has
very little direct knowledge.
The rule also would require the servicer to maintain policies and procedures that allow
for application of the relevant law governing each situation. For servicers that operate nationally
or regionally, that would require the maintenance of policies and procedures appropriate for each
jurisdiction for each of the bewildering variety of situations that might arise. That is a
monumental task, not only in assembling them in the first instance but of maintaining them as
laws change from time to time, both legislatively and judicially and from jurisdiction to
jurisdiction.
The proposed amendments require that servicers maintain policies and procedures that
allow for application of the relevant law governing each successor in interest situation. Four
specifically identified situations include: (1) tenancy by the entirety or joint tenancy; (2)
affidavits of heirship; (3) divorce or legal separation; and (4) living spouses or parents. 2 This
2
The Bureau does note, however, that other unspecified successor in interest transfers may occur, and the servicer is required to be able to handle
these also as such arise.
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assessment must occur promptly so as to not compromise consideration for loss mitigation
alternatives and at least 30 days prior to upcoming milestones. Thus, mortgage servicers must be
able to assess – based on documentation requested and received by the servicer – whether an
individual is or is not a successor in interest, make changes to its systems of record, and
communicate the results of this assessment to requesting individuals in a very short time frame.
Under the proposed amendments, servicers must respond to a written request that
indicates that the person making the request may be a successor in interest by providing that
person with information regarding the documents the servicer requires confirming the person’s
identity and ownership interest in the property. The written request requirement appears in the
request for information (RFI) section of the servicing regulations, which means the mandatory
RFI response timelines are applicable, except when a servicer receives a loss mitigation inquiry
from a purported successor in interest outside of the RFI protocol.
Industry experience confirms that disputes often arise before, during, and after the
servicer’s initial contact with other potential successors in interest over who the successor in
interest is or should be. Servicers are not the appropriate parties to adjudicate such disputes. We
are very concerned, that as proposed by the Bureau, the amendments to the servicing regulation
would require that servicers determine who the correct successor or successors in interest are,
based on the servicer’s interpretation of the applicable law, based on facts the servicer may not
be able to adequately verify, and with only the limited written documentation the servicer can
obtain from the purported successor or successors in a very short time frame. We believe it
should be clear that servicers cannot be required to meet such demands when the contingencies
that lead to resolution are outside servicers’ control. The Bureau should provide a safe harbor to
servicers who in good faith and consistent with the rules of the Bureau make a determination as
to the rightful successor in interest and are subsequently brought into litigation between other
potential successors in interest who may be challenging the question of who is the rightful
successor in interest.
The Bureau should provide servicers with additional time to consider and verify
information and documents submitted by the purported successors in interest in order to reduce
the likelihood of an unintended “rush to judgment” that could be detrimental to all parties
concerned, including additional successors in interest who may not have had an opportunity to
submit their claim. We believe a reasonable time under the circumstances to be up to ninety (90)
calendar days unless the dispute is being litigated.
2. Applying mortgage servicing rules to successors in interest
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Under the proposed rules, a successor in interest would be deemed to be a borrower for
purposes of RESPA servicing rules, even though the individual may not be liable for the debt or
have made any promises to make payment on the debt. As borrowers, they will be entitled to all
the communications that any borrower may receive even though the servicer may be required to
continue to provide various communications to the prior borrower. This will be true even if the
successors in interest are a series of individuals.
We urge the Bureau to limit the required communications to the successors in interest and
to eliminate the prior borrower from any communications once a successor in interest is
confirmed. We also urge the Bureau to provide a safe harbor to the servicers who, in good faith
and consistent with the rules of the Bureau, make a determination of successor in interest and are
subsequently brought into litigation among the potential successors in interest who may be
litigating the question of who is the rightful successor in interest.
3. Offering loss mitigation to successors in interest
The proposed rules would require a servicer that receives from an individual a claim of
successor in interest and asks for loss mitigation options need not immediately receive a response
to the inquiry about loss mitigation, but must retain the request on file until the determination is
made that the individual has a rightful claim as a successor in interest. At that time, the inquiry
about options for loss mitigation must receive a response from the servicer, as though the inquiry
was made by a recognized borrower at that time.
It is unlikely that putting such requests for loss mitigation aside or noting them for
possible further action and then successfully reviving them after a determination is made in what
possibly is a very complex successor question will actually succeed. It would be better to begin
the loss mitigation process only after the question of succession is answered in favor of the
individual having made his case to be a valid successor in interest. At that point a request for loss
mitigation would be relevant and timely.
b. Early Intervention
The proposed rules will be very complicated, and it is very possible that despite their
good faith efforts, servicers will make errors in trying to implement them. The requirement that
live contacts be continued throughout the delinquency seems unnecessary and redundant, since
the borrower knows that he or she is delinquent, and constant attempts to establish live contact
may simply be seen as harassment. If the borrower has availed him or herself of no contact
protection under the FDCPA (Federal Debt Collection Practices Act), crafting a written notice in
a way that will satisfy the Bureau’s proposed rule but not cause a bankruptcy court to find a
violation of that order may turn out to be difficult and treated differently in different courts. For
live contact requirements, the Bureau proposes to exempt borrowers who are in bankruptcy, have
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discharged personal liability for the mortgage loan, or shares liability on a mortgage loan with a
person who is a debtor in a Chapter 12 or Chapter 13 bankruptcy case. Those exemptions would
not be available to a borrower who is jointly liable on the mortgage loan with someone who is a
debtor in a Chapter 7 or Chapter 11 bankruptcy case. When multiple successors in interest are
involved, the information searches to review all of these variables can become extensive,
difficult, and produce unpredictable results.
The proposed rules revise already established mortgage servicing rules to require that
servicers establish or make good faith efforts to establish live contact with a delinquent borrower
no later than the 36th day after each payment due date for the duration of the borrower’s
delinquency. As a general matter, it is questionable whether borrowers will gain any benefit from
being repeatedly informed – by a live person – of something about which they are acutely aware;
namely, that they are delinquent. We believe that at some point such communications become
unnecessary badgering that will only bring more discomfort to borrowers who are already
suffering under financial stress.
The Bureau proposes to adopt two especially technical exemptions to the early
intervention requirements: (1) borrowers in bankruptcy and (2) cease and desist requests under
the FDCPA.
1. Borrowers in bankruptcy
The Bureau proposes to narrow the scope of the bankruptcy exemption from the early
intervention requirements. Currently, servicers are wholly exempted from the early intervention
requirements with respect to a mortgage loan if at least one of the borrowers is a debtor in
bankruptcy. This includes both the live contact and the written notice requirements. However,
the Bureau believes that servicers should apply the early Intervention contact requirements in
limited bankruptcy-related circumstances.
For the live contact element of the early intervention requirement, the Bureau proposes to
maintain the exemption with respect to a borrower who is in bankruptcy, has discharged personal
liability for the mortgage loan or shares liability on a mortgage loan with a person who is a
debtor in a Chapter 12 or Chapter 13 bankruptcy case. However, the proposed revisions provide
that the exemption would no longer apply to a borrower who is jointly liable on the mortgage
loan with someone who is a debtor in a Chapter 7 or Chapter 11 bankruptcy case. In other
words, a borrower jointly liable on a debt where another borrower files for Chapter 7 or 11
bankruptcies can receive calls to establish live contact. When multiple successors in interest are
involved, the information searches to review all of these variables can become extensive,
difficult and produce unpredictable and sometimes questionable results.
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We note that this requirement – like others noted below – will require that servicers apply
different operational rules to new variables. That is, distinguishing live contact requirements
based on bankruptcy chapter filings (which can and often do change) and by different borrowers
on the debt will require both costly system and operational changes that still will not guarantee
foolproof execution.
For the written notice element of the early intervention requirement, the Bureau proposes
a very different rule because of the nature of the notice. Specifically, the proposed regulations
require that a servicer provide the written notice to a delinquent borrower who is in bankruptcy
or has discharged personal liability for the mortgage loan. There are exceptions to this
requirement. The Bureau intends to exempt servicers from sending a written notice in the
following circumstances:
•
•
•
•
No loss mitigation options are available;
The borrower is a debtor in bankruptcy, and the borrower’s confirmed plan of
reorganization provides that the borrower will surrender the property 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;
The borrower is a debtor in bankruptcy, and the borrower files with the court a
Statement of Intention to surrender the property securing the mortgage loan; or
The borrower is a debtor in bankruptcy, and a court enters an order in the bankruptcy
case providing for the avoidance of the lien securing the mortgage loan or lifting the
automatic stay with respect to the property securing the mortgage loan.
The complexity of these requirements is evident on their face. The requirements are
especially onerous when servicers will also have to layer on the live contact variances. We
request the Bureau simplify the live contact and written notice requirements so that the
population of consumers requiring both types of contact is identical and less contingent on
bankruptcy status or process, which are always subject to change and rarely reported in real time.
2. Cease and Desist requests under the FDCPA
The FDCPA provides, “If a consumer notifies a debt collector in writing that the
consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further
communication with the consumer, the debt collector shall not communicate further with the
consumer with respect to such debt.” If a servicer receives such a written communication
currently, it creates a conflict with the mandatory early intervention contact requirements, and
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the Bureau rules do not require the servicer to comply with the contact requirements. That is
eminently reasonable.
The Bureau proposes to alter this guidance in the proposed amendments. For the live
contact element of the early Intervention requirement, the Bureau proposes that the current
exemption remain. However, for the written notice element of the early intervention requirement,
servicers must begin sending a special version of the written notice that (1) excludes any request
for payment; (2) includes other information already contained in the mortgage servicing rules
and (3) includes a statement that the servicer may or intends to invoke its specified remedy of
foreclosure.
We urge the Bureau not to change its prior guidance on this subject. If a borrower avails
him or herself of the no contact protection under the FDCPA, crafting a special version of the
written notice that will satisfy the Bureau’s proposed rule, while possible, seems counter to the
consumer protection at the heart of the FDCPA. Most debtors will feel such a statement is a
continuing demand for payment.
We ask the Bureau to carefully consider whether these technical and complex changes to
the early intervention requirements are really helpful to borrowers. We believe they are not.
Devising a fact pattern that might find utility in narrowing the exemptions in bankruptcy cases
should not by itself lead to a narrowing of those exemptions.
We urge the Bureau to reconsider its cost benefit analysis of the early intervention
provisions of the proposed rule given the substantial complexity of the changes. It should be
cognizant of the fact that adding layers of cost to mortgage servicing can lead to a reduction in
originations and tighter access to credit. In short, adding additional complexity to the regulations
increases costs for the lender-servicer and can have a negative impact on consumers.
c. Loss mitigation
1. Evaluations
If borrowers receive a modification in their loan and make payments under the
modification for a substantial period of time such as five years, and then, because of a life event
or some similar situation, find themselves in default, it is not unreasonable or bad business to
offer them a second modification. That is standard practice among most mortgage servicers and
support for that is found in most investor contracts.
However, on the other hand, if a borrower is in default and has applied for a modification
and perhaps has a short term modification, but shortly before the servicer is ready to make a
decision on the application brings current the loan, and then repeats that process of default,
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application, bringing the loan current again, perhaps multiple times, it is not unreasonable to
prohibit such a borrower from applying for additional modifications. We urge the Bureau to
consider placing limitations on the number of times a servicer in situations comparable to the
example above must evaluate an applicant for loss mitigation.
2. Notification that application is complete
Five days to respond and notify the borrower that the loss mitigation application is
complete is too short a time frame. In particular, that is true when one considers the letter that
must accompany the information that the application is complete. 3 If the Bureau is willing to
permit a generic response such as “This is to notify you that the application is complete,” then
that could be done in 5 days. But if there must be seven specific items covered in the letter and
many of them require loan specific information (for example, was a foreclosure sale scheduled
when the borrower completed the application and, if so, for when), preparing such a letter will
require more than 5 days in many cases.
We urge that the Bureau provide 10 days to give notification if the letter requires loan
specific information, but if it can be generic and not provide loan specific information, 5 days
will be sufficient.
3. Lack of information beyond control of servicer
There are times when the borrower has provided all the documents and information that
he can and has answered all the questions that the servicer has relative to his loss mitigation
application. The borrower, of course, would like to know that is the case as soon as possible to
partially relieve his anxiety. The borrower would also like to know when a decision will be made
on the application. Unfortunately, sometimes the servicer has not yet received information from
one or more third parties that is necessary to be considered when evaluating the application. For
example, a home owners association may not have notified the servicer that there are no
outstanding accounts owed by the borrower and no obligations unmet, notwithstanding repeated
inquiries to the association for that information. If there is a delay, the servicer is expected to
seek to obtain the information “as quickly as possible,” a very loose standard, and one somewhat
made ambiguous by the comments in the explanation that accompanies the proposed rule, that
efforts should be with “more immediate urgency” than previously. That is a standard that does
not provide guidance.
3
The notice of complete application must state or contain: (A) That the loss mitigation application is complete; (B) The date the servicer received
the complete application; (C) Whether a foreclosure sale was scheduled as of the date the servicer received the complete application and, if so,
the date of that scheduled sale; (D) The date the borrower’s loss mitigation protections began, as applicable, and a concise description of those
protections; (E) That the servicer expects to complete its evaluation within 30 days of the date it received the complete application; (F) A
statement that, although the application is complete, the borrower may need to submit additional information at a later date if the servicer
determines that it is necessary; and (G) If applicable, that the borrower will have the opportunity to appeal the servicer’s determination to deny
the borrower for any trial or permanent loan modification.
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The proposed rule would require considerable detail in the letter explaining that situation,
such as when the request went to the third party, who the third party is, etc. 4 It is unlikely that
this detailed information will be of much interest to the borrower, yet requiring it in the letter
exposes the servicer to one more opportunity to make an unintentional mistake.
In addition, certain mistakes may create greater anxiety from the borrower than is
necessary, even though they are completely accurate (“the IRS has not yet responded to our
inquiry,” for example).
Absent a strong case that the detailed information will be of real significance to the
borrower, it would be preferable for the servicer to send a more general letter which stated that
the borrower had now provided all of the information that the servicer asked him to provide, that
the servicer was prepared to evaluate the application once additional information necessary for
that evaluation was received by the servicer, that such additional information had been requested
of the party who had the information, and that if the borrower wants information about the
matter, the servicer will provide it if the borrower telephoned the servicer at an appropriate tollfree number provided in the letter.
4. Short term forbearance or repayment plans
We have one overriding concern with the provisions in sec. 1024.41(c)(2)(iii). In that
section, the plan must be in writing, and in practice, almost all short term payment or forbearance
plans are oral. The plans are later confirmed through the statements that follow the
commencement of the plan in which the payments due and other details are listed.
Our members can cite very few experiences in which a short term payment or
forbearance plan has been challenged as having been unfair to the borrower. At a minimum,
there has been a reduction in payment due and a relaxation of the time frame in which
delinquencies must be corrected. Those criteria are the essence of such plans and they are always
beneficial to the consumer.
That being the case, we do not believe there is a benefit to the consumer in requiring
those plans to be in writing. There is a detriment, however, in that once a plan must be reduced to
writing, it must meet certain internal reviews and controls that add to the time required to initiate
such plans. In emergencies such as natural disasters, oral short-term plans have proven especially
advantageous.
4
In addition, if, 30 days after a complete loss mitigation application is received, a servicer is unable to determine which loss mitigation options, if
any, it will offer the borrower because it lacks documents or information from a party other than the borrower or the servicer, the servicer must
promptly provide the borrower a written notice stating the following: (a) that the servicer has not received documents or information not in the
borrower’s control that the servicer requires to determine which loss mitigation options, if any, the servicer will offer on behalf of the owner or
assignee of the mortgage; (b) the specific documents or information that the servicer lacks; (c) the date on which the servicer first requested that
documentation or information during the current loss mitigation application process; and (d) that the servicer will complete its evaluation of the
borrower for all available loss mitigation options promptly upon receiving the documentation or information.
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Using oral short-term plans has worked well for a very long time, and we urge the Bureau
to refrain from unnecessarily complicating it by requiring them to be in writing.
d. Periodic Statements
There are a variety of issues raised in that part of the proposed amendments covering
periodic statements. Many of them arise from the introduction of bankruptcy matters into the
TILA environment; a change that we think is not warranted. We have comments on that and on
other parts of the proposed changes in the periodic statement requirements.
Proposed comment 1026.41(d)(1)-1 states “If the balance of a mortgage loan has been
accelerated but the servicer will accept a lesser amount to reinstate the loan, the amount due
under § 1026.41(d)(1) should identify only the lesser amount that will be accepted to reinstate
the loan.” The reinstatement amount is not typically a static value and includes the expenses
incurred by third parties on the servicer’s behalf to date, including outside counsel, court costs
and appraisal costs. When a consumer requests reinstatement, servicers must undertake a process
to request the then-current billings from local counsel in addition to other incurred fees. This is a
highly manual process, which itself results in time and cost from outside counsel to merely
compile their billings. No servicer, to our knowledge, has integrated automatic, real time, outside
law firm billing into its mortgage servicing records systems (which may literally be impossible to
do), yet we believe this is exactly what comment 41(d)(1)-1 seems to contemplate in practice
when it calls for monthly updates to the reinstatement amount on the periodic statements for all
accelerated borrowers.
We appreciate the discussion in the preamble of the Bureau’s intent behind this
provision; however, the costs of this proposal must be weighed against its benefits. Whether
servicers implement a vast new automated solution (again this may not be possible) or simply
use a very time-intensive manual solution, we believe that this requirement would impose very
large cost increases for the servicing of accelerated loans. These costs would far outweigh the
benefits to consumers whom the Bureau must recognize are already well behind in their
obligations and whom have already been given the benefit of the Bureau’s own extensive new
mortgage servicing protections including early intervention, single point of contact, and loss
mitigation evaluation.
Our concerns with this provision stem from the particular nature of the reinstatement
amount which is highly variable and not known to the servicer in real-time. Periodic statements
are primarily designed to disclose expected future amounts due. However, as soon as a
reinstatement amount is disclosed, it can increase as a result of continued action by outside
professionals including court fees, appraisals and similar expenses. It is unclear from the
proposal whether the Bureau expects servicers to accept as the amount due for reinstatement a
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disclosed reinstatement amount that lacks additional costs not available at the time the
reinstatement fee was disclosed.
We believe that most borrowers will not understand the difference between an amount
required to reinstate the loan and the accelerated amount. There will be further confusion when
borrowers request state-mandated payoff statements or receive other required notifications that
only include one value. Some jurisdictions do not even require a reinstatement option and the
methodology for computing the reinstatement amount varies within each jurisdiction.
We suggest instead that borrowers with accelerated loans would see even more benefit
from a statement on the periodic statement which indicates that while their loan amount has been
accelerated, the servicer may be able to reinstate the regular payment schedule of the loan. If the
borrowers are interested in reinstating the loan, they should call the servicer to inquire about the
terms and conditions of reinstatement. At that time, the servicer could calculate the reinstatement
amount known at that time and notify the borrower that there may already be incurred costs that
have not yet been billed to the servicer which also must be paid by the borrower. This would
effectively allow servicers to retain their current practices for calculating reinstatement amounts,
while providing accelerated borrowers a new awareness of the possibility of loan reinstatement
in furtherance of the Bureau’s stated intent behind this provision.
The Bureau also introduces a bankruptcy-specific periodic billing statement, which will –
for purposes of mortgage servicers – be a wholly new document that will have very limited
applicability. It seems paradoxical that the bankruptcy automatic stay deems non-communication
with bankrupt filers as being best for them to reassess their financial situation without having to
worry about creditor communications, while the Bureau deems periodic debt-specific
communications to those same individuals as in their best interest.
We respectfully suggest that the U.S. Bankruptcy Code, Federal Rules of Bankruptcy
Procedure, court orders and local rules guidelines and standing orders are exceedingly complex
and represent a delicate balance between the rights of creditors and debtors under federal law.
We think the Bureau should not attempt to integrate these provisions with already complex
provisions in the TILA disclosure regime, particularly with the additional new complications
associated with the successor in interest proposals. Instead, they should retain the present rules
and guidance.
TILA and RESPA have historically been silent on the treatment of these borrowers and
have instead deferred to the bankruptcy rules regarding how mortgage creditors and servicers
should proceed. There is no new additional law that has been adopted which calls for the
integration with bankruptcy law as is done in the regulations. Dodd-Frank is silent as to periodic
statements to borrowers in bankruptcy. As a matter of public policy, mortgage creditors are
similarly situated to other consumer creditors and should be treated equally with other types of
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consumer creditors in bankruptcy. In fact, the attempt to segregate those from other creditors in
bankruptcy may well lead to anger and confusion when consumers receive periodic statements.
Such statements will be seen as an attempt to collect a debt, notwithstanding what the consumers
believe are the protections afforded by bankruptcy courts. We believe many bankruptcy judges
will feel the same way.
As the Bureau acknowledges, some jurisdictions have borrowers make all payments
directly to the bankruptcy trustee. Those payments would, of course, not be known to the
servicer and would not, therefore, be reflected on the periodic statements. It is not clear what
benefit consumers would receive from receiving periodic statements in those jurisdictions, since
they would not only be seen as a debt collection effort (notwithstanding the most carefully
worded disclaimer – why else would you send a statement?) but as the Bureau acknowledges,
would be inaccurate.
In short, borrowers in a bankruptcy proceeding are a protected class which already has an
established body of federal law and procedure for communications between creditors and
borrowers in bankruptcy. We believe borrowers receive extensive protections by the bankruptcy
regime. If the current elaborate architecture of federal bankruptcy protections is insufficient for
consumers, we believe that amendments to the rules of bankruptcy should be made. We do not
think that the appropriate place to strengthen bankruptcy protections is in the regulations which
implement TILA, nor do we believe disclosure is appropriate in those cases other than as
mandated by the bankruptcy rules and its courts.
The issue is complicated further by recognition that the Bureau may lack authority under
TILA to mandate that statements be sent to at least one group covered in the proposal.
The requirement to send periodic statements is found in 12 CFR 1026.41, Reg. Z, TILA.
However, 1026.41(a)(1) states “This section applies to a closed-end consumer credit transaction
secured by a dwelling…” 5 TILA does not apply if it is not a closed-end consumer credit
transaction. When a debt is discharged from a sole-obligor consumer in bankruptcy, it is no
longer a “consumer credit transaction.” The creditor may have a lien against a property, but any
claim must be exercised in rem against the property itself, as the creditor no longer has a claim
against the consumer anymore. TILA does not apply to in rem actions or to all creditors with
residential real estate liens. TILA does not even apply to corporate loans secured by a lien on
residential real estate, because it’s not a consumer credit transaction. TILA also does not apply to
consumer business purpose loans. Therefore, not only do we think that the Bureau should leave
the bankruptcy protections to the bankruptcy rules and system, but we respectfully suggest that
there is no legal authority under TILA to require the provision of periodic statements to
borrowers who have discharged their loan in bankruptcy.
5
The five exceptions to this rule include reverse mortgages, time shares, coupon books, small servicers, and debtors in bankruptcy.
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This is not words over substance, since it is possible that servicers that continue to
provide periodic statements could incur TILA liability for errors, even when the underlying
credit has been discharged, and they have no recourse to the consumer for the loan amount. 6
We appreciate the Bureau’s consideration of these comments and we hope they will help
produce a final regulation that protects consumers and enables lender-servicers to comply with
the additional standards in a cost-effective manner. Thank you.
Sincerely,
John H. Dalton
President
Housing Policy Council of the Financial Services Roundtable
6
See also the general coverage of TILA in section 1026.1(c) “Coverage. In general, this part applies to each individual or business that offers or
extends credit, other than a person excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of 2010, Title X
of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376, when four conditions are met: The
credit is offered or extended to consumers; The offering or extension of credit is done regularly; The credit is subject to a finance charge or is
payable by a written agreement in more than four installments; and The credit is primarily for personal, family, or household purposes.”
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