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The details of this requirement have not been finalized, so the formal, official wording of the rule could potentially impact and alter servicing operations. As currently written, however, many of these line items are simple requests that can be implemented with little disruption. P&I Projections Monthly borrower statements may be required to include a breakdown of the following month's principal and insurance (P&I) payments. Whereas today, servicers typically detail the prior month's split of P&I and escrow disbursements on the statement, they may also be required to provide a "look ahead." While the calculations for most borrowers will be straightforward, there are some products that will require servicers to accommodate additional calculations. As an example, servicers may be required to provide three possible "look ahead" scenarios: interest only, negatively amortizing, and fully amortizing for borrowers with option ARMs. Other examples include interest-only loans and daily simple-interest loans. With the latter, the servicer must know what day the borrower will make a payment in order to calculate the next month's P&I. This means servicers must be prepared to communicate carefully to ensure borrowers understand the information provided. Another example of a non-standard situation is when a borrower makes a monthly curtailment after a statement has been issued. This will change the way P&I is split in the next payment and, while it may be a very small difference, the servicer should still be prepared to recalculate and provide the borrower with a new P&I projection. Prepayment Penalties Although the details are still not finalized with regard to the prepayment penalties clause of the monthly statements requirement, it may be that the CFPB will simply require servicers to inform borrowers whether or not they are subject to a prepayment penalty. For servicers that don't store prepayment penalty information locally, this means they may need to put new processes or technology in place to access the needed information to more easily comply with this requirement. If, on the other hand, the finalized CFPB rule calls for the statement to provide a calculation of the 84 amount of that penalty from month to month, servicers must prepare to manage the required calculations, while taking into account the specific provisions contained in each loan. ARM Reset Alerts The CFPB is considering a rule that would require servicers to warn borrowers sooner than is typically done today when upcoming interest-rate changes to their adjustable-rate mortgages (ARMs) are scheduled. The goal is to clearly inform borrowers if and when their monthly payments might increase because of traits built into their loan that make it a bad choice for long-term borrowers: » Explaining how the new rate payment is determined and when the change takes effect » Providing a good-faith estimate of the new payment amount » Notifying borrower of future interest-rate adjustments scheduled and first payment due date » Offering alternatives for consumers if they're unable to afford their new payments » Relaying contact info for counseling assistance » Disclosing pre-payment penalty amounts To meet this requirement, servicers will need to be very clear in their communications to borrowers since interest-rate adjustments are tied to index values, and index values change daily. Therefore, figures quoted to borrowers can only be represented as an example—not their actual payment, nor even a projected payment. It will be essential that servicers take strong measures to ensure their customers understand what the numbers represent. Foreclosure Alternative Options The industry is waiting to learn what the CFPB is planning with regard to alerting consumers of loss mitigation alternatives. This may be as simple as informing delinquent borrowers that they might be eligible for a repayment plan. The CFPB is currently considering three proposed rules for providing delinquent borrowers with information on their options for avoiding foreclosure: » Servicers would be required to provide borrowers with information about the foreclosure process. » Outreach would include informing borrowers of housing counseling services. » Servicers would also be required to provide information about possible options for inbound inquiries from borrowers who are having difficulty paying their loans. Much of what is contained in this rule is already being performed by servicers as part of the joint GSE Servicing Alignment Initiative, which requires good-faith efforts be made to contact delinquent borrowers. Still, servicers understand that much of what they might assume is common knowledge is confusing for borrowers. By explaining how the process works, the type of housing counseling services available, the difference between a repayment plan and a loan modification, etc., servicers can help ensure distressed borrowers are better able to make informed decisions. (Un)Forcing Insurance The CFPB is considering a rule to help borrowers avoid having to pay for expensive force-placed insurance in the event their property insurance coverage lapses. In cases where the servicer thinks the borrower has allowed the property insurance to lapse, the servicer can ask the borrower to provide proof of insurance. This request for valid coverage documentation must be communicated twice before the servicer can charge the borrower for the insurance—at least 45 days before a force-placed policy is initiated and again at 15 days before. Each servicer request for proof of insurance must also include a goodfaith estimate of how much the force-placed insurance would cost the consumer. The servicer must accept from the borrower any reasonable form of confirmation that the property is insured. If the servicer receives evidence from the borrower that he or she has the necessary insurance, the force-placed insurance policy must be terminated by the servicer within 15 days and all force-placed insurance premiums must be refunded. Where the servicer has an escrow account to pay the consumer's insurance premiums, the servicer would continue the consumer's homeowner insurance, even if the borrower is delinquent, rather than purchasing forceplaced insurance.

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