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�� VISIT US ONLINE @ DSNEWS.COM COVER STORY BEST PRACTICES INDUSTRY INSIGHT THE FINAL WORD ON SERVICING BEST PRACTICES Now that the CFPB has unveiled its mortgage servicing rules, let���s take a closer look at these definitive directives and what they mean for servicers. By George FitzGerald 1. Periodic Statements for Each Billing Cycle Intended to help borrowers better understand all the components of their periodic statements, the CFPB���s periodic billing statements rule requires servicers to provide statement details such as an explanation of the mortgage terms and recent transaction activity (application of past payments including any fees or charges imposed). It also requires the statement to include information on the next payment amount and due date along with delinquency information and late-fee warnings. For borrowers who appear to be struggling to make their payments, alerts and information about loss mitigation alternatives for delinquent borrowers are also required. What���s New? In the original outline, servicers were asked not only to notify borrowers when they are subject to a prepayment penalty, but also to provide the estimated amount of the prepayment fee they might be charged on each statement. The final rules do not require servicers to calculate the exact amount of the prepayment penalty each month, but to simply notify specific borrowers that they are subject to a prepayment penalty when the terms of their loan include that provision. 2.Alert Borrowers Before ARM Rates Reset To help borrowers be aware of and plan for possible changes to their payments, servicers are required to notify borrowers who have an ARM loan. This notification must occur between 210 and 240 days prior to the first payment due after POINT��� COUNTERPOINT In reviewing the new rules, it���s clear the CFPB listened to feedback from the Mortgage Bankers Association and others across the industry and took many of those comments into account in finalizing its directives. While much is the same as the original outline of the rules, other important provisions were modified in ways that are more reflective of the realities of servicing operations and how best to communicate with mortgage borrowers. The CFPB also allowed servicers the full implementation period provided for in the Dodd-Frank Act. Central to the CFPB���s requirements are nine overarching rules to which servicers must comply. an initial rate adjustment. Servicers must also provide a notice between 60 and 120 days before subsequent payment changes caused by rate adjustments. These notices must include an explanation of how the new rate and payment is determined, when the change will take effect, and the amount of the new monthly payment or an estimate of the monthly payment for the initial notice. They should also include information regarding any other changes to loan terms, features, or options taking effect on the same date as the rate adjustment. Borrowers are also entitled to a list of alternatives from servicers, should they find that the new monthly payment is unaffordable. What���s New? In the final rules, the timing of the initial ARM adjustment notice and of notices of subsequent payment changes caused by rate adjustments is specifically established. The CFPB has also given specific indices that must be included in the notices, making it clear to servicers what is expected and eliminating the guesswork so there is consistency across the industry. MARKET PULSE I n the December 2012 issue of DS News, my article, ���Servicing Without Surprises,��� discussed the August 2012 outline of the Consumer Financial Protection Bureau���s (CFPB) proposed ���borrower-friendly��� mortgage servicing rules required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. In January 2013, the CFPB announced the final rules, which are intended to reduce risky lending and make it easier for borrowers to understand the terms of their mortgage loans. Servicers must have the rules fully implemented by January 2014. 3.Early Intervention at First Sign of Distress At the earliest signs a borrower is having difficulty paying his or her loan, servicers are required to provide the borrower with written information about loss mitigation alternatives available. What���s New? The final rules provide model language servicers may use for the written notice about loss mitigation alternatives to eliminate guesswork and ensure industry consistency. 59

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