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» VISIT US ONLINE @ DSNEWS.COM 65 modification), as well as non-homeownership retention options (such as a short sale). Servicers are prohibited from evading the requirement to evaluate a complete loss mitigation application for all available loss mitigation options by offering an option that is based upon the evaluation of an incomplete application. However, servicers may exercise reasonable diligence in determining time limits associated with incomplete applications, and render a final decision accordingly. Notice of Denial: Servicers must advise borrowers in writing of the specific reasons for denial associated with a loss mitigation option. Borrower Response: Servicers must have procedures and protocols in place to ensure that: (i) for completed loss mitigation applications received 90 days or more before a foreclosure sale, borrowers are given an option of accepting or rejecting an offer for a loss mitigation option no earlier than 14 days after receiving the offer, (ii) for applications received more than 37 days but less than 90 days before a foreclosure sale, the servicer may require the borrower to accept or reject an offer of a loss mitigation option no earlier than seven days after notification is given, and (iii) for borrowers rejecting a loss mitigation option, the offer is considered to be rejected if acceptance is not received in accordance with the timelines specified above. However, it should be noted that if a borrower submits payments under a trial modification plan but does not meet all of the requirements for accepting the offer, the borrower must be given an additional reasonable period of time to accept the trial modification beyond the deadlines that have been established. For those borrowers who appeal the denial, the deadline for accepting a loss mitigation option is extended until 14 days after the servicer provides written notice to the borrower of the appeal determination. Borrower Appeals: Servicers must have processes and protocols in place to ensure that borrower appeals are accepted only if the borrower's completed loss mitigation application is received during the first 120 days of delinquency or 90 days or more before a scheduled foreclosure sale date. In addition, servicers must ensure that for borrower appeals made within 14 days of the servicer providing the loss mitigation option, the appeal is evaluated by a different individual from the one doing the initial evaluation. For servicers having a portfolio of fewer than 5,000 mortgage loans, only two of the loss mitigation rules outlined above apply. Specifically: Servicers are prohibited from making the first notice or filing required to begin the foreclosure process, unless the borrower is more than 120 days delinquent; and If the borrower is performing on their loan pursuant to the terms of a loss mitigation agreement, servicers may not make the first notice or filing required to begin the foreclosure process, move for foreclosure judgment, or order/conduct a foreclosure sale. ADJUSTABLE RATE MORTGAGES (ARM) Mortgage loan servicers must provide consumers holding ARM loans with a notice advising of upcoming changes to interest rates, payment terms, payment amounts, etc. (Note: An ARM loan is defined as a "closed-end consumer credit transaction secured by the borrower's principal place of dwelling whereby the annual percentage may increase after consummation"). ese notices must be sent to borrowers: (i) between 210 and 240 calendar days prior to the first interest rate reset date or (ii) at the establishment of the mortgage if the first interest reset occurs within six months of origination. Notices must be sent to borrowers between 60 and 120 calendar days before the adjusted payment is due. Such notices are required to be sent to borrowers each time interest rate and payment changes occur. Each adjustment notice must be separate and distinct from periodic billing statements (i.e., on a separate form) but may be provided to borrowers together with the billing statements depending on the delivery method (i.e., in the same envelope, attached to the same email, etc.). Separate ARM adjustment notices must clearly identify upcoming changes to the borrower's interest rate and monthly mortgage payments. e specific contents of ARM payment change notices must include: (i) the current and the new interest rate, (ii) the current and the revised monthly payment amount, (iii) a statement saying the new payment will not be solely allocated to principal and will therefore not reduce the loan balance, (iv) the date when the first payment under the revised terms is due, (v) disclosure information concerning payment alternatives and counseling services, (vi) margin, index source, and calculation method utilized, (vii) the ceiling rate, and (viii) prepayment penalty information, if applicable. ARM payment change notices must be clear, conspicuous, and in a form borrowers can retain for future reference. Change notices apply to closed-end adjustable rate mortgage loans secured by the borrower's principal dwelling, including the conversion of an adjustable rate mortgage to a fixed rate loan. Initial rate adjustment notices must also include: (i) the date of disclosure, (ii) a statement indicating that further notice will be provided if the new interest rate and payment amounts are estimates, and (iii) the telephone number borrowers can call with questions or apprise of expected delinquency. e initial adjustment notice does not apply to ARMs with terms of one year or less or if the initial rate adjustment is within 210 days after loan consummation and if the new interest rate is disclosed at consummation. THE BOTTOM LINE e ability for servicers to survive in today's marketplace is dependent upon them working closely with borrowers and abiding by the standards and protocols outlined by the CFPB. e time to fight and argue the guidelines and standards issued by the CFPB has passed. Arguably, the "train has already left the station." is is not to say that servicers shouldn't continue to voice specific concerns they may encounter on an ongoing basis that may inhibit their abilities to conduct default management protocols that effectively target and preserve homeownership and make underlying processes more costly and cumbersome for them to implement. Nor should servicers be discouraged from providing the CFPB with recommendations and suggestions for improvement or policy enhancement revisions. "Many of the consumer protection practices that are now codified in CFPB's rule book were announced in one form or another as the mortgage crisis was unfolding," says industry insider Kobin. "It was difficult for servicing operations to implement the changes while at the same time managing unprecedented increases in default volumes. Change management personnel were already assigned to tactically deal with unit count increases, and the approach to implement these changes at a minimum represented strategic functional adjustments if not entire operating model changes. "Now that we've had a relative steady state period [since the CFPB mandates were released], leading servicers are in position to proactively improve their CFPB execution." Servicers must not forget the intent behind the CFPB's guidelines: "To increase borrower transparency, preserve the mortgagor's ability to pay, preserve homeownership, and prevent borrowers from receiving unwelcome surprises." By understanding and more openly accepting this concept, servicers can sharpen their existing default management procedures, strengthen compliance, improve operational efficiencies (subsequently yielding reduced costs), and better serve borrowers. Doing so will quickly allow servicers to "jump to the head of the line" and be considered best in class when it comes handling default administration. COVER STORY INDUSTRY INSIGHT INDUSTRY INSIGHT

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