New Servicing Rules under Regulation Z – Periodic Statements & Adjustable Rate Mortgages Notices FIS Regulatory Advisory Services www.FISRegulatoryServices.com N S i i R l
New Servicing Rules under d
Regulation Z – Periodic Statements
& Adjustable Rate Mortgages Notices
FIS Regulatory Advisory Services
www FISRegulatoryServices com
www.FISRegulatoryServices.com
©2013 FIS and/or its subsidiaries. All Rights Reserved.
Agenda
• Some Basics • Periodic Statement Requirements
• Adjustable‐Rate Mortgages
2
How Did This Happen?
• National Mortgage Settlement
•
– www.nationalmortgagesettlement.com
– Discussion and development of national mortgage servicing standards
– Foreclosure & bankruptcy information & documentation
– Loss mitigation
– Restrictions on servicing fees
– Force‐place Insurance
Dodd‐ Frank Act
– §1420 – requires periodic statements
– §1418 ‐ requires notices prior to the reset of ARMs
– Plus others, such as force
Plus others such as force‐placed
placed insurance notices, responding to errors and requests for insurance notices responding to errors and requests for
info, crediting of payments, and responding to payoff amounts.
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Who Is Affected?
• Mortgage Servicers:
•
– Depository institutions
– Non‐depository institutions
Exceptions:
– Creditors and Assignees that do not own the mortgage loan or the servicing rights – Small Servicers (for periodic statement requirement only)
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Periodic Statements
• Required by Dodd‐Frank Act §1420
• Certain timing, form, content, layout, and exemptions
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Who Receives Periodic Statement?
• Borrowers who have closed‐end consumer credit secured by a dwelling
• Servicers must transmit the periodic statement
•
•
– More than merely making statement available
y
g
– Can consider security concerns for electronic statements
No E‐SIGN requirement; just need consent
Joint borrowers – can send one statement addressed to both
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What Is A Billing Cycle?
• Corresponds to the frequency of •
•
payments
Established by legal obligation
What if payments are bi‐weekly?
– If billing cycle shorter than 31 days, a statement covering an entire month may be used.
Monthly Due Date = 25th
One Billing Cycle
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Content of Periodic Statement
• Clear & conspicuous
• In a form the consumer can keep
• Model forms Model forms – Appendix H
Appendix H‐30
30
• Content =
•
•
– Statutorily required
– Prescribed by regulation
If not applicable, can omit
Must use terminology that is commonly understood.
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Content of Periodic Statement –
Amount Due
• Includes:
– Amount due
• Must be more prominent
• Placed on the top of first page
– Payment due date
– Amount of any fee charged for a late payment
•
– Date late payment fee will be imposed
Payment‐option loans
– Must display info for each payment option
– Refer to model form H‐30(C)
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Content of Periodic Statement –
Explanation of Amount Due
• Includes:
•
– Breakdown of amount due
– Showing allocation to principal, interest, and escrow
– Totaling of any fees or charges imposed
– Any past due amount
Payment‐option loans:
– Must include information specific to each payment option.
– Refer to model form H‐30(C)
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Content of Periodic Statement –
Past Payment Breakdown
• Shows:
•
– Breakdown of how previous payments were applied
– Payments received since last statement cycle and year‐to‐date
– Total of all payments received since last statement
– Breakdown of the application of payment to principal, interest, escrow, fees, & charges
Partial Payments:
– Comment 41(d)(3) – 1 provides guidance on reflecting partial payment amounts
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Content of Periodic Statement –
Transaction Activity
• Includes:
– Listing of activity that credits or debits amount currently due
– Date of transaction
– Description of transaction
– Amount of transaction
• Partial Payments:
– If returned ‐ does not debit or credit account
– If held – show in transaction activity in unapplied funds section
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Content of Periodic Statement –
Other Information
• Contact info for servicers
•
•
– Include toll‐free number
– Include email address if available
– Must appear on first page of statement
Account information required by statute
– Amount of principal outstanding balance
– Current interest rate. If can change, a disclosure of when
– Information on prepayment penalties & late fees
– Website/phone number for counseling information
Delinquency Disclosures if 45 days past due
– Date of delinquency & risks of delinquency
Date of delinquency & risks of delinquency
– Account history, modification acceptance, referred to foreclosure
– Total amount to bring current & reference info for housing counselors
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Combined Statements & Additional Information • Additional information can be included
• Cannot override statement groupings with additional info
• Can combine disclosures
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Timing for Providing Periodic Statements
• Required for each billing cycle
– At least monthly for shorter billing cycles
• Delivered or placed in mail within a reasonable prompt time after the payment due p
p
p
p y
date or the end of any courtesy period.
• Reasonably prompt = 4 days after the close of any courtesy period of the prior billing cycle
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Coupon Book Exemption
• Only available for fixed‐rate loans
• Must make inquiry process available to consumer to inquire about dynamic information
• Each coupon must contain:
•
– Payment due date
– Amount due
– Amount and date that any late fee will be incurred
Each coupon book must contain
– Amount of principal loan balance
– Interest rate in effect for the loan
– Amount of any prepayment fee
Amount of any prepayment fee
– Contact info for servicer and housing counselor information
– How to obtain dynamic information
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Small Servicer Exemption
• Small servicer = a servicer who:
– Services 5000 or fewer mortgage loans in which the servicer is the creditor or assignee of all mortgage loans or
•
•
– A Housing Finance Agency (24 CFR 266.5)
Measured based on its size as of January 1st for the remainder of calendar year
Once cross the threshold – have six months or until the beginning of the next calendar year, whichever is later.
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Other Exemptions
Timeshares
• Do not meet the definition of residential mortgage loan
Reverse Mortgages
• Would need massive alterations to final forms and regulation
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ARM Disclosures
• Disclosures for the Initial Adjustment of Interest Required by Dodd‐Frank Act §1418
– New notice must be provided 6 to 7 months in advance of first interest rate adjustment (Note: regulation refers to days)
• Changes to existing notices required by 1026.20 are made pursuant to the CFPB’s authority to make changes needed to improve usefulness of such disclosures
– Changes are follow‐up to improvements proposed by Federal Reserve in 2009
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ARM Notice Changes
ARM?
Section 20 (c)
Section 20(d)
• ARM = Variable rate mortgage
• With limited defined exceptions
• Old rate change notice standards upgraded • With revised timing to make them more useful
• New rate change notice standards created for the Initial rate adjustment notice 20
What Loans are Covered by These Disclosures?
• Adjustable‐rate Mortgage (“ARM”) is now defined as
•
– A closed‐end
– Consumer credit transaction
– Secured by the consumer’s principal dwelling
– With an APR that may increase after consummation
Exemptions from Section 1026.20(c) required disclosures include only:
– Arms with terms of one year or less, and
– The first adjustment to an ARM if the first payment at the adjusted level is due within 210 days after consummation and the actual, not estimated, new interest rate was disclosed at consummation
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Combined or Separate Disclosures?
• Regular rate change disclosures required by 1026.20(c) may be provided along with other disclosures. They must be clear and conspicuous, but need not be provided in a separate mailer
– So the 20(c) disclosures can be provided in or with the new periodic statement disclosures if you wish
• Initial rate change disclosures required by 1026.20(d) must be provided as separate
and distinct disclosures apart from all other correspondence
– May be included in same envelope as other disclosures or separate attachment from other disclosures if delivered electronically
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Harmonization of Content
• To avoid confusion, the CFPB has harmonized the content of the initial and ongoing •
•
•
interest rate adjustment notices
Required content of the 1026.20(c) and 1026.20(d) notices are therefore very similar
The initial notice will however allow use of interest estimates since the notice is given 210 to 240 days before the rate change
The regular notices will require use of accurate interest rate information since they can be given as late as 2 months prior to the first payment at the new rate
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Grandfathering provisions
• Needed for existing contracts with longer look‐back periods when setting rates
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Notice Content Standards
• A statement indicating
– An explanation that under the terms of the loan, the period under which the current interest rate has been in effect is ending and that the rate and payment will change,
– The effective date of the interest rate adjustment and when future rate changes are scheduled, and – Any other changes to loan terms, features, or options taking effect on the same date as the interest rate adjustment (such as the expiration of an interest‐only or payment –option feature
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Contents ‐ Continued
• A table containing:
– The current and new interest rates
– The current and new payments and the date the first new payment is due, and
– For interest‐only or negatively‐amortizing payments, the amount of the current and new payment allocated to principal, interest, and taxes and insurance in escrow, as applicable.
• An explanation of how the interest rate is determined, including:
– The specific index or formula used and a source of information about the index or formula,
– Any adjustment to the index, including the amount of any margin and an explanation that the margin is the addition of a certain number of percentage points to the index.
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Contents ‐ Continued
• Any limits on the interest rate or payment increases at each adjustment and over the life of the loan, including the extent to which such limits result in the forgoing of any increase in the interest rate and the earliest date such foregone interest may apply to additional future interest rate adjustments, and:
– An explanation of how the new payment is determined,
– The index or formula used,
– The amount of any adjustment to the index or formula, for example by the addition of a margin or application of previously foregone interest increase,
– The loan balance expected on the date of the interest rate adjustment, – The length of the remaining loan term expected on the date of the interest rate adjustment and at change in the term of the loan caused by an adjustment, and
– For interest‐only or negatively‐amortizing loans, a statement that the new payment will not be allocated to pay loan principal. If negative amortization occurs as a result of the adjustment, the statement must disclose the payment required to fully amortize the loan at the new interest rate over the remainder of the loan term without extending the loan term
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Contents ‐ Continued
• The circumstances under which any prepaid penalty may be imposed when consumers fully repay the mortgage, such as when selling or refinancing their principal residence, the time period during which the penalty may be imposed, and the maximum amount (in dollars) of the penalty possible during that time period.
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Model Clause H‐4(D)(1)
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Specific Standards for Initial Rate Change Disclosures
• Form of disclosure: Must be in a separate and distinct disclosure document
• Timing of disclosure: Must be provided at least 210 days but not more than 240 days before the first payment at the adjusted level is due
• Exception: Not required to be given for ARMs with terms of one year or less
• Use of estimates: If the new interest rate or payment calculated from the new rate is not known as of the date of the disclosure, an estimate shall be disclosed and labeled as such
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Initial Rate Change Notices on Loans with the Initial Change Less Than 210 Days After Loan Origination
• You have missed the 210 to 240 day notice window
• So you simply provide the initial notice at loan closing
• Still have to provide Still have to provide “separate
separate and distinct disclosures
and distinct disclosures”
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Content Standards for Initial Rate Change Notice
• Essentially identical to the •
content standards just discussed for regular i t
interest rate adjustment t t dj t
t
notices
Model form is provided in Appendix H at H‐4(D)(3) with a sample completed form illustrated at H‐
4(D)(4)
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Content Differences
Added Warnings for initial
disclosure only!
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Content Differences
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Thank You!
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www.FISRegulatoryServices.com
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