CFPB – Error Resolution Rules (2014)

Ever thought your lender had made an error, say failing to properly credit a payment, or levied an inappropriate charge? What can you do, and how long will it take to resolve?  For the last several years, I have seen clients seeking error resolution undergo a Kafkaesque experience where their questions were either ignored, or met with a circular response that resolved nothing. ~PCQ

Effective on January 10, 2014, the CFPB has established some new ground rules that might [we can only hope and pray] help borrowers caught up in the endless loop of questions and non-answers. Summarized below are the new rules.  Direct quotes are from the excellent summary provided by PolicyWorks.

Error Resolution Procedures. To assert an error, the borrower, or their agent, should notify the servicer in writing, providing the following information:

• Identify the error[1];
• Identify the borrower; and
• Identify the loan number.

Although servicers are not required to provide borrowers with an address for error resolution, if they do not, then they must respond to a notice of error received at any of its offices.

What Constitutes an Error? Here are the No-No’s:

1. Failure to accept a payment that conforms to the servicer’s written requirements for the borrower to follow in making payments;

2. Failure to apply an accepted payment to principal, interest, escrow, or other charges under the terms of the mortgage loan and applicable law;

3. Failure to credit a payment to a borrower’s mortgage loan account as of the date of receipt;

4. Failure to pay taxes, insurance premiums, or other charges, including charges that the borrower and servicer have voluntarily agreed that the servicer should collect and pay, in a timely manner, or to refund an escrow account balance;

5. Imposition of a fee or charge that the servicer lacks a reasonable basis to impose upon the borrower;

6. Failure to provide an accurate payoff balance amount upon a borrower’s request;

7. Failure to provide accurate information to a borrower regarding loss mitigation options and foreclosure;

8. Failure to transfer accurately and timely information relating to the servicing of a borrower’s mortgage loan account to a transferee servicer;

9. Making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process in violation of §1024.41(f)[2] or (j)[3];

10. Moving for foreclosure judgment or order of sale, or conducting a foreclosure sale in violation of §1024.41(g)[4] or (j)[5] of the Real Estate Settlement and Procedures Act;

11. Any other error relating to the servicing of a borrower’s mortgage loan.

What Happens When the Servicer Receives a Notice of Error?  The servicer has 5 business days[6] within which to acknowledge receipt of the notice.  It must then (a) conduct an investigation, and (b) give the borrower written notice that[7]:

• The error has been corrected, including the effective date of the correction and sufficient contact information for the borrower to secure further assistance; or
• No error has occurred. This notice should include:
  • The reason(s) for the determination;
  • The right to request documents relied upon;
  • How to request such documents; and
  • Contact info [including phone number] for further assistance.

Copies of the documents that were relied upon must be provided within 15 business days. If the documents are confidential, proprietary or privileged, the servicer must say so and may then decline to provide it.

If any other errors are found during the investigation, those errors must be corrected.  The servicer’s notice to the borrower should include:

• Information regarding the error(s);
• The action taken;
• The effective date of correction; and
• Contact info [including a phone number] for further assistance.

If the servicer needs additional documentation or information from the borrower, it can request it, but may not require compliance as a pre-condition to commencing an investigation.  Unless the servicer conducts an investigation, it may not claim that no error occurred due to the fact that the additional information or documents were not provided.

The servicer must investigate and respond to the borrower within 30 business days from the notice of error. This response time may be extended by an additional 15 days if the borrower is notified before the end of the 30 business day period.

Exceptions. There are exceptions to the above requirements when the notice of error:

• Is redundant and the servicer has already complied;
• Is “overbroad” and the servicer is unable to determine the nature of the alleged error; or;
• Occurs over one year after: (a) servicing rights were transferred to the current servicer to whom the notice is directed; or (b) the loan has been paid off.

If the servicer determines that compliance with the above steps is not required, it must notify the borrower within five business days of making that determination.

Prohibitions. The servicer may not:

• Charge a fee or require a borrower to make a payment on the loan as a condition to responding; and
• Provide adverse information regarding a payment that is the subject of the error, to a credit reporting agency for 60 calendar days after receipt of a borrower’s notice of error.

Conclusion.  Time will tell whether servicers – especially the big boys, like Ocwen, whose reputation for sharp practices precedes it – will comply.  To them and others cut from the same fabric, might makes right.  One thing is for sure; compliance is a lot more likely if servicers are unable to find a reason for not responding.  Hopefully, these new rules will eliminate some of those excuses. ~PCQ