By Stephen R. Franks, Attorney
As summer winds down and we head into fall, important changes are looming in the mortgage servicing industry. On January 10, 2014 new rules will go into effect for residential mortgage loans. These rules were enacted on January 17, 2013 by the Consumer Financial Protection Bureau (CFPB). The new rules cover nine major topics, one of which relates to periodic statements.
Proposed Section 1026.41 establishes that periodic statements will be required for residential mortgage loans. The CFPB stated that the purpose of the new rule is for servicers to design the statements to be easy for consumers to read; however, they still wanted to give flexibility to the servicer to customize the statement.
The statement should be designed to provide the consumer with an easy-to-read format and to highlight key information. Related concepts and figures are to be grouped together and set off from other groups of information. Servicers do have the flexibility to use regional terminology, so long as it is commonly understood.
The statement must include the principal balance and current interest rate. It must also include an explanation of the amount due, and provide the monthly payment amount, along with the allocation of the payment amongst principal, interest, and escrow.
The statement should be a snapshot of how past payments have been applied to the principal balance, interest, escrow, fees, charges, and any partial payments. The statement should also include transaction activity that shows any activity since the last payment. Late fees must be described with the date, the amount and the fact that it was imposed.
Statements must be more than just available to the borrower. They must be either physically mailed to the borrower or made available online. If the statement is available online, the servicer must send an email to the consumer stating it is ready. Joint obligors do not need separate statements. Only one statement needs to be sent.
The statement must be sent each billing cycle, and it must be sent within a reasonably prompt time after the close of the grace period of the previous billing cycle. The CFPB recommends four days after the previous month’s grace period has ended to send out the new statement. Disclosures must be made clearly and conspicuously in writing on the statements. The CFPB has crafted a recommended form statement for use that is available on its website.
Of particular interest is the fact that the servicer is required to post a message on the front of the statement if a partial payment is being held in suspense. Additionally, statements must contain contact information for the consumer to obtain information from the servicer and also contact information for the State housing finance authority.
The above rule applies to creditors, assignees and servicers. However, there is an exemption for small servicers that only service 5,000 or fewer mortgage loans and service only mortgage loans they originated.
Stephen is an attorney in Bankruptcy located in the Brooklyn Heights, Ohio office who can be reached at 216.739.5645 and firstname.lastname@example.org.