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Thursday, March 13, 2014

Servicing Transfer – Avoiding Servicing Disruption

QUESTION:
We are a lender transferring servicing to a subservicer (the “Subservicer”). We send out our servicing transfer notice (“good-bye letter”) to our borrowers at least 15 days prior to the transfer. Among other items, the good-bye letter includes the new subservicer information and the effective date of transfer. The Subservicer advises that if a borrower chooses to mail his payment in early to the Subservicer, the Subservicer cannot process the payments or setup the loan until the date of the official date of transfer. The Subservicer also advises that their servicing transfer notice or “hello” letter cannot be sent out until the effective date of transfer or a few days later. This leaves our borrowers in a quandary as to what to do. What do you recommend?

ANSWER: 
The Subservicer is correct in that they cannot process a payment prior to the effective date of the transfer, as the servicing transfer has not occurred.  However, as detailed below, the balance of the concerns raised by you are valid as the practices result in the disruption of service to consumers, which the CFPB emphasizes must be avoided. There is nothing in the statute which prohibits a transferor from sending out a “hello” letter prior to the effective date; RESPA only mandates that the notice be sent out not more than 15 days after the effective date of the transfer. RESPA permits the transferor and transferee to issue a joint notice, which must be sent out at least 15 days prior to the effective date of the transfer. This may be an option to be considered. Additionally, the servicing rules require that payments be promptly credited.  [12 CFR 1024.33]

In February 2013, the CFPB issued a bulletin advising mortgage companies about the risks to consumers during the servicing transfer process. The CFPB reminded mortgage companies of their legal obligations with respect to protecting consumers during loan servicing transfer process. Among the complaints giving rise to the CFPB’s heightened scrutiny is service interruption when the loans are transferred during the loss mitigation process. In light of the number of homeowners that have been negatively impacted by servicing transfers, the CFPB is making servicing transfer related problems a focus of its supervisory activities.

The CFPB will assess the servicers’ policies, procedures, systems, and controls which address the risks to consumers in connection with servicing transfer. Among the areas highlighted by the CFPB as particular areas of concern are the following:

1. The transferor servicer’s plans in preparation for transfer, with an emphasis on the transfer of information to the transferee so as not to disrupt servicing to consumers.

2. The transferee’s plans for handling the files transferred to it, with an emphasis on the data transfer and the transferee’s verification of the accuracy of the information.

3. The transferor and transferee’s processes and procedures for dealing with loans in the process of loss mitigation so as avoid the negative effects servicing transfers often have on consumers in the midst of the process.  

With respect to servicers handling significant servicing transfers, in “appropriate cases”, the CFPB will require servicers to prepare and submit written plans to the CFPB detailing how they will manage the consumer risks associated with the transfers. [CFPB Bulletin 2013-01]

Joyce Pollison
Director/Legal & Regulatory Compliance
Lenders Compliance Group