In the May newsletter, we discussed the CFPB’s proposed regulations on mortgage loan servicing. If adopted as proposed, those regulations would require monthly billing statements, additional notice requirements for rate and payment changes on ARM loans, notices for forced placed insurance, prompt crediting of payments and responses to payoff requests, and procedures for investigation and resolution of errors among other things. Final regulations are likely before the end of this year. In the meantime, Mississippi mortgage lenders and servicers will need to consider recent amendments to the Mississippi S.A.F.E. Mortgage Act which include a number of consumer protections concerning mortgage loan servicing.
Senate Bill 2897, approved this past session, reenacted the Mississippi S.A.F.E Mortgage Act and extended the repealer date to July 1, 2016. The bill made several changes to current law clarifying who must be licensed as a mortgage loan originator under state law by further defining what constitutes the offering or negotiating of mortgage loans or the taking of an application. The legislation also exempted certain bona fide non-profit organizations and their employees from state licensing requirements. These changes have no effect on insured depository institutions or their subsidiaries. Those institutions must continue to follow the federal regulations for registration of their mortgage loan originator employees. However, the bill also contained a new section applicable to all mortgage lenders and mortgage servicers in the state whether or not those lenders or servicers have to be licensed under state law.
These new provisions became effective July 1, 2012, and apply to any mortgage lender in the state (the term ’mortgage lender’ includes any servicer) and to any loan for personal, family or household purposes secured by a dwelling or secured by residential real estate on which a dwelling exists or is intended to be constructed. The law makes illegal certain listed mortgage servicing practices which are discussed below.
The statute makes it unlawful under state law for any mortgage lender (which includes any servicer) to fail to comply with Section 6 or Section 10 of the Real Estate Settlement Procedures Act. Section 6 of RESPA includes the requirements for notice of servicing transfers, prompt disbursements from escrow accounts for payments of taxes and insurance, and prompt responses to qualified written requests from consumers. Section 10 of RESPA deals generally with the administration of escrow accounts, including escrow deposits, account reconciliations and statements, and handling of shortages and deficiencies. In this instance, the new state law does not impose any new or different requirements; it just makes a violation of Section 6 or Section 10 of RESPA a violation of state law also.
The statute prohibits certain activities concerning force-placed insurance. It is unlawful for a mortgage lender to: (i) fail to give written notice to a borrower upon taking action to force place hazard, homeowners or flood insurance; (ii) force place insurance when the lender has reason to know that the borrower has insurance in effect; or (iii) force place insurance for an amount in excess of either the value of the insurable improvements or the last known coverage amount of insurance. The lender is required to refund unearned premiums to the borrower once the borrower obtains insurance. If, within 12 months after the lender force places insurance, the borrower provides proof that no lapse in coverage actually occurred, the lender is required to refund the entire premium.
It is illegal under the act for a mortgage lender to refuse to reinstate a delinquent mortgage loan once the borrower tenders payment of all outstanding past due amounts and charges based on the last written statement received by the borrower. Once that payment is made, the lender is required to restore the loan to a non-delinquent status. This reinstatement right is only available to the borrower two times in any 24-month period. Mississippi lenders should keep in mind, though, that another statute, Miss. Code §89-1-59, gives borrowers the right to reinstate any real estate secured loan that is payable in installments at any time prior to completion of a foreclosure sale by paying all past due amounts, and there is no limit on the number of times a borrower can exercise that right.
The new law makes it illegal for a mortgage lender to initiate any foreclosure action without giving written notice to the borrower at least 45 days in advance. That notice must include an itemization of all past due amounts and any charges that have to be paid in order to bring the loan current, a statement that the borrower may have options available other than foreclosure and that the borrower may discuss those options with the mortgage lender or a HUD-approved counselor, the contact information for a representative of the mortgage lender who is authorized to work with the borrower to avoid foreclosure, the contact information for one or more HUD-approved counseling agencies in Mississippi who may be able to assist the borrower and avoid foreclosure, and the contact information for the Consumer Complaint Section of the Mississippi Department of Banking and Consumer Finance.
The new law also makes it unlawful for a mortgage servicer to fail to make all disbursements for insurance, taxes and other charges from any escrow account on a timely basis and in a manner to avoid any late charges or penalties unless there are insufficient funds in the escrow account and the mortgage lender has a reasonable basis to believe that an advance of those funds would not be recoverable. This is another instance where the new state law parallels RESPA and does not appear to impose any new or different requirements.
The new law imposes error resolution procedures on Mississippi mortgage lenders. A lender must make reasonable attempts to comply with any borrower’s request for information about the home loan and to respond to any dispute initiated by the borrower with respect to the loan account. The lender is required to maintain records of each written request for information by the borrower regarding any dispute or error involving the mortgage loan account. Those records must be maintained for the life of the loan until the loan is paid in full or otherwise satisfied or sold. If the borrower asserts in writing that the loan account is or may be in error, the lender must respond within 10 business days and provide a written statement informing the borrower of whether or not the account is current or, if delinquent, an explanation of the default and the date the account went into default, the current balance due including principal, any funds held in suspense, any escrow balance, whether there are any escrow deficiencies or shortages, the name and address of the current owner of the loan, and the contact information for a representative of the lender who has access to information and the authority to answer questions and resolve disputes with the borrower. The borrower is entitled to one such statement free of charge in any 6 month period. The lender may charge no more than $25 for each additional statement.
In addition, a lender must provide within 25 business days after written request from the borrower a copy of the original note, or if the original is not available, an affidavit of lost note and a statement that provides a complete and full history of the mortgage loan account including all payments, credits, debits, deposits to and disbursements from escrow, and any other account activity. The account history must cover a period of at least 24 months (or the life of the loan if less). The borrower is entitled to one such statement for free in any six-month period, and the lender may charge for additional statements provided the charge is no more than $50. In addition, mortgage lenders are required to promptly correct errors with respect to allocation of payments, the balance of the account or the payoff amount identified by the borrower or discovered by the lender.
The statute makes it unlawful for the lender to require the borrower to pay any fee or charge incurred by the lender, whether or not the loan is in default, unless it is assessed to the borrower within 45 days after it is actually incurred by the lender. This could include attorneys’ fees and other fees and charges incurred in connection with collection actions, foreclosure, bankruptcy or other legal proceedings. Any such fee would also have to be explained clearly and conspicuously in a statement mailed to the borrower within 30 days after the fee is assessed to the loan account. There are exceptions for fees for a service the borrower affirmatively requests, fees paid by the borrower at the time the service is provided, and fees not actually charged to the borrower’s loan account. Notice is also dispensed with if it would violate the bankruptcy automatic stay.
All payments on a mortgage loan must be credited, or treated as credited, within one business day after the date the payment is received; provided, the borrower makes a full payment and the payment is delivered to the address the lender has specified for payments. If a payment is not properly credited as required, the lender is required to notify the borrower by mail within 10 business days of the disposition of the payment, the reason the payment was not credited and any action the borrower must take to make the loan current. The notice requirement is dispensed with where the borrower and the lender have altered the payment schedule by entering into a loss mitigation, loan modification or forbearance agreement, where the borrower is participating in an alternative payment plan like a biweekly mortgage payment plan, and where the borrower is making payments pursuant to a bankruptcy plan. The requirement for prompt crediting of payments should be pre-empted by Regulation Z which requires payments on any consumer dwelling secured loan to be credited as of the date of receipt if made to an address specified by the lender and within 5 days of receipt if made at some other location. However, the notice requirements under the state law for payments not so credited would likely not be pre-empted.
The law generally prohibits any fee or charge by a mortgage lender that is not permitted both by applicable law and by the written contracts between the borrower and the lender. The law also prohibits a mortgage lender from charging a prepayment penalty on a residential mortgage loan except as authorized by Miss. Code § 75-17-31 and prohibits a mortgage lender from charging a late payment charge except as permitted by § 75-17-27. The law prohibits imposing any collection expenses or attorneys’ fees in excess of 25% of the unpaid debt after default when the debt is referred to an attorney for collection. That could present a problem in a contested foreclosure or where the loan amount is small.
Finally, the law prohibits any mortgage lender from charging premiums for credit life insurance on the life of the borrower or any other obligor in an amount that exceeds the total sum payable on the loan, including all interest, fees, costs and charges.
While the new law makes the practices described above unlawful, it is not at all clear what penalties will be attached to a violation. Presumably, the Dept. of Banking and Consumer Finance will enforce these prohibitions through the examination process. Also, once the CFPB adopts final regulations for mortgage servicers, the federal regulations should pre-empt any conflicting provisions of state law that do not provide consumers with greater protections.