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Proposed Regulations for Part 419 of the Superintendent's Regulations. Servicing Mortgage Loans: Business Conduct Rules.

December 15, 2009

PART 419.  SERVICING MORTGAGE LOANS:  BUSINESS CONDUCT RULES
(Statutory Authority:  Banking Law Article 12-D)

§ 419.1   Definitions
§ 419.2   Servicer duty of fair dealing
§ 419.3   Compliance with federal and state laws
§ 419.5   Payments of tax or insurance premiums
§ 419.6   Crediting of payments
§ 419.7   Statement of account
§ 419.8   Late payment notices
§ 419.9   Payoff balances
§ 419.10  Fees
§ 419.11  Residential mortgage loan delinquencies and loss mitigation efforts
§ 419.12  Quarterly reporting
§ 419.13  Books and records and annual reports
§ 419.14  Servicing prohibitions

§ 419.1  Definitions

For purposes of this part, unless otherwise stated herein, terms shall have the same meaning as set forth in section 418.3 of Part 418.

(a) “Authorized representative” means a person designated by the borrower in a written authorization signed by the borrower, including an employee or agent of a not-for-profit housing counseling or legal services organization.

(b)  “Home Affordable Mortgage Program” or “HAMP” means the program established by the U.S. Department of the Treasury pursuant to sections 101 and 109 of the Emergency Economic Stabilization Act of 2008, as section 109 of the Act has been amended by section 7002 of the American Recovery and Reinvestment Act of 2009.

(c) “Loan modification” means waiver, modification or variation of any material term of the mortgage loan, irrespective of whether the duration is short-term, long-term or life-of-loan, that changes the interest rate, forbears or forgives the payment of principal or interest or extends the final maturity date of the loan. 

(d)  “Servicer” means a person engaging in the servicing of mortgage loans in this state whether or not registered or required to be registeredpursuant to paragraph (b-1) of subdivision two of Banking Law section 590. 

(e)  “Qualified Written Request” means, as set forth in RESPA, 24 C.F.R. section 3500.21(e)(2), a written correspondence (other than notice on a payment coupon or other payment medium supplied by the servicer) that includes, or otherwise enables the servicer to identify, the name and account of the borrower, and includes a statement of the reasons that the borrower believes the account is in error, if applicable, or that provides sufficient detail to the servicer regarding information relating to the servicing of the loan sought by the borrower.

(f)  “RESPA” means the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. section 2601 et seq. and regulations adopted thereunder, also sometimes known as Regulation X, and found at 24 C.F.R. Part 3500.

 

§ 419.2  Servicer duty of fair dealing

A Servicer has a duty of good faith and fair dealing in its communications, transactions, and course of dealings with each borrower in connection with the servicing of the borrower’s mortgage loan.  This includes, but is not limited to, the duty to:

(a) Safeguard and account for any money handled for the borrower;

(b) Follow reasonable and lawful instructions from the borrower;

(c) Act with reasonable skill, care and diligence;

(d) Promptly provide the borrower with an accurate statement of account in accordance with Part 419.7(b);

(e) Make borrowers in default aware of loss mitigation options and services offered by the Servicer in accordance with Part 419.11;

(f) Provide trained personnel and telephone facilities sufficient to respond promptly to borrower inquiries regarding their mortgage loans; and

(g) Pursue loss mitigation with the borrower whenever possible.

 

§ 419.3  Compliance with federal and state laws

In addition to applicable provisions of Banking Law Article 12-D and the requirements of Part 418 and this Part, a Servicer shall comply with all applicable federal and New York state laws and regulations relating to mortgage loan servicing, including but not limited to RESPA, the Truth-in-Lending Act, 15 U.S.C. section 1600 et seq. and Regulation Z adopted thereunder, 12 C.F.R. section 226 et seq., section 6-k of the Banking Law and Article 9, Title 3-A, of the Real Property Tax Law.

 

§ 419.4  Consumer complaints and inquiries

(a) A Servicer shall follow the requirements relating to  “Qualified Written Requests” pursuant to RESPA, 24 C.F.R. section 3500.21. 

(b) In addition to the requirements of RESPA, a Servicer shall have procedures and systems in place to respond to and resolve borrower inquiries and complaints in a prompt and appropriate manner.A Servicer shall provide trained personnel,  designate a contact to whom borrowers may direct complaints and inquiries and  provide a toll-free telephone number or collect calling services through which any borrower may direct telephone inquiries on the borrower’s mortgage loan during regular business hours. 

(c) Servicer shall provide on each regular account statement:

  1. an address to which borrowers can direct complaints and inquiries;
  2. a toll-free telephone number or collect calling services that gives the borrower access to a live person trained to answer inquiries and resolve or help resolve complaints, provided that the Superintendent in his or her discretion may waive or modify this requirement for good cause; and
  3. statements, (A) if applicable, that the Servicer is registered with the Superintendent, (B) that the borrower may file complaints about the Servicer with the New York State Banking Department and (C) that the borrower may obtain further information from the New York State Banking Department by calling the Department’s Consumer Help Unit at 1-877-BANK-NYS or by visiting the Department’s website at www.banking.state.ny.us.

(d) Within 15 days of receiving a request in writing from a borrower or the borrower’s authorized representative, a Servicer shall provide the borrower with the name, address and other relevant contact information for the current legal or beneficial owner of the mortgage loan.

 

§ 419.5  Payments of tax or insurance premiums

(a) Any Servicer that receives funds from a borrower to be held in escrow for payment of taxes or insurance premiums shall make payments of the taxes or insurance premiums due under the mortgage in accordance with the requirements of RESPA, 24 C.F.R section 3500.17, Real Property Tax Law Article 9, Title 3-A and Banking Law section 6-k, and shall be liable to the borrower as provided therein. 

(b) A Servicer shall disclose any payments from the escrow account clearly and conspicuously in the next periodic statement provided to the borrower.

(c)  If a Servicer advances funds in paying a disbursement, which is not the result of a borrower's payment default under the underlying mortgage document, the Servicer shall conduct an escrow account analysis to determine the reasons for and extent of the deficiency before seeking repayment of the funds from the borrower.

 

§ 419.6  Crediting of payments

(a) In general:  Except as provided in subsection (d), all amounts received by a Servicer on a mortgage loan at the address where the borrower has been instructed in writing to make payments shall be accepted and credited, or treated as credited, on the business day received, to the extent that the borrower has provided sufficient information to credit the account.  For all mortgage loans originated after January 1, 2010, such payments shall be credited to the interest and principal due on the home loan before crediting the payments to taxes, insurance, or fees. 

(b) Non-conforming payments.  If a Servicer specifies in writing requirements for the consumer to follow in making payments, but accepts a payment that does not conform to such requirements, the Servicer shall credit the payment as soon as commercially practicable, but in no event later than 5 days after receipt.

(c) Late payments.   Late payments must be credited before any late charge is collected.  Late charges shall not be (1) based on an amount greater than the past due amount; (2) collected from the escrow account or from escrow surplus without the approval of the borrower; or (3) deducted from any regular payment.

(d) Scheduled method of accounting.  If a Servicer uses the scheduled method of accounting, any regularly scheduled payment made prior to the scheduled due date shall be credited no later than the due date or 30 days from the date of receipt, whichever is earlier.

(e) Notice of noncredit.  If the Servicer receives any payment on a mortgage loan and does not credit it or treat it as credited, the Servicer shall, within 10 business days of receipt, send the borrower notice by mail at the borrower’s last known address indicating the reason the payment was not credited or treated as credited to the account, and any actions by the borrower necessary to make the loan current.

(f) Payment overages and shortages.  A Servicer shall establishwritten policies and procedures for determining the handling of payment overages and shortages.

 

§ 419.7  Statement of account

(a)   Annual statement.  At least once annually, within 30 days of the end of the computation year, a Servicer shall deliver to the borrower a plain language statement of the borrower's account showing the unpaid principal balance of the mortgage loan at the end of the immediately preceding 12-month period, the interest paid during such period, and the amounts deposited into escrow and disbursed from escrow during the period. The format and content of the annual escrow statement shall comply with the requirements of 24 C.F.R. section 3500.17(i)(1).

(b)   Borrower requests.  A Servicer shall promptly provide a borrower with an accurate accounting of the debt owed when requested by the borrower or borrower’s authorized representative.  Within 30 days of receipt of a request from the borrower or the borrower’s authorized representative, a Servicer shall deliver to the borrower a payment history for the last 36 months (unless a different period is requested) of the borrower's account showing the date and amount of all payments made or credited to the account and the total unpaid balance.  

(c)  Fees.  A fee shall not be charged to the borrower for the annual escrow statement or for one payment history furnished to a borrower in a 12-month period.

(d) Escrow shortages, surpluses, and deficiencies. A shortage, surplus or deficiency in the escrow account shall be handled in accordance with the provisions of RESPA, 24 C.F.R. section 3500.17(f)(2).  Alternatively, with the consent of the borrower, an excess balance may be applied to the principal balance.

 

§ 419.8 Late payment notices

A Servicer shall send a payment reminder notice to a borrower at the borrower’s last known address no later than 17 days after the payment becomes due and remains unpaid..

 

§ 419.9  Payoff balances

A Servicer shall provide a payoff statement, consisting of a clear, understandable and accurate statement of the total amount that is required to pay off the mortgage loan as of a specified date, within a reasonable time, but in any event no more than 5business days after receipt of a request from the borrower or borrower’s authorized representative.  No borrower shall be charged a fee for being informed or receiving a payoff statement or for being provided with a release upon full prepayment, provided that a Servicer may charge a reasonable fee for providing a payoff statement after five or more requests in any calendar year.

 

§ 419.10 Fees

(a)   Schedule of fees.  A Servicer shall maintain and update at least semi-annually a schedule of standard or common fees, such as nonsufficient fund fees.  A Servicer shall make its schedule available on its website and to the borrower or borrower’s authorized representative upon request.

(b)   Authorized fees.  Any fees assessed or collected must be (1) reasonable, (2) for  bona fide services rendered or costs incurred, (3) expressly authorized by the mortgage loan instruments and iv) not otherwise prohibited by law.

(c)   Late fees and Delinquency Charges. A Servicer shall not impose anylate fee or delinquency charge when the only delinquency is attributable to late fees or delinquency charges assessed on an earlier payment, and the payment is otherwise a full payment for the applicable period and is paid on its due date or within any applicable grace period.  Late fees may not be charged more than once with respect to a single past due payment and may not exceed 2% of the amount of the past due payment.

 

§ 419.11  Residential mortgage loan delinquencies and loss mitigation efforts

(a)   In general. Servicers shall make reasonable and good faith efforts consistent with usual and customary industry standards and paragraph (b) of this section to engage in appropriate loss mitigation options, including loan modifications, to avoid foreclosure.  Whenever a borrower is at least 60 days delinquent (or earlier at the Servicer’s option) or whenever a borrower who is in default or at imminent risk of default contacts the Servicer with respect to a loan modification or other loss mitigation assistance, the Servicer shall (1) inform the borrower of the facts concerning the loan, the nature and extent of the delinquency or default, the Servicer’s loss mitigation protocols, and the loss mitigation options and services offered by the Servicer, and (2) if requested by the borrower, negotiate with the borrower in good faith, subject to the Servicer's duties and obligations under the mortgage servicing contract, if any, to attempt a resolution or workout of the delinquency or to prevent the borrower’s default, including a loan modification.

(b)   Loan Modifications.  Servicers should consider a loan modification as an alternative to foreclosure when (1) the borrower has experienced a financial hardship and is unable to maintain the payment at the current amount required under the mortgage loan or is unable to make up the delinquent payments and (2) the net present value of the income stream expected of the modified loan is greater than the net present value of the income stream that is expected to be recovered through the disposition of the property through a foreclosure sale.  Loan modifications should be structured to result in payments that are affordable and sustainable for the borrower.  Servicers that are participating in HAMP shall offer loan modifications in compliance with the HAMP guidelines or directives, including using reasonable efforts to remove prohibitions or impediments to their authority and to obtain third party consents and waivers that are required, by contract or law, in order to effectuate a loan modification under HAMP.

(c)  Written acknowledgement.  Unless a longer time is permitted under the guidelines or directives implementing HAMP, within 10 business days  of receiving a request from a borrower or authorized representative for a loss mitigation option, the Servicer shall transmit a written acknowledgement of the request to the borrower and, if applicable, to the authorized representative.  The acknowledgement shall include the key elements of the loss mitigation process, including, as appropriate, the following:

(d)   Decisions regarding loss mitigation options.  Within 45 days of receiving all required documentation from the borrower and third parties, unless a shorter time is required under regulations or guidelines implementing HAMP, a Servicer shall complete its evaluation of the borrower’s eligibility for a loan modification or other loss mitigation option requested by the borrower and advise the borrower, and if applicable, the borrower’s authorized representative, in writing of its determination.  Where the Servicer approves the borrower for a loan modification, including a trial modification, or other loss mitigation option, the written notice must provide the borrower with clear and understandable written information explaining the material terms, costs and risks of the option offered.  Where the Servicer determines that the borrower cannot be approved for a loan modification, including a trial modification, the written notice must state the reasons for the determination and any other foreclosure prevention alternatives for which the borrower may be considered. 

(e)   Borrower programs and counseling.  A Servicer shall take reasonable steps to ensure that its staff is aware of programs designed to assist borrowers avoid foreclosure or resolve delinquency. The Servicer shall make available to homeowners who are at least 60 days delinquent or who they have reason to believe are experiencing a financial hardship and are in imminent risk of default a list of government approved not-for-profit housing counselors in the homeowner’s geographic area as listed on the Banking Department’s website (www.banking.state.ny.us) or the Division of Housing and Community Renewal’s website (www.nysdhcr.gov). 

(f)   Loss mitigation contacts.  A Servicer shall maintain and make available to borrowers and borrowers’ authorized representatives current contact information to communicate and negotiate with the Servicer’s designated loss mitigation staff who are authorized to discuss and negotiate loss mitigation options.  The contact information shall include toll free telephone number(s) for direct communication with a loss mitigation staff person, fax number(s) for receipt of documents and e-mail addresses.  The Servicer shall also designate special escalation contacts for not-for-profit housing counselors, government representatives and legal services organizations to utilize when necessary to review or intervene in the handling of a pending loss mitigation matter. 

(g)   Waiver of legal claims and defenses.  A Servicer shall not require a homeowner to waive legal claims and defenses as a condition of a loan modification. 

(h)   Presumption of good faith.  It shall be presumed that a Servicer has engaged  in good faith loss mitigation efforts if the Servicer offers loan modifications and other loss mitigation options in accordance with the HAMP guidelines or directives developed by the United States Department of Treasury.

(i)   Alternative loss mitigation options.  Nothing in this subsection shall be construed to prevent a Servicer from offering or accepting alternative loss mitigation options, including other modification programs offered by the Servicer, a short sale  a deed-in-lieu of foreclosure or forbearance, if the borrower requests such an alternative, is not eligible for or does not qualify for a loan modification under HAMP,  or rejects the Servicer’s loss mitigation proposal. 

(j)   Servicer Protocols.  A Servicer shall maintain a system for servicing delinquent loans that includes at a minimum the following:

 

§ 419.12  Quarterly reporting

Each Servicer that is either registered or required to be registered with the Superintendent or that is an exempt organization regulated by the Superintendent shall compile and submit to the Superintendent, within 30 days of the end of each calendar quarter, a report in the format required by the Superintendent, that contains the following information for the preceding month for mortgage loans in New York:

(a)  The number and type of the mortgage loans the Servicer is servicing;

(b)  The number and type of the mortgage loans that the Servicer is servicing that are in payment default and a breakdown of these mortgage loans by length of payment delinquency, including 30-day, 60-day, and 90-day and longer delinquencies;

(c)  Information on loss mitigation activities undertaken including, but not limited to, the following:

    1. The proactive steps taken to identify borrowers at a heightened risk of default, such as those with impending interest rate resets or with mortgages due to recast, including, but not limited to, contacts with borrowers to assess their ability to repay their mortgage  loan obligations;
    2. The number and type of workout arrangements in process;
    3. The  number and type of workout arrangements, including the percentage of each type of workout arrangement, entered into;
    4. The number and type of the mortgage loans for which each type of workout arrangement was entered into; and
    5. The number of and reasons for redefaults.

(d)  For workouts that involve mortgage modifications, the total number of modifications resulting in each of the following:

(e)  The total number of loans that have been modified and then entered into default, where the loan modification resulted in the following:

(f)  The number of preforeclosure notices served pursuant to Real Property Actions and Proceedings Law section 1304, foreclosure actions commenced, judgments obtained and foreclosure sales concluded in this state in connection with mortgage loans the MLS is servicing;

(g)  The number of settlement conferences scheduled in foreclosure actions pursuant to Civil Practice Law and Rules section 3408 and the outcome of such conferences, i.e. matter adjourned, resolution reached and nature of the resolution, resolution not reached and reason;

(h)  The number and type of REO properties held;

(i)  The number and dollar amount of adjustable rate mortgage loans, interest only mortgage loans and payment option ARM mortgage loans held;

(j)  The specific reasons for the delinquency, if known, such as death, illness, change in marital status, decrease in income, unemployment, loss of rental income, increase in escrow account, interest rate reset, other debt obligations, payment dispute etc.  A Servicer should identify the primary reason for delinquency; and

(k) Any other information that the Superintendent may consider necessary, including geographic information regarding applicable mortgage loans.

 

§ 419.13 Books and records and annual reports

(a)   In general.  This section applies to each Servicer that is either registered or required to be registered with the Superintendent or that is an exempt organization regulated by the Superintendent.  Each Servicer shall (1) keep such books and records in a manner that will allow the Superintendent to determine whether the Servicer is complying with applicable laws and regulations and (2) preserve its books and records for at least three years after making the final entry with respect to any New York mortgage loan being serviced by the Servicer, unless a longer period is provided by statute.  At a minimum, books and records must provide information regarding:

    1. Loan payments received, disbursements made and the dates of transactions for each account;
    2. The principal balance of each loan account;
    3. The amount and due date of each loan installment for each loan serviced;
    4. The servicing history for all mortgage loans serviced by the Servicer, including the servicing history of loans acquired from another entity; and
    5. The servicing of delinquent loans, including loans in foreclosure.

(b)  Telephone and written communications.  The Servicer must maintain a  telephone log and file of all written correspondence, including fax transmissions and e-mail correspondence, relating to the servicing of each mortgage loan, including, but not limited to communications and correspondence between it and

    1. Any previous loan servicer;
    2. The lender or any owner of such loan;
    3. The holder of the mortgage or person acting on the holder’s behalf; 
    4. The borrower or the borrower’s authorized representative; and
    5. A governmental entity.

(c)  Quality control and internal audit function.  The Servicer must have internal controls (commensurate with the size and complexity of the servicing operations) which periodically assess the Servicer’s loan servicing to ensure that servicing standards and procedures are being met. At least annually, the Servicer shall conduct an internal assessment of all its servicing activity. The Servicer shall also conduct periodic audits of payment processing functions to ensure payments are properly credited, including payments remitted to the servicer via certified mail.

(d)  Delinquency and foreclosure reports.  In addition to the quarterly reports required pursuant to section 419.12, the Servicer shall collect, maintain and analyze appropriate data on delinquency and foreclosure rates  to enable it to (1) evaluate the effectiveness of its collection efforts and overall performance of its servicing portfolio and (2) identify discriminatory trends. The Servicer shall further determine how its delinquency and foreclosure rates compare with rates in reports published by the industry, investors and others and analyze significant variances between its foreclosure and delinquency rates and those found in reports and publications and take appropriate corrective action.

(e)  Quarterly Financial Report and Net Worth Certification.  Within 45 days of the end of each fiscal quarter, the Servicer must submit to the Department, in a format, prescribed by the Superintendent, a quarterly financial report and certification of net worth.

(f)  Annual audited financial statements.  Unless the Superintendent in his or her sole discretion determines that other financial information may be substituted, the Servicer shall submit an annual audited financial statement as of its fiscal year end which must be filed with the Banking Department within 90 days of the close of the fiscal year. The financial statement shall be prepared in accordance with generally accepted accounting principles and audited by an independent certified public accountant in accordance with generally accepted auditing standards.

(g ) Annual and other reports.  The Superintendent may require Servicers to file other regular or special reports, including reports with respect to mortgage delinquencies and foreclosures, annually or as otherwise requested by the Superintendent.  Such reports shall be in a form prescribed by the Superintendent and, except as permitted by the Superintendent, shall be subscribed and affirmed as true under the penalty of perjury. 

 

§ 419.14  Servicing prohibitions

A Servicer is prohibited from:

(a)  Failing to take timely action to respond to a borrower’s requests to correct errors relating to allocation of payments, amounts charged or final balances for purposes of paying off the loan or avoiding foreclosure.

(b)  Failing to respond within 15 business days to a request from a borrower or borrower’s authorized representative to provide the identity, address and other relevant contact information for the current legal or beneficial owner of the loan;

(c)  Imposing fees in violation of Sections 419.9 and 419.10;

(d)  Misrepresenting or omitting any material information, including, but not limited to, misrepresenting the amount, nature or terms of any fee or payment due or claimed to be due on a loan or the terms and conditions of the servicing agreement or the borrower’s obligations under the loan;

(e)  Failing to provide written notice to a borrower upon taking action to place hazard, homeowner’s or flood insurance on the mortgaged property or placing such insurance on the mortgaged property when the Servicer knows or has reason to know that the homeowner has an effective policy for such insurance;

(f)  Placing hazard, homeowner’s or flood insurance on a mortgaged property, or requiring a borrower to obtain or maintain such insurance, in excess of the replacement cost of the improvements on the mortgaged property;

(g) Failing to provide to the borrower a refund of unearned premiums paid by a borrower or charged to the borrower for hazard, homeowner’s or flood insurance placed by a mortgage lender or the Servicer if the borrower provides reasonable proof that the borrower has obtained coverage such that the forced placement insurance is no longer necessary and the property is insured;

(h) Requiring funds to be remitted by means more costly to the consumer than a bank or certified check or attorney’s check from an attorney’s account;

(i)  Refusing to communicate with an authorized representative of the borrower who provides a written authorization signed by the borrower, provided that the servicer may adopt procedures reasonably related to verifying that the representative is in fact authorized to act on behalf of the borrower; and

(j)  Failing to provide the borrower with the notice required by Real Property Actions and Proceedings Law section 1304 at least ninety days before commencing legal action against the borrower or in the case of a residential cooperative, failing to provide the debtor with the notice required by Uniform Commercial Code section 9-611 at least ninety days before disposing of the debtor’s cooperative interest.

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