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(a) Definitions. As
used in this section:
Master servicer means the owner of the right to perform
servicing, which may actually perform the servicing itself or may do
so through a subservicer.
Mortgage servicing loan means a federally related mortgage
loan, as that term is defined in Sec. 3500.2, subject to the
exemptions in Sec. 3500.5, when the mortgage loan is secured by a
first lien. The definition does not include subordinate lien loans or
open-end lines of credit (home equity plans) covered by the Truth in
Lending Act and Regulation Z, including open-end lines of credit
secured by a first lien.
Qualified written request means a written correspondence from
the borrower to the servicer prepared in accordance with paragraph
(e)(2) of this section.
Subservicer means a servicer who does not own the right to
perform servicing, but who does so on behalf of the master servicer.
Transferee servicer means a servicer who obtains or who will
obtain the right to perform servicing functions pursuant to an
agreement or understanding.
Transferor servicer means a servicer, including a table funding
mortgage broker or dealer on a first lien dealer loan, who transfers
or will transfer the right to perform servicing functions pursuant to
an agreement or understanding.
(b) Servicing Disclosure Statement and Applicant Acknowledgement;
requirements. (1) At the time an application for a mortgage
servicing loan is submitted, or within 3 business days after
submission of the application, the lender, mortgage broker who
anticipates using table funding, or dealer who anticipates a first
lien dealer loan shall provide to each person who applies for such a
loan a Servicing Disclosure Statement. This requirement shall not
apply when the application for credit is turned down within three
business days after receipt of the application. A format for the
Servicing Disclosure Statement appears as appendix MS-1 to this part.
Except as provided in paragraph (b)(2) of this section, the specific
language of the Servicing Disclosure Statement is not required to be
used, but the Servicing Disclosure Statement must include the
information set out in paragraph (b)(3) of this section, including the
statement of the borrower's rights in connection with complaint
resolution. The information set forth in Instructions to Preparer on
the Servicing Disclosure Statement need not be included on the form
given to applicants, and material in square brackets is optional or
alternative language.
(2) The Applicant's Acknowledgement portion of the Servicing
Disclosure Statement in the format stated is mandatory. Additional
lines may be added to accommodate more than two applicants.
(3) The Servicing Disclosure Statement must contain the
following information, except as provided in paragraph (b)(3)(ii) of
this section:
(i) Whether the servicing of the loan may be assigned, sold or
transferred to any other person at any time while the loan is
outstanding. If the lender, table funding mortgage broker, or dealer
in a first lien dealer loan does not engage in the servicing of any
mortgage servicing loans, the disclosure may consist of a statement to
the effect that there is a current intention to assign, sell, or
transfer servicing of the loan.
(ii) The percentages (rounded to the nearest quartile (25%)) of
mortgage servicing loans originated by the lender in each calendar
year for which servicing has been assigned, sold, or transferred for
such calendar year. Compliance with this paragraph (b)(3)(ii) is not
required if the lender, table funding mortgage broker, or dealer on a
first lien dealer loan chooses option B in the model format in
paragraph (b)(4) of this section, including in square brackets the
language ``[and have not serviced mortgage loans in the last three
years.]''. The percentages shall be provided as follows:
(A) This information shall be set out for the most recent three
calendar years completed, with percentages as of the end of each year.
This information shall be updated in the disclosure no later than
March 31 of the next calendar year. Each percentage should be obtained
by using as the numerator the number of mortgage servicing loans
originated during the calendar year for which servicing is transferred
within the calendar year and, as the denominator, the total number of
mortgage servicing loans originated in the calendar year. If the
volume of transfers is less than 12.5 percent, the word ``nominal'' or
the actual percentage amount of servicing transfers may be used.
(B) This statistical information does not have to include the
assignment, sale, or transfer of mortgage loan servicing by the lender
to an affiliate or subsidiary of the lender. However, lenders may
voluntarily include transfers to an affiliate or subsidiary. The
lender should indicate whether the percentages provided include
assignments, sales, or transfers to affiliates or subsidiaries.
(C) In the alternative, if applicable, the following statement
may be substituted for the statistical information required to be
provided in accordance with paragraph (b)(3)(ii) of this section: ``We
have previously assigned, sold, or transferred the servicing of
federally related mortgage loans.''
(iii) The best available estimate of the percentage (0 to 25
percent, 26 to 50 percent, 51 to 75 percent, or 76 to 100 percent) of
all loans to be made during the 12-month period beginning on the date
of origination for which the servicing may be assigned, sold, or
transferred. Each percentage should be obtained by using as the
numerator the estimated number of mortgage servicing loans that will
be originated for which servicing may be transferred within the
12-month period and, as the denominator, the estimated total number of
mortgage servicing loans that will be originated in the 12-month
period.
(A) If the lender, mortgage broker, or dealer anticipates that
no loan servicing will be sold during the calendar year, the word
``none'' may be substituted for ``0 to 25 percent.'' If it is
anticipated that all loan servicing will be sold during the calendar
year, the word ``all'' may be substituted for ``76 to 100 percent.''
(B) This statistical information does not have to include the
estimated assignment, sale, or transfer of mortgage loan servicing to
an affiliate or subsidiary of that person. However, this information
may be provided voluntarily. The Servicing Disclosure Statements
should indicate whether the percentages provided include assignments,
sales or transfers to affiliates or subsidiaries.
(iv) The information set out in paragraphs (d) and (e) of this
section.
(v) A written acknowledgement that the applicant (and any co-
applicant) has/have read and understood the disclosure, and understand
that the disclosure is a required part of the mortgage application.
This acknowledgement shall be evidenced by the signature of the
applicant and any co-applicant.
(4) The following is a model format, which includes several
options, for complying with the requirements of paragraph (b)(3) of
this section. The model format may be annotated with additional
information that clarifies or enhances the model language. The lender
or table funding mortgage broker (or dealer) should use the language
that best describes the particular circumstances.
(i) Model format: The following is the best estimate of what
will happen to the servicing of your mortgage loan:
(A) Option A. We may assign, sell, or transfer the servicing of
your loan while the loan is outstanding. [We are able to service your
loan[.][,] and we [will] [will not] [haven't decided whether to]
service your loan.]; or
(B) Option B. We do not service mortgage loans[.][,] [and have
not serviced mortgage loans in the past three years.] We presently
intend to assign, sell, or transfer the servicing of your mortgage
loan. You will be informed about your servicer.
(C) As appropriate, the following paragraph may be used:
We assign, sell, or transfer the servicing of some of our loans while
the loans are outstanding, depending on the type of loan and other
factors. For the program for which you have applied, we expect to
[assign, sell, or transfer all of the mortgage servicing][retain all
of the mortgage servicing] [assign, sell, or transfer ________% of the
mortgage servicing].
(ii) [Reserved]
(c) Servicing Disclosure Statement and Applicant Acknowledgement;
delivery. The lender, table funding mortgage broker, or dealer
that anticipates a first lien dealer loan shall deliver Servicing
Disclosure Statements to each applicant for mortgage servicing loans.
Each applicant or co-applicant must sign an Acknowledgement of receipt
of the Servicing Disclosure Statement before settlement.
(1) In the case of a face-to-face interview with one or more
applicants, the Servicing Disclosure Statement shall be delivered at
the time of application. An applicant present at the interview may
sign the Acknowledgment on his or her own behalf at that time. An
applicant present at the interview also may accept delivery of the
Servicing Disclosure Statement on behalf of the other applicants.
(2) If there is no face-to-face interview, the Servicing
Disclosure Statement shall be delivered by placing it in the mail,
with prepaid first-class postage, within 3 business days from receipt
of the application. If co-applicants indicate the same address on
their application, one copy delivered to that address is sufficient.
If different addresses are shown by co-applicants on the application,
a copy must be delivered to each of the co-applicants.
(3) The signed Applicant Acknowledgment(s) shall be retained for
a period of 5 years after the date of settlement as part of the loan
file for every settled loan. There is no requirement for retention of
Applicant Acknowledgment(s) if the loan is not settled.
(d) Notices of Transfer; loan servicing--(1) Requirement for
notice. (i) Except as provided in this paragraph (d)(1)(i) or
paragraph (d)(1)(ii) of this section, each transferor servicer and
transferee servicer of any mortgage servicing loan shall deliver to
the borrower a written Notice of Transfer, containing the information
described in paragraph (d)(3) of this section, of any assignment,
sale, or transfer of the servicing of the loan. The following
transfers are not considered an assignment, sale, or transfer of
mortgage loan servicing for purposes of this requirement if there is
no change in the payee, address to which payment must be delivered,
account number, or amount of payment due:
(A) Transfers between affiliates;
(B) Transfers resulting from mergers or acquisitions of
servicers or subservicers; and
(C) Transfers between master servicers, where the subservicer
remains the same.
(ii) The Federal Housing Administration (FHA) is not required
under paragraph (d) of this section to submit to the borrower a Notice
of Transfer in cases where a mortgage insured under the National
Housing Act is assigned to FHA.
(2) Time of notice. (i) Except as provided in paragraph
(d)(2)(ii) of this section:
(A) The transferor servicer shall deliver the Notice of Transfer
to the borrower not less than 15 days before the effective date of the
transfer of the servicing of the mortgage servicing loan;
(B) The transferee servicer shall deliver the Notice of Transfer
to the borrower not more than 15 days after the effective date of the
transfer; and
(C) The transferor and transferee servicers may combine their
notices into one notice, which shall be delivered to the borrower not
less than 15 days before the effective date of the transfer of the
servicing of the mortgage servicing loan.
(ii) The Notice of Transfer shall be delivered to the borrower
by the transferor servicer or the transferee servicer not more than 30
days after the effective date of the transfer of the servicing of the
mortgage servicing loan in any case in which the transfer of servicing
is preceded by:
(A) Termination of the contract for servicing the loan for
cause;
(B) Commencement of proceedings for bankruptcy of the servicer;
or
(C) Commencement of proceedings by the Federal Deposit Insurance
Corporation (FDIC) or the Resolution Trust Corporation (RTC) for
conservatorship or receivership of the servicer or an entity that owns
or controls the servicer.
(iii) Notices of Transfer delivered at settlement by the
transferor servicer and transferee servicer, whether as separate
notices or as a combined notice, will satisfy the timing requirements
of paragraph (d)(2) of this section.
(3) Notices of Transfer; contents. The Notices of Transfer
required under paragraph (d) of this section shall include the
following information:
(i) The effective date of the transfer of servicing;
(ii) The name, consumer inquiry addresses (including, at the
option of the servicer, a separate address where qualified written
requests must be sent), and a toll-free or collect-call telephone
number for an employee or department of the transferee servicer;
(iii) A toll-free or collect-call telephone number for an
employee or department of the transferor servicer that can be
contacted by the borrower for answers to servicing transfer inquiries;
(iv) The date on which the transferor servicer will cease to
accept payments relating to the loan and the date on which the
transferee servicer will begin to accept such payments. These dates
shall either be the same or consecutive days;
(v) Information concerning any effect the transfer may have on
the terms or the continued availability of mortgage life or disability
insurance, or any other type of optional insurance, and any action the
borrower must take to maintain coverage;
(vi) A statement that the transfer of servicing does not affect
any other term or condition of the mortgage documents, other than
terms directly related to the servicing of the loan; and
(vii) A statement of the borrower's rights in connection with
complaint resolution, including the information set forth in paragraph
(e) of this section. Appendix MS-2 of this part illustrates a
statement satisfactory to the Secretary.
(4) Notices of Transfer; sample notice. Sample language that may
be used to comply with the requirements of paragraph (d) of this
section is set out in appendix MS-2 of this part. Minor modifications
to the sample language may be made to meet the particular
circumstances of the servicer, but the substance of the sample
language shall not be omitted or substantially altered.
(5) Consumer protection during transfer of servicing. During the
60- day period beginning on the effective date of transfer of the
servicing of any mortgage servicing loan, if the transferor servicer
(rather than the transferee servicer that should properly receive
payment on the loan) receives payment on or before the applicable due
date (including any grace period allowed under the loan documents), a
late fee may not be imposed on the borrower with respect to that
payment and the payment may not be treated as late for any other
purposes.
(e) Duty of loan servicer to respond to borrower inquiries--
(1) Notice of receipt of inquiry. Within 20 business days of a
servicer of a mortgage servicing loan receiving a qualified written
request from the borrower for information relating to the servicing of
the loan, the servicer shall provide to the borrower a written
response acknowledging receipt of the qualified written response. This
requirement shall not apply if the action requested by the borrower is
taken within that period and the borrower is notified of that action
in accordance with the paragraph (f)(3) of this section. By notice
either included in the Notice of Transfer or separately delivered by
first-class mail, postage prepaid, a servicer may establish a separate
and exclusive office and address for the receipt and handling of
qualified written requests.
(2) Qualified written request; defined. (i) For purposes of
paragraph (e) of this section, a qualified written request means 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.
(ii) A written request does not constitute a qualified written
request if it is delivered to a servicer more than 1 year after either
the date of transfer of servicing or the date that the mortgage
servicing loan amount was paid in full, whichever date is applicable.
(3) Action with respect to the inquiry. Not later than 60
business days after receiving a qualified written request from the
borrower, and, if applicable, before taking any action with respect to
the inquiry, the servicer shall:
(i) Make appropriate corrections in the account of the borrower,
including the crediting of any late charges or penalties, and transmit
to the borrower a written notification of the correction. This written
notification shall include the name and telephone number of a
representative of the servicer who can provide assistance to the
borrower; or
(ii) After conducting an investigation, provide the borrower
with a written explanation or clarification that includes:
(A) To the extent applicable, a statement of the servicer's
reasons for concluding the account is correct and the name and
telephone number of an employee, office, or department of the servicer
that can provide assistance to the borrower; or
(B) Information requested by the borrower, or an explanation of
why the information requested is unavailable or cannot be obtained by
the servicer, and the name and telephone number of an employee,
office, or department of the servicer that can provide assistance to
the borrower.
(4) Protection of credit rating. (i) During the 60-business day
period beginning on the date of the servicer receiving from a borrower
a qualified written request relating to a dispute on the borrower's
payments, a servicer may not provide adverse information regarding any
payment that is the subject of the qualified written request to any
consumer reporting agency (as that term is defined in section 603 of
the Fair Credit Reporting Act, 15 U.S.C. 1681a).
(ii) In accordance with section 17 of RESPA (12 U.S.C. 2615),
the protection of credit rating provision of paragraph (e)(4)(i) of
this section does not impede a lender or servicer from pursuing any of
its remedies, including initiating foreclosure, allowed by the
underlying mortgage loan instruments.
(f) Damages and costs. (1) Whoever fails to comply with any
provision of this section shall be liable to the borrower for each
failure in the following amounts:
(i) Individuals. In the case of any action by an individual, an
amount equal to the sum of any actual damages sustained by the
individual as the result of the failure and, when there is a pattern
or practice of noncompliance with the requirements of this section,
any additional damages in an amount not to exceed $1,000.
(ii) Class actions. In the case of a class action, an amount
equal to the sum of any actual damages to each borrower in the class
that result from the failure and, when there is a pattern or practice
of noncompliance with the requirements of this section, any additional
damages in an amount not greater than $1,000 for each class member.
However, the total amount of any additional damages in a class action
may not exceed the lesser of Sec. 500,000 or 1 percent of the net
worth of the servicer.
(iii) Costs. In addition, in the case of any successful action
under paragraph (f) of this section, the costs of the action and any
reasonable attorneys' fees incurred in connection with the action.
(2) Nonliability. A transferor or transferee servicer shall not
be liable for any failure to comply with the requirements of this
section, if within 60 days after discovering an error (whether
pursuant to a final written examination report or the servicer's own
procedures) and before commencement of an action under this section
and the receipt of written notice of the error from the borrower, the
servicer notifies the person concerned of the error and makes whatever
adjustments are necessary in the appropriate account to ensure that
the person will not be required to pay an amount in excess of any
amount that the person otherwise would have paid.
(g) Timely payments by servicer. If the terms of any mortgage
servicing loan require the borrower to make payments to the servicer
of the loan for deposit into an escrow account for the purpose of
assuring payment of taxes, insurance premiums, and other charges with
respect to the mortgaged property, the servicer shall make payments
from the escrow account in a timely manner for the taxes, insurance
premiums, and other charges as the payments become due, as governed by
the requirements in Sec. 3500.17(k).
(h) Preemption of State laws. A lender who makes a mortgage
servicing loan or a servicer shall be considered to have complied with
the provisions of any State law or regulation requiring notice to a
borrower at the time of application for a loan or transfer of
servicing of a loan if the lender or servicer complies with the
requirements of this section. Any State law requiring notice to the
borrower at the time of application or at the time of transfer of
servicing of the loan is preempted, and there shall be no additional
borrower disclosure requirements. Provisions of State law, such as
those requiring additional notices to insurance companies or taxing
authorities, are not preempted by section 6 of RESPA or this section,
and this additional information may be added to a notice prepared
under this section, if the procedure is allowable under State law.
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