Q: I understand the CFPB revised the servicing requirements for borrowers in bankruptcy. What do I need to know about these changes?
A: The CFPB revised the rule for Bankruptcy Periodic Statements, effective April 19, 2018. It applies to all entities that own and/or service consumer first lien mortgage loans, except for small servicers of 5,000 or fewer consumer mortgages.
Unless an exemption applies, a servicer must provide periodic statements or coupon books to a borrower when the borrower is in bankruptcy. Servicers must modify these periodic statements or coupon books for the bankruptcy. Modifications depend on the type of bankruptcy filed. In certain circumstances, once the borrower exits bankruptcy or the bankruptcy no longer applies to the borrower, a servicer can then transition back to providing an unmodified periodic statement or coupon book.
A servicer may be exempt from providing coupon books if a borrower is a debtor in bankruptcy or has discharged or discharged personal liability for the mortgage loan through bankruptcy.
Further, servicers are not required to send periodic statements or coupon books to borrowers in bankruptcy when the following two requirements are satisfied:
- Any borrower on the mortgage loan is a debtor in bankruptcy or discharged personal liability for the mortgage loan through bankruptcy; and
- One of the following conditions applies to a borrower on the mortgage loan:
- The borrower requests in writing that the servicer cease providing a statement or coupon book;
- The borrower's most recently filed bankruptcy plan provides for that the borrower will surrender the home securing the loan;
- The bankruptcy court orders the lien avoided; or
- The borrower files with the court a statement of intention to surrender the home securing the loan and the borrower has not made any partial or periodic payment on the loan after commencement of his/her bankruptcy case.
With some exceptions, periodic statements or coupon books for borrowers in bankruptcy must contain the same categories of disclosures as are provided to borrowers who are not in bankruptcy. Variations exist in regard to how "amount due" must be displayed, as well as how delinquency information and other account information must be disclosed. The periodic statement must include the discharged status of the loan or the borrower's status as a debtor in bankruptcy, and a statement that the periodic statement is being provided to the borrower for informational purposes only.