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Federal Register / Vol. 86, No. 128 / Thursday, July 8, 2021 / Notices
options offered by the servicer, or the borrower fails to perform under an agreement on a loss mitigation option. If a consumer submits all of the documents requested by the servicer in response to the notice in 12 CFR
1024.41b2iB, then the application is facially complete and the servicer must treat the application as complete for the purposes of the foreclosure referral protections of 12 CFR
1024.41f2 until the borrower is given a reasonable opportunity to complete the application.
Examiners found that servicers violated Regulation X by making the first filing for foreclosure after the loan application was facially complete but before meeting the requirements of 12
CFR 1024.41f2. The servicers received all the information requested in the 12 CFR 1024.41b2iB notice and therefore the application was facially complete. However, the servicers did not place a foreclosure hold on the account when the documents were received. Instead, the servicers waited until they had completed internal analysis that the application was facially complete, which took more than a day, during which time a foreclosure filing occurred in spite of the facially complete application having been received.
As a result of this finding, servicers remediated foreclosure fees that were charged to consumers who had submitted facially complete applications prior to the first foreclosure filing. They also enhanced their procedures, employee training, and monitoring controls.
Regulation X also prohibits a servicer from making the first notice or filing for foreclosure before making a decision on a borrowers timely appeal of a denied loss mitigation application.94
Institutions violated Regulation X by making the first notice or filing for foreclosure before they had evaluated borrowers appeals. The servicers denied the borrowers loss mitigation applications and provided the borrowers with information about appealing the determination as required under Regulation X. The borrowers submitted the appeal within the 14-day period under 12 CFR 1024.41h2.
Prior to making a determination regarding the appeal, the servicers made a first notice or filing for foreclosure, violating Regulation X.95 In response to this finding, servicers enhanced policies and procedures, training, and monitoring controls.

Regulation X requires servicers to maintain policies and procedures reasonably designed to achieve specific objectives described in the regulation.96
It provides that servicers policies and procedures shall be reasonably designed to facilitate the sharing of accurate and current information regarding the status of any evaluation of a borrowers loss mitigation application and the status of any foreclosure proceeding among appropriate servicer personnel, including service provider personnel responsible for handling foreclosure proceedings.97
Some servicers had policies and procedures to notify foreclosure counsel to stop all legal fillings only after the servicer had sent borrowers the notice acknowledging receipt of a complete loss mitigation application, which may be sent to a consumer up to five days after receipt of their application. This represents a failure to facilitate the sharing with its service providers of accurate and current information regarding the status of borrowers loss mitigation applications. Because the servicers did not inform foreclosure counsel that a complete loss mitigation application had been submitted until it sent the loss mitigation acknowledgement notice, they failed to maintain policies and procedures reasonably designed to achieve the objective of 12 CFR 1024.38b3iii. In response to these findings, servicers updated their policies and procedures.
2.7.2 Misrepresentations Regarding Foreclosure Timelines Regulation Xs requirements related to loss mitigation applications do not apply to consumers submitting additional loss mitigation applications under certain circumstances.
Specifically, they do not apply where a servicer has previously complied with the regulations loss mitigation requirements for a complete loss mitigation application and the borrower has been delinquent at all times since submitting the prior complete application.98
Some servicers failed to adopt appropriate policies and procedures for responding accurately to such repeat loss mitigation applications. Examiners identified a deceptive practice when servicers represented to borrowers that they would not initiate a foreclosure action until a specified date, but nevertheless initiated a foreclosure prior to that date. These servicers maintained a policy of using model CFR 1024.38a, b.
CFR 1024.38b3iii.
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communications for all borrowers that included language reflecting Regulation X protections for borrowers submitting loss mitigation applications regardless of whether Regulation X protections actually applied to those borrowers.
Examiners identified loss mitigation files where the servicers specifically indicated in letters that they would not initiate a foreclosure action until a specific date. Examiners noted that the date was consistent with the timeline that Regulation X would require if the application were protected by those provisions. Nevertheless, the servicers did initiate foreclosure actions prior to that date.
The inaccurate representations regarding the day foreclosure action would be initiated were likely to mislead borrowers into believing that they had more time until foreclosure than they actually did. It was reasonable for consumers to believe these representations since the information was provided on multiple loss mitigation related disclosures sent in response to the application. The representations were material because borrowers plan how they will obtain and when they will send necessary documents, and what actions they will take regarding their delinquent mortgages, based on the information providedincluding the timeline for foreclosure. In response to these findings, servicers updated the information contained in letters sent to consumers.
2.7.3 Failure To Consider PMI
Termination Date During Annual Escrow Analysis Regulation X requires servicers to conduct an annual escrow analysis, in which they estimate the disbursement amounts of escrow account items.99 If the servicer knows the charge for an item in the next computation year, then it shall use that amount in its estimate.100 Servicers violated the requirements of 12 CFR 1024.17c7 by including in the annual escrow analysis a full year of PMI disbursements, despite knowing that PMI would be charged for only part of the year.
PMI, when required, is automatically terminated when the principal balance of the mortgage loan reaches 78 percent of the original value of the property based on the amortization schedule, as long as the borrower is current.
Examiners found that one or more servicers systems maintain all relevant information to determine the termination date. Therefore, these
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