Mortgage Servicing in the United States

Mortgage Servicer

A servicer may service loans on behalf of itself or an affiliate. It may service as a contractor of the trustee where a mortgage is included in a mortgage-backed security, or it may service whole loans for an outside third-party investor. If the owner is a separate entity, the servicer generally has contractual commitments to the owner of the loan. In the private securitization market, the contracts generally are called Pooling and Servicing Agreements or PSAs. If Fannie Mae or Freddie Mac owns the loan, the commitments are set forth in the company’s seller/servicer guides.

A servicer may sell the rights to service the loan separately from any ownership transfers. This is because some entities have expertise in payment processing and other servicing responsibilities, while others seek to invest in the underlying mortgages. These procedures apply whether the servicer obtained the servicing rights from another entity or the servicing responsibility is transferred within a company from the origination platform to the servicing platform.

Servicers must comply with various laws to the extent that the law applies to the particular servicer and its activities:

• The Real Estate Settlement Procedures Act (RESPA) and its implementing regulation,
  Regulation X, impose requirements for servicing transfers, written consumer information
  requests, resolution of notices of error, force-placed insurance, early intervention and continuity of contact for delinquent borrowers, loss mitigation procedures, general servicing policies and procedures, and escrow account maintenance.
• The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, impose
  requirements on servicers regarding periodic billing statements, crediting of payments,
  imposition of late fee and delinquency charges, provision of payoff statements with respect to closed-end consumer credit transactions secured by a principal dwelling, and disclosures
  regarding rate changes for adjustable rate mortgages.(1)
• The Electronic Funds Transfer Act (EFTA) and its implementing regulation, Regulation E,
  impose requirements if servicers within the scope of coverage obtain electronic payments from borrowers.
• The Fair Debt Collection Practices Act (FDCPA) governs collection activities and prohibits
  deceptive, unfair, and abusive collection practices (see below) (2)
• The Homeowners Protection Act (HPA) limits private mortgage insurance that can be assessed on consumer accounts.
• The Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V, impose requirements on servicers regarding the accuracy and integrity of information that they furnish to consumer reporting agencies. (3)
• The Gramm-Leach-Bliley Act (GLBA) requires servicers within the scope of coverage to provide privacy notices and limit information sharing in particular ways.
• The Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, apply to those servicers that are creditors, such as those who participate in a credit decision about whether to approve a mortgage loan modification. (see below)

The FDCPA (see above) applies to entities that constitute “debt collectors” under the Act, which generally includes:

• third parties such as servicers, collection agencies, debt buyers, and collection attorneys that collect debts on behalf of lenders if they obtain the debt at a time when it is already in default; and
• lenders collecting their own debts using an assumed name.

The Equal Credit Opportunity Act makes it unlawful to discriminate against any borrower with respect to any aspect of a credit transaction:

• On the basis of race, color, religion, national origin, sex or marital status, or age (provided
  the applicant has the capacity to contract);
• Because all or part of the applicant’s income derives from any public assistance program; or
• Because the applicant has in good faith exercised any right under the Consumer Credit
  Protection Act. The Consumer Credit Protection Act, 15 U.S.C. 1601 et seq., is the collection of federal statutes that protects consumers when applying for or receiving credit. The Act includes statutes that have dispute rights for consumers, such as the Fair Credit Reporting
  Act. The ECOA prohibits discriminating against an applicant who has exercised a dispute right pursuant to one of the statutes outlined in the Act.

Resources

See Also

1. For open-end mortgages, Regulation Z provisions related to payment crediting and error resolution apply to the extent that the servicer is a creditor. Additionally, TILA and Regulation Z generally impose requirements on loan owners for loan ownership transfers.
2. The FDCPA applies to debts incurred or allegedly incurred primarily for the consumer’s personal, family or household purposes.
3. Additionally, the FCRA and Regulation V impose requirements on furnishers to investigate disputes concerning the accuracy of any information contained in aconsumer report related to the account or other relationship the furnisher has or had with the consumer. The FCRA also limits certain information sharing between company affiliates.