A. Except provided in section 590(2)(b-1) of the Banking Law and as noted below, all persons that engage in the business of servicing residential mortgage loans in the State of New York are required to be registered as a mortgage loan servicer. Servicing mortgage loans is defined in section 590(1) as "receiving any scheduled periodic payments from a borrower, including amounts for escrow accounts, and making the payments to the owner of the loan or other third parties pursuant to the terms of the mortgage service loan documents or servicing contract." The term “person” includes corporations and other entities.
Q. What are the criteria for determining if a person or entity is engaged in the “business of servicing” mortgage loans?
A. The statute does not set out a specific number of loans that will trigger the requirements for registration. However, section 418.12(d) gives the Superintendent the authority to reduce, waive or modify the requirements of Part 418 for a person that services not more than the lesser of 12 mortgage loans or an aggregate amount of mortgage loans not exceeding $5,000,000. While this section makes clear that anyone servicing more than 12 mortgage loans or an aggregate amount of mortgage loans exceeding $5,000,000 is in the business of servicing mortgage loans, it does not exclude those servicing fewer than 12 mortgage loans or an aggregate amount of mortgage loans less than $5,000,000. The Department will consider the volume of loans serviced as well as the cumulative dollar value of loans serviced.
Q. How does a mortgage loan servicer apply for registration?
A. Effective May 4, 2009, the Banking Department began accepting de novo applications from mortgage loan servicers through the Nationwide Mortgage Licensing System (NMLS). All applications for registration must be submitted through the NMLS application process.
Q. Who is exempt from registration?
Q. Are subsidiaries of banking organizations exempt from registration as mortgage loan servicers?
A. No. The definition of “exempt organization” in Part 418.2 does not include subsidiaries of banking institutions, and the exemption made for consolidated subsidiaries in Part 39.4(a)(4) does not apply to subsidiaries that engage in mortgage loan servicing. Part 39 is a separate and distinct regulation that, by its express terms, concerns only the business of “soliciting, negotiating, placing, processing or making mortgage loans.” (See Part 39.1). Thus, any subsidiary of a banking organization that engages in mortgage loan servicing in the state of New York must be registered with the Superintendent as a mortgage loan servicer.
Q. Are operating subsidiaries of national banks and thrifts required to register as mortgage loan servicers?
A. Yes. The Consumer Financial Protection Act of 2010 (the Act), signed into law on July 21, 2010, reversed the decision of the Supreme Court in Watters v. Wachovia Bank, N.A., 550 U.S. 1 (2007), thereby eliminating the preemption previously afforded subsidiaries of national banks and thrifts. Part 418 provides no transition period for operating subsidiaries of national banks and thrifts that engage in mortgage loan servicing to become registered. Such subsidiaries must be registered by July 21, 2011, the effective date of the Act.
Q. What requirements apply to persons exempt from registration?
A. Exempted institutions and persons must:
Q. What is the process for notifying the Department that a person servicing loans in New York is exempt from registration? Is there a form letter that should be used?
A. There is no prescribed form letter. However, mortgage brokers and mortgage bankers are required to apply for exempt status through the Nationwide Mortgage Licensing System (NMLS). Please see instructions for notifying the Superintendent.
2. GENERAL INFORMATION APPLICAPLE TO BOTH PARTS 418 AND 419
Q. How is “mortgage loan” defined for the purposes of determining what loans are covered under New York’s mortgage loan servicing rules?
A. Under Banking Law section 590.1(a) and Part 418.3, a mortgage loan is defined as a loan to a natural person made primarily for personal, family or household use, secured by a mortgage or other consensual security interest on residential real property or certificates of stock or other evidence of ownership interests in, and a proprietary lease from, a corporation or partnership formed for the purpose of cooperative ownership of residential real property. The law also authorizes rules that would extend the definition to a loan secured by a security interest on a manufactured home.
Q. Do New York’s servicing requirements apply to the servicing of home equity lines of credit and loans?
A. Parts 418 and 419 apply to all loans secured by residential property, including home equity lines of credit, credit line mortgages and consumer loans secured by junior lien on a dwelling. As noted above, Part 39 of the General Regulations of the Banking Board applies only to those persons and entities engaged in the business of “soliciting, negotiating, placing, processing or making mortgage loans” such as mortgage brokers and bankers. Thus, the product exemptions contained in Part 39.5 do not apply with respect to the servicing requirements of Parts 418 and 419.
Q. Do New York’s servicing requirements apply to the servicing of co-op loans?
A. Yes. See the definition of “mortgage loan” discussed above.
Q. Must residential property be used or intended to be used as the mortgagor’s primary residence in order for the requirements of Parts 418 and 419 to apply?
A. No. As long as the loan secured by residential property is made to a natural person primarily for personal, family or household use and the property is located in New York and is improved by a dwelling intended to be used as the home of one or more persons, the servicing rules apply.
3. COMPLIANCE WITH PART 419 CONDUCT OF BUSINESS RULES
Q. Who is required to comply with the conduct of business rules set forth in Part 419?
A. All persons engaged in the business of servicing mortgage loans in New York are required to comply with Part 419.
Q. Are persons exempt from registration as mortgage loan servicers required to comply with the conduct of business rules?
A. Yes. With some limited exceptions, such as those relating to the reporting requirements in Parts 419.12 and 419.13, the requirements of Part 419 apply to all persons and entities engaged in mortgage loan servicing in New York whether or not they are registered or required to be registered as a mortgage loan servicer.
Q. Are exempt organizations such as banks and credit unions that service loans held in portfolio required to comply with the conduct of business rules?
A. Yes. For a discussion of the obligations of exempt organizations that service their own loans, see the industry letter dated October 20, 2010.
Q. What types of mortgage loans are subject to Part 419?
A. Consistent with Banking Law 590.1(a) and as noted above, the business conduct regulations apply to all loans to a natural person made primarily for personal, family or household use that are secured by a mortgage or other consensual security interest on residential real property or certificates of stock or other evidence of ownership interests in, and a proprietary lease from, a corporation or partnership formed for the purpose of cooperative ownership of residential real property. Thus, home equity loans, home equity lines of credit and co-op loans are also subject to Part 419. The Banking Law also authorizes regulations that extend the servicing rules to loans secured by a security interest on a manufactured home.
4. CREDITING OF PAYMENTS
Q. What is the effective date for the requirement contained in section 419.6 (a) that payments “be credited to the interest and principal due on the home loan before crediting the payments to taxes, insurance, or fees?”
A. Although Part 419 was generally effective October 1, 2010, section 419.6(a) was revised to take effect January 1, 2011.
Q. Are servicers of FHA mortgage loans required to credit principal and interest before crediting payments to mortgage insurance, taxes, hazard/flood insurance or fees?
A. Servicers should comply with the provisions of federal regulations 24 CFR Section 203.24 regarding the application of payments for FHA insured mortgages.
Q. If a borrower misses one month’s mortgage payment but makes the next month’s payment by the due date or within the grace period, can the servicer apply the payment to the missed month’s payment and charge a late fee for the first and second month?
A. No. The servicer should apply the payment to the current month and may only charge one late fee. Part 419.10(d) specifically provides that “a Servicer shall not impose any late 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.” For example, if a borrower misses the March payment but makes the April payment by April’s due date or within April’s grace period, the servicer shall apply the payment to April and may only charge a late fee for March.
Q. If a borrower only makes a partial payment, can the servicer hold it in suspense until it receives the full payment?
A. Sometimes payments received from the borrower are less than the total amount due. The servicer should not automatically return these payments to the borrower. Instead, the servicer should base its decision to process partial payments on the amount of the shortage and or on an agreement with the borrower that justifies the lesser amount. Additionally, where the borrower and servicer participate in bi-weekly payment arrangements, the servicer must have appropriate policies and procedures in place to process bi-weekly payments received from borrowers. Servicers shall credit or return partial payments within a reasonable time.
Q. Can a servicer deduct a late fee from a late payment?
A. No. As provided in Part 419.6, a late payment must be applied to principal and interest (and taxes and insurance if required) before applying to late charges.
Q. What is the meaning of “conforming” and “non-conforming payments" in Part 419.6?
A. Part 419.6 requires servicers to make reasonable payment requirements for conforming payments and also to credit non-conforming payments as soon as commercially practicable as long as the servicer accepts such payments. A conforming payment under this section is one that is made in the manner and at the address specified by the servicer. A non-conforming payment is made in a manner different from that specified by the servicer in writing.
Q. Is a partial payment considered a non-conforming payment under 419.6(c)?
A. No. This section is intended to address the manner in which payments are made and not partial payments, for example, payments that are made to the servicer’s principal office by certified mail rather than to the address provided on its coupon book or monthly statement.
Q. Is a servicer permitted to return a non-conforming payment under 419.6(c)?
A. A servicer may return a non-conforming payment if required by its policies. However, if its policies permit it to accept non-conforming payments, it must credit the payment as soon as commercially practicable but in no event later than five days after receipt.
Q. What is the meaning of “Scheduled Method of Accounting” used in Part 419.6(e)?
A. “Scheduled Method of Accounting” is a payment method made by the borrower under the terms of a payment plan that calls for payments to be made at stated intervals over a defined term.
Q. When would a servicer send a notice of noncredit under Part 419.6(f)?
A. A servicer would provide a notice of noncredit if it does not accept a non-conforming payment pursuant to Part 419.6(c) or does not accept partial payments pursuant to policies and procedures adopted pursuant to 419.6(g). For example, if a borrower makes a partial payment on 1/15 for a payment that is due on 2/1, the servicer must send a notice to the borrower if it does not accept the partial payment.
5. PAYMENT HISTORIES
Q. Part 419.7(b) provides that when a borrower requests an accounting of the borrower’s debt or a payment history, the servicer must provide a payment history of the borrower’s account that includes “the date and amount of all payments made or credited to the account and the total unpaid balance.” Is the servicer permitted to include other information in the payment history, such as escrow receipts, escrow payments, payments to protect collateral, etc?
A. A payment history must include, at a minimum the information specified in Part 419.7 (b). However, Part 419.7 (b) does not prohibit the inclusion of additional information so long as such information is not used to obscure or confuse borrowers.
Q. Part 419.7(b) also requires that payment histories be in “plain English.” What does this mean?
A. “Plain English” means presenting a borrower’s payment history information clearly and accurately so that it can be readily understood by the borrower. Payment histories should clearly identify and date all payments received, credits given for refunded charges or payments and charges imposed (i.e. late fees, insufficient fund fees, broker price opinions, etc). Payment histories should also indicate how payments received are allocated. Abbreviations such as “BPO” which are not recognized by all borrowers are confusing and should not be utilized.
6. FEES AND CHARGES
Q. What fees should servicers disclose in the schedule of fees required under Part 419.10?
A. Servicers should include all permissible standard fees and charges, including but not limited to:
However, as described in the Q & A below, Part 419 requires that certain documents and services be provided at no charge.
Q. Are there any services that are required to be provided free of charge?
A. Part 419 prohibits servicers from charging fees in a number of circumstances, including the following:
Q. Do legal fees for bankruptcies and foreclosures have to be disclosed as standard fees?
A. Because legal fees for bankruptcy and foreclosure may vary depending on the nature and complexity of the work performed, such fees do not have to be disclosed as standard fees. However, in order to ensure that borrowers receive adequate disclosure, the fee schedule should make clear that it does not contain all fees that may be charged such as attorney’s fees and litigation fees that vary with the nature of the work performed.
Q. Who determines if the attorney’s fees charged in connection with a foreclosure action are reasonable and customary for such work?
A. A court will determine whether the attorney’s fees charged in connection with a foreclosure action are reasonable and customary. A schedule of Fannie Mae approved attorney’s fees for completed foreclosures by state can be found here.
Q. Where on the servicer’s website should the schedule of fees be posted?
A. The fee schedule must be placed on the servicer’s website where it is readily available and easily located by the borrowers whose loans are serviced by the servicer.
Q. How do the requirements of Part 419.9, requiring that the first four payoff statements in any calendar year be provided free of charge, square with the requirements of Real Property Law section 274-a which permits a charge of not more than $20?
A. The requirements for a free payoff statement contained in Part 419.9 do not apply to a payoff statement provided under section 274-a of the Real Property Law for which a payment is allowed. Section 274-a applies only in connection with a bona fide written demand as defined by section 274-a(2)(b)(iii) therein. A bona fide written demand is made in connection with a sale or refinancing of the mortgaged property or some other event where the mortgage is reasonably expected to be paid off or assigned, must be delivered personally, or by registered or certified mail, postage prepaid, return receipt requested and must contain certain prescribed language.
Q. FHA insured mortgages may require the payment of a 4% late fee, however, Part 419.10(d) sets a maximum late fee of 2%. What is the late charge that should be applied to FHA insured loans?
A. By its express terms, Part 419.10 provides that late charges under this Part must “be accordance with Real Property Law section 254-b.” Real Property Law section 254-b, in turn, contains an express exemption for FHA loans where New York law is inconsistent with federal law or regulation. Because 24 CFR Section 203.25 permits mortgagees of FHA loans to charge a late fee not to exceed 4 % where provided for under the terms of the mortgage, servicers of FHA loans which contain such a contract provision may charge a late charge of up to 4%. For FHA loans with no stated late charge, the maximum late charge must comply with the provisions of Real Property Law Section 254-b and cannot exceed 2%.
7. SERVICER REPORTING
Q. What are the requirements for quarterly reporting under Part 419.12? And what format is required for quarterly reporting under Part 419.12?
A. The format and filing requirements for the quarterly and annual reports required under Part 419.12 is accessible at: www.dfs.ny.gov/banking/banking/vosr.htm
Q. Do the reporting requirements in Part 419.12 (quarterly reporting) and Part 419.13 (books and records and annual reports) apply to all persons and entities engaged in the business of servicing mortgage loans in New York?
A. No. The reporting requirements in Parts 419.12 and 419.13 apply only to servicers that are registered or required to be registered as a mortgage loan servicer or that are an exempt organization or person regulated by the Superintendent. Thus, banks and credit unions that are chartered by another state or by federal government are exempt from these reporting requirements.
8. BORROWER COMMUNICATIONS
Q. What is a Qualified Written Request?
A. “Qualified Written Request” is a term that derives from the federal RESPA Act and regulations. The precise definition, at 24 C.F.R. 3500.21(e)(2), is “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.” In essence, it is a written request by the borrower for information about the borrower’s account or asserting the borrower’s belief that there are errors in the account.
Q. Should a telephone log be maintained on a centralized level or a loan file level?
A. Servicers have the flexibility to determine how to maintain records of their customer communications. Servicers are expected to have systems in place to track all telephone and written communications from borrowers so that the servicer can easily identify and produce a log of communications.
Q. Do servicers have to document all borrower inquiries and communications, including minor inquiries?
A. All borrower communications, including inquiries, relating directly to their loan should be documented.
Q. Do e-mails have to be accessible from our system or do they have to be printed and put into the loan files?
A. Borrower e-mails should be readily accessible. There is flexibility in how each servicer preserves such e-mails.