The New Servicing Requirements Regulations B, Z and X

1. The New Servicing RequirementsRegulations B, Z and X Compliance Manager/EGRC May ?, 2013

2. New Expectations • Furnishing Copies of Appraisals and Other Valuations – no request required • Prompt Crediting of Payments and Response to Payoff Statement Requests • New Periodic Statement Requirements • New Rate Adjustment Disclosures – Initial-Post-Consummation and Post-Consummation-with-Payment-Change • Record Retention: Evidence of Compliance for Loan Originator Compensation and Minimum Standards for Transactions Secured by a Dwelling • Notice of Servicing Transfer – Revised Language • Borrower Payments During Transfer of Servicing – Transferor Responsibilities • Escrow Balance Refund Timeliness and Treatment of Discretionary Payments • Notice-of-Error: Categories and Action(s) Upon Receipt

3. New Expectations (cont.) • Requests-for-Information: Categories and Action(s) Upon Receipt • Action Taken for Requests for Information • Force Placed Insurance – Disclosures and Premium Assessment • General Servicing – Establish Policy and Procedures for Specific Processes / Topics • Early Intervention – Notice of Loss Mitigation Options and Live Contact • Continuity of Contact – Provide Borrowers with access to people who can assist with Loss Mitigation • Loss Mitigation – Written Notification to the Borrower, Processing Loss Mitigation Applications and Appeals, “Dual Tracking” and starting the Foreclosure Process

4. Scope • Under Regulation B - Effective January 18, 2014 First Lien, Dwelling-Secured Loans and Lines, including: • Open End Loans • Closed End Loans • Consumer and Commercial • Loss Mitigation Applications regardless if the option applied for is extended, denied, incomplete or withdrawn. • Under Regulation Z - Effective January 10, 2014 • Generally, Dwelling-Secured Loans E.g., Crediting of Payments and Payoff Statement Provisions Apply to Closed End and Open End Loans and Lines • Periodic Statements and ARM Disclosure Provisions • Apply to Closed End only • Reverse Mortgages and Time Shares are exempt from periodic statements • ARMs with terms of one year or less are exempt from ARM disclosures

5. Scope (cont.) • Under Regulation X - Effective January 10, 2014 Generally applies to closed end federally regulated mortgage loans • Allows for same exemptions currently defined in RESPA • Open End lines of credit are generally exempt • Allows for a number of exemptions for Small Servicers • Service 5,000 or fewer mortgage loans, and • Only service loans they or an affiliate originated or own

6. Appraisal RequirementsRegulation B12 CFR 1002.14

7. Regulation B Requirements • Section 14 changed from “. . . appraisal reports” to “. . . appraisals and other valuations” • Providing a Copy of Appraisal and Other Written Valuations • To be mailed or delivered not later than the earlier of: • “promptly upon completion,” or • three business days prior to consummation of the transaction (for closed-end credit) or account opening (for open-end credit). • Consumer can waive the timing requirement (i.e., agree to receive any copy as late as “at or before consummation or account opening,” unless otherwise prohibited by law) • Must be given to primary applicant, if one is apparent (otherwise, only must be given to one applicant) • No charges are allowed for provision (e.g., making copies), though reasonable cost-of-appraisal can be charged • Can be delivered by electronic means (subject to E-Sign Act requirements if it is not delivered as part of an application) • Regulation B is silent on modification-related valuations. However, they are discussed in the CFPB Preamble, and MOD-related documents were specifically not carved-out.

8. Regulation B - Appraisals and Valuations • Valuations include, but are not limited to: • A report prepared by an appraiser, including the appraiser’s estimate or opinion of the property’s value; • A document prepared by the creditor’s staff that assigns value to the property; • A report approved by a government-sponsored enterprise for describing to the applicant the estimate of the property’s value developed pursuant to the proprietary methodology or mechanism of the government-sponsored enterprise; • A report generated by use of an automated valuation model to estimate the property’s value’ • A broker price opinion prepared by a real estate broker, agent, or sales person to estimate the property’s value; • Any attachments and exhibits that are an integrated part of the valuation Source: Reg. X, §1002.14, commentary for §14(b)(3).

9. Provide Promptly Upon Completion ???? • “Provide” means “Deliver”: Delivery occurs: • three business days after mailing or delivering copies to the last known address of the applicant, or • when evidence indicates actual receipt, whichever is earlier. The applicant must receive the copies no later than three business days before consummation. • Promptly: Sending the copy of the appraisal or other valuation to the applicant: • within seven days of completion, • with sufficient time before consummation. • Completion: Occurs once the creditor has: • reviewed and accepted the appraisal or other written valuation, • to include any changes or corrections required.

10. Examples of Compliance with “Promptly Upon Completion” • On day 15 after receipt of the application, the creditor’s underwriting department reviews an appraisal and determines it is acceptable. • One week later, the creditor sends a copy of the appraisal to the applicant. • The applicant actually receives the copy more than three business days before the date of consummation (or account opening). • The creditor has provided the copy of the appraisal promptly upon completion.

11. Examples of Non-Compliance… • On day 12 after receipt of the application, the creditor’s underwriting department reviews an appraisal and determines it is acceptable. • Although the creditor has determined the appraisal is complete, the creditor waits to provide a copy to the applicant until day 42, when the creditor schedules the consummation (or account opening) to occur on day 50. • The creditor has not provided the copy of the appraisal promptly upon completion.

12. Regulation B - Waiver • An applicant has the right to waive the timing requirement for receiving the appraisal reports promptly (except where otherwise prohibited by law). • To waive the right: • An applicant needs to provide the creditor with an affirmative oral or written statement waiving the timing requirement; • An applicant needs to provide the waiver no later than three business days before consummation or account opening; • An applicant must agree to receiving copies of appraisal reports at or before consummation or account opening; • Creditor must provide the copies at or before consummation or account opening. • If the applicant provides a proper waiver and the transaction is not consummated or the account is not opened, the creditor must provide the copies within 30 days of the determination not to consummate or open the account.

13. Regulation B - Restrictions on Fees • Creditors may charge a reasonable fee for reimbursement. • Creditors may not upcharge or charge for photocopies, postage, or other costs incurred in providing a copy of an appraisal or other written valuation. • Fee may include an administration fee, if charged to the creditor by an appraisal management company • Creditors may not charge a consumer a fee for the performance of a second appraisal if the second appraisal is required.

14. Questions?

15. Mortgage Servicing RequirementsRegulation Z12 CFR 1026

16. Prompt Crediting of Payments (12 CFR 1026.36(c)(1)) • Scope: Applies to principal dwelling loans, closed end or open end loans or lines. • No Small Servicer Exemption • Credit date is the date of receipt for “periodic payment”: • the amount sufficient to cover principal, interest, and escrow (if applicable) for a given billing cycle; • a payment qualifies as a periodic payment even if it does not include late fees, other fees, or non-escrow payments that a servicer has advanced on a consumer's behalf. • Exception: a delay in crediting can occur if it does not result in any charge to the consumer or in the reporting of negative information to a consumer reporting agency • Partial Payments • May keep partial payment in a suspense account and disclose the amount in suspense on periodic statement • Promptly apply to oldest outstanding payment when full contractual payment is accumulated • Non-Conforming Payments • If a servicer specifies requirements in writing for making payments, but accepts non-conforming payment, credit payment 5 days after receipt. • Late charges cannot be pyramided. 16

17. Payoff Statement Requests (12 CFR 1026.36(c)(3)) • Scope: Applies to dwelling secured loans, closed end or open end loans or lines. • No Small Servicer Exemption • Must respond to written requests for payoff statements within a “reasonable” time but not longer than 7 business days. • In some instances, the 7-day requirement cannot be met; e.g., if the payoff statement can be provided “within a reasonable time” because: • of bankruptcy or foreclosure, • the loan is a reverse mortgage or shared appreciation mortgage, or • of natural disasters or other similar circumstances. • Request for payoff statements can be made by a representative; e.g., an attorney. • Payoff statements must be accurate as of a specific date. 17

18. Periodic Statements (12 CFR 1026.41(c),(d)) • Scope: Applies to closed-end, dwelling secured loans. Exemptions include: • Reverse Mortgages • Timeshare Plans • Coupon Books • Small Servicers • Coverage includes a creditor, assignee, or servicer unless the mortgage loan or servicing rights have been sold. • Timing: Periodic statements must be mailed/delivered to customers: • Within a “reasonably” prompt time (within 4 days) after the payment due date; or • At the end of any courtesy period provided for the previous billing cycle. • Note: If multiple borrowers, servicer is only required to provide one statement. 18

19. Periodic Statements (cont.) • Periodic statements must meet form and content requirements. • Must be in writing, clear and conspicuous, and a form the customer can keep. • Electronic statements are acceptable if the consumer agrees. • The Reg provides model forms H-30(A) Periodic Statement and H-30(B) Periodic Statement and Delinquency Box. • Proper use of model forms is considered to comply with this requirement. 19

20. Periodic Statements (cont.) Form and Content The Regulation contains specific content and layout requirements. Top of first statement page must include the following information in close proximity: • Amount due • Shown more prominently than all other information on the page. • For multiple payment options, show the amount due under each option. • Payment due date • Late fee • Date late fee will be imposed

21. Periodic Statements (cont.) Form and Content (cont.) The statement must also include the following information: • Explanation of Amount Due (grouped in close proximity, on the first page) • Monthly payment amount and breakdown • Show the amount that will be applied to: • principal, • interest, and/or • escrow. • For multiple payment options, a breakdown of each payment option. • Sum of fees or charges since last statement • Past due payment amount

22. Periodic Statements (cont.) Form and Content (cont.) • Past Payment Breakdown (Grouped in close proximity on first page) • Total of payments received since the last statement and YTD. • Show the amount that was applied to principal, interest, escrow, and/or suspense account. • Transaction Activity • List all transactions since last statement. • Include transaction date, description, and amount. • Partial Payment (on first page) For a partial payment that has been placed in a suspense account, must disclose what must be done for the funds to be applied. This explanation may be provided: • on the first page, or • on a separate page enclosed with the statement, or • in a separate letter.

23. Periodic Statements (cont.) Form and Content (cont.) • Contact Information (on first page) A toll-free phone number and email address, if applicable, where the consumer can obtain information about their account. • Account Information • Loan balance; • Current interest rate (common error is provision of a percentage labeled as an APR); • Date interest rate may change; • Prepayment penalty; and • Website address needed to access: • the CFPB list or HUD list of homeownership counselors and counselor organizations, and • the HUD toll-free number to access contact information for counselors or counseling organizations.

24. Periodic Statements (cont.) Form and Content (cont.) • Delinquency Information The following information must be on the first page and in close proximity when the consumer is more than 45 days past due. The information may also be on a separate page enclosed with the statement or in a separate letter. • Date of delinquency; • Notification of possible risks (foreclosure, expenses, etc.) if delinquency is not cured; • Account history for the previous 6 months or the period since the account was last current (whichever is shorter) showing: • Amount past due from each billing cycle or • The date any such payment fully paid was credited; • Loss mitigation program the consumer has agreed to; • Notice of foreclosure filing; • Amount needed to make the loan current; and • Homeowner counselor information.

25. Periodic Statements (cont.) Coupon Book Exemption Periodic statement requirement does not apply to fixed-rate loans where the consumers were provided with coupon books if: • “Top of Statement Information” is printed on each coupon (amount due, payment due date, late fee); • Coupon book contains the following: • Balance at beginning of coupon book period; • Current rate; • Rate change date; • Prepayment fee; • Counseling information; and • Contact information. • Other periodic statement information is available upon request by telephone, in writing, in person, or electronically. • Provides delinquency information in writing to customers who are more than 45 days past due.

26. Periodic Statements (cont.) Small Servicer Exemption Periodic statement requirements do not apply to mortgage loans serviced by a Small Servicer. A Small Servicer is defined as a servicer who services 5,000 or fewer mortgage loans for which the servicer or an affiliate is the creditor or assignee: • A servicer that services any loans for which the servicer is not the creditor or assignee is not considered to meet the Small Servicer exemption. For example, a servicer that owns servicing rights for mortgages that are not owned by the servicer, or the servicer was not the creditor to whom the mortgage was initially payable to, does not meet the definition of a Small Servicer. • Both master servicer and sub-servicers must meet the definition of a Small Servicer to be covered under the exemption.

27. Periodic Statements (cont.) Small Servicer Exemption (cont.) • Small Servicer determination is based on the number of mortgage loans serviced by the servicer and any of its affiliates as of January 1 for the remainder of the calendar year. Mortgage loans obtained by merger or acquisition should be considered as mortgage loans for which the servicer or affiliate is the creditor to which the mortgages were initially payable. • An exempt servicer that crosses the 5,000 loan threshold will have 6 months after crossing the threshold or until January 1, whichever is later, to comply with requirements from which the servicer is no longer exempt. For example, a servicer that begins to service more than 5,000 loans on October 1 and services more than 5,000 on January 1 of the following year, will no longer meet the definition of a Small Servicer on April 1 of the following year. • A servicer that begins to service more than 5,000 loans on February 1, but services less than 5,000 on January 1 of the following year, meets the definition of a Small Servicer for the following year.

28. Initial Post-Consummation Rate Adjustment Disclosure (12 CFR 1026.17(a)(1),(20)(d)) • Disclosure is triggered by the initial rate adjustment. • Scope • Applies to closed end principal dwelling secured adjustable-rate loans. Includes reverse mortgages, purchases, and home equity loans. Coverage applies to creditor, assignee, or servicer. • If an ARM closes before the effective date, but first adjustment is after the effectivedate, must comply. • Does not apply to loan modification adjustment; however, the initial rate adjustment pursuant to the modified contract is covered. • Not applicable to step-rate, preferred-rate, shared-appreciation loans if structured as a fixed-rate loan and not an ARM based on an index or formula. • There is no Small Servicer exemption. • Exemptions include: • HELOCs • ARMs with terms of one year or less 28

29. Initial Post-Consummation Rate Adjustment Disclosure (cont.) • Format • Notice must be in writing and provided as a separate and distinct document: • The notice may be mailed with other disclosures but cannot be incorporated into a periodic statement. • Emailed notices must be a separate attachment. • Timing • Servicer must deliver the notice or place it in the mail between 210 and 240 days prior to the due date of the first payment at the adjusted rate. • For payments that adjust within 210 days of origination, disclose at consummation. • Estimate • If the new interest rate or payment is unknown on disclosure date, use an estimate based on the index within 15 business days of the disclosure. 29

30. Initial Post-Consummation Rate Adjustment Disclosure (cont.) • Content • Disclosure must contain the following information: • Date of disclosure • A statement providing: • Explanation that under the terms of the mortgage, the time period in which the current rate in effect is ending and any change in the interest rate may result in a change in the mortgage payment; • The effective date of the rate adjustment and when future rate adjustments are scheduled; and • Any other changes to loan terms, features, or options taking effect on the same date as the rate adjustment (e.g., expiration of interest-only feature). • Table containing the following: • Current and new interest rates; • Current and new payments and date of first new payment; and • For interest-only or negatively-amortizing payments, the amount of current (for the last payment prior to the disclosure date) and new payment (the first payment for which the new rate will apply) allocated to principal, interest, and escrow. 30

31. Initial Post-Consummation Rate Adjustment Disclosure (cont.) • Content (cont.) • Explanation of how the interest rate is determined including: • Specific index or formula used and source of information about the index or formula; and • Type and amount of any adjustment to the index. • Any limits on interest rate or payment increases at each adjustment and over the life of the loan including: • The extent to which the Servicer foregoes any increase in the rate; and • The earliest date such foregone rate increases may apply to future rate adjustments. • Explanation of how the new payment is determine including: • Index or formula used; • Any adjustments to the index or formula; • Loan balance expected on the date of the rate adjustment; • Length of remaining loan term expected on date or rate adjustment, and any change in loan terms caused by the adjustment; and • If the new rate or payment is an estimate, a statement that another disclosure containing the actual new rate and payment will be provided to the consumer between 2 and 4 months before the first payment at the adjusted rate is due. 31

32. Initial Post-Consummation Rate Adjustment Disclosure (cont.) • Content (cont.) • If applicable, a statement that the new payment will not be allocated to pay principal and will not reduce the balance. • For new payments that result in negative amortization, a statement that the new payment will not be allocated to pay principal and will pay interest only. • For new payments that result in negative amortization due to the rate adjustment, the statement must state the payment required to fully amortize the remaining balance at the new rate over the remaining term. • Circumstances any prepayment penalty may be imposed; time period penalty can be imposed; and a statement the consumer may contact the Servicer for additional information. • Telephone number of the Servicer if the consumer will not be able to make their new payment. • The following alternatives to paying at the new rate and an explanation of each alternative, stated in simple and clear terms: • Refinancing the loan; • Selling the property and paying the loan in full; • Modifying loan terms; and • Arranging payment forbearance. 32

33. Initial Post-Consummation Rate Adjustment Disclosure (cont.) • Content (cont.) • Other information such as: • Website to access CFPB list or HUD list of homeownership counselors and counseling organizations; • HUD toll-free telephone number to access homeownership counselors and counseling organizations; and • CFPB website for contact information for State housing finance authorities. • Format • Disclosures should be provided in the form of a table and in the same format as the model discloses in Appendix H-4(D)(3) and (4). 33

34. Post-Consummation Rate Adjustment with Corresponding Payment Change (12 CFR 1026.20(c)) • The notice is triggered when rate adjustments cause changes in payment amounts and for certain conversions. The new rules eliminate the existing annual rate disclosure when there is no corresponding payment change. • Scope • Applies to closed end, principal dwelling secured, adjustable-rate loans. Coverage applies to creditor, assignee, or servicer. • Conversion from an ARM to a fixed-rate mortgage is covered if the rate adjustment results in a payment change. • Does not apply to loan modification adjustment; however, the initial rate adjustment pursuant to the modified contract is covered. • Not applicable to step-rate, preferred-rate, shared-appreciation loans if structured as a fixed-rate loan and not an ARM based on an index or formula. • There is no Small Servicer exemption. • Exemptions include: • ARMs with terms of one year or less; and • ARMs where the first rate adjustment occurs within 210 days of consummation and the new interest rate disclosed at consummation was not an estimate. 34

35. Post-Consummation Rate Adjustment with Corresponding Payment Change (cont.) • Timing • Disclosures must be provided to consumers as soon as practicable but no less than 25 days before the due date of the first adjusted payment for the first adjustment if: • The first adjustment occurs within 60 days of consummation; and • The new rate disclosed at consummation was an estimate. • Disclosures must be provided to consumers at least 25, but no more than 120, days before the due date of the first adjusted payment for: • ARMs with uniformly scheduled rate adjustments occurring every 60 days or more frequently and • ARMs originated prior to 1/10/2015 where the loan contract requires the adjusted rate and payment to be calculated based on the index available as of a date that is less than 45 days prior to rate adjustment. • Otherwise, disclosures are to be delivered at least 60 but no more than 120 days before the first adjusted payment is due. • Disclosures must be delivered to consumers or placed in the mail within the timeframes indicated. 35

36. Post-Consummation Rate Adjustment with Corresponding Payment Change (cont.) • Content • Disclosure must contain the following information: • A statement providing: • Explanation that under the terms of the mortgage, the time period in which the current rate in effect is ending and the interest rate and mortgage payment will change; • The effective date of the rate adjustment and when future rate adjustments are scheduled; and • Any other changes to loan terms, features, or options taking effect on the same date as the rate adjustment (e.g., expiration of interest-only feature). • Table containing the following: • Current and new interest rates; • Current and new payments and date of first new payment; and • For interest-only or negatively-amortizing payments, the amount of current (for the last payment prior to the disclosure date) and new payment (the first payment for which the new rate will apply) allocated to principal, interest, and escrow. 36

37. Post-Consummation Rate Adjustment with Corresponding Payment Change (cont.) • Content (cont.) • Explanation of how the interest rate is determined including: • Specific index or formula used and source of information about the index or formula; and • Type and amount of any adjustment to the index. • Any limits on interest rate or payment increases at each adjustment and over the life of the loan including: • The extent to which the Servicer foregoes any increase in the rate; and • The earliest date such foregone rate increases may apply to future rate adjustments. • Explanation of how the new payment is determine including: • Index or formula used; • Any adjustments to the index or formula; • Loan balance expected on the date of the rate adjustment; and • Length of remaining loan term expected on date or rate adjustment, and any change in loan terms caused by the adjustment. 37

38. Post-Consummation Rate Adjustment with Corresponding Payment Change (cont.) • Content (cont.) • If applicable, a statement that the new payment will not be allocated to pay principal and will not reduce the balance. • For new payments that result in negative amortization, a statement that the new payment will not be allocated to pay principal and will pay interest only. • For new payments that result in negative amortization due to the rate adjustment, the statement must state the payment required to fully amortize the remaining balance at the new rate over the remaining term. • Circumstances any prepayment penalty may be imposed; time period penalty can be imposed; and a statement the consumer may contact the Servicer for additional information. • Format • Disclosures should be provided in the form of a table and in the same format as the model discloses in Appendix H-4(D)(1) and (2). 38

39. Record Retention (12 CFR 1026.25(a), (c)) • Generally, retain evidence of compliance with Regulation Z, other than advertising requirements (under sections 1026.16, .24), for two years after the date disclosures are required to be made or action is required to be taken; • Additionally, retain evidence of compliance as follows: • Records sufficient to evidence all compensation paid to loan originators, and the compensation agreement(s) that govern those payments, for three (3) years after the date of payment; and • Evidence of compliance with minimum standards for any transaction secured by a dwelling (other than exceptions under Reg. Z, §1026.43(a)) for three (3) years after consummation of a transaction covered by that section. 39

40. Questions?

41. Mortgage Servicing RequirementsRegulation X12 CFR 1024

42. Notice of Servicing Transfer (12 CFR 1024.33(b)(4)) • Transferor and Transferee Servicers must provide the borrower with a notice of transfer when servicing is transferred (single, coordinated joint notice is still allowable). Required content/format of the notice was revised in the amendment. • Content of Notice • Effective date of transfer; • Name, address, toll-free phone number of transferee Servicer for borrower’s questions; • Name, address, toll-free phone number of transferor Servicer for borrower’s questions; • Date transferor Servicer will no longer accept payment and date transferee Servicer will begin to accept payments; • If the transfer will impact terms or availability of mortgage life or disability insurance or other insurance, and how to maintain coverage; and • Statement that transfer does not impact terms of the mortgage other than servicing. • Notice must contain the information in the model form in Appendix MS-2. 42

43. Borrower Payments During Transfer of Servicing (12 CFR 1024.33(c)) • Treatment of Payment • Transferor Servicers that receive payments after the transfer of servicing must: • Transfer the payment to the Transferee Servicer; or • Return the payment and notify the borrower of: • The Transferee Servicer; and • The Transferee Servicer’s contact information. 43

44. Escrow Balance Refunds (12 CFR 1024.34(b)) • Servicer must refund balance of escrow account within 20 business days of payoff. • Credit Funds to New Escrow Account • Servicer may credit the balance of an escrow account to a new escrow account if the new mortgage is provided by a lender that: • Was the lender of the prior mortgage; • Is the owner of the prior mortgage; or • Uses the same Servicer that serviced the prior mortgage. 44

45. Escrow Payments & Accounts (12 CFR 1024.17 and.34) • Amendments to Regulation X provided clarifying language for certain provisions concerning escrow accounts including surpluses and escrow statements. • Surpluses • Servicer must refund surplus from an escrow account within 30 days of the escrow analysis if the surplus is equal to or greater than $50. Surpluses less than $50 may be credited to the escrow account. • This provision applies if the borrower is current at the time of escrow analysis. A borrower is current if the Servicer receives payment within 30 days of the due date. If payment is not received within 30 days of due date, then the Servicer may retain the surplus in the escrow account pursuant to the terms of the federally related mortgage loan documents. 45

46. Escrow Payments & Accounts (cont.) • Deficiencies • Servicer may require the borrower to pay additional monthly deposits to an escrow account when the escrow analysis indicates a deficiency. • This provision applies if the borrower is current at the time of escrow analysis. • Otherwise, the servicer may recover the deficiency pursuant to the terms of the federally related mortgage loan documents. • Annual Escrow Account Statement • If the borrower is more than 30 days past due when the escrow analysis is conducted, or the Servicer has brought action for foreclosure under the underlying federallyrelated mortgage loan, the Servicer is not required to provide the annual escrow statement. • The Servicer must provide a history of the escrow account within 90 days of the loan becoming current. 46

47. Escrow Payments & Accounts (cont.) • Short Year Statements • Servicer must provide a short year statement to the borrower within 60 days after federally related loan payoff. • Timely Payment • For borrowers who have escrow for hazard insurance and whose mortgage is more than 30 days past due, Servicer cannot purchase force-placed insurance unless it is unable to disburse funds from the escrow account. • Servicer is considered unable to disburse funds if it has reasonable belief that: • hazard insurance has been canceled for reasons other than nonpayment, or • the borrower’s property is vacant. • Inability to disburse does not include insufficient funds in the escrow account. • A Small Servicer may purchase force-placed hazard insurance if the cost to the borrower is less than the amount the Servicer would disburse from the escrow account to pay hazard insurance premiums timely. 47

48. Escrow Payments & Accounts (cont.) • Discretionary Payments • Any borrower's discretionary payment (such as credit life or disability insurance) made as part of a monthly mortgage payment, if lender-mandated or paid through an escrow account, must be noted on the initial and annual escrow statements. • If a lender-mandated or paid-through-an-escrow-account discretionary payment is established or terminated during the escrow account computation year, this change should be noted on the next annual statement • Notes: • A discretionary payment is not part of the escrow account unless: • the payment is required by the lender, in accordance with the definition of a “settlement service” (see RESPA §1024.2), or • the servicer chooses to place the discretionary payment in the escrow account. • If a servicer has not established an escrow account for a federally related mortgage loan and only receives payments for discretionary items, these requirements are not applicable 48

49. Notice of Error (12 CFR 1024.35(b)) • Servicer must acknowledge, investigate, and respond to covered written Notices of Error within required timeframes. • Scope: Applies to closed-end federally regulated mortgage loans. • No Small Servicer Exemption • Notice of Error • Must be written, and • Contain borrower’s name, account information, and nature of error • A Qualified Written Request (QWR) is considered a Notice of Error; categories are: • Failure to provide accurate payoff • A QWR • Failure to accept a payment • Failure to apply a payment • Failure to credit a payment timely • Failure to pay taxes, insurance, or other charges timely • Imposition of fee without basis • Failure to provide information on loss mitigation options and foreclosure • Failure to transfer servicing information • Foreclosure during loss mitigation • Any servicing related error 49

50. Notice of Error (cont.) • Contact Information • Servicer may establish contact information for Notice of Error by written notice. • Must post designated address for receipt of Notice of Error on websites that contain any contact information. • Requirements Not Applicable • Servicers are not required to comply if the following are determined: • Borrower communicates error on payment coupon • Duplicative Notice of Error, unless new and material is provided • Notice of Error is overbroad (Servicer cannot reasonably determine error) • Untimely Notice of Error – delivered more than 1 year after transfer or payoff • - Servicer must notify the borrower of the determination: • - In writing and no later than 5 business days of the determination and • - Describe the reason for determination. • Acknowledgement of Receipt • Written acknowledgement of receipt of Notice of Error must be provided within 5businessdays (i.e., excludes legal public holidays , Saturdays, and Sundays). • The acknowledgement should contain both the statement acknowledging receipt and contact information. 50