Article By: Gregg Oberg, Spillane Consulting Associates, Inc.
Are your policies and procedures ready for the successor in interest rules?
Depending on whether you meet certain exemptions; policies and procedures will need to be amended to meet these last parts of the 2016 rule. Even if policy is not needed, there may be general requirements to follow.
But this isn’t just a regulatory hurdle, its a chance to better serve customers and increase organizational efficiency. Are you Ready?
Purpose of the Rule
A “successor in interest” is defined as … well that depends on which Reg we’re looking at. Yeah, its going to be one of those days. The fact is, Reg X and Reg Z contain *very slightly differing definitions of who might be a successor in interest. Essentially, if a borrower transfers interest to a property securing a mortgage loan to another person by something other than selling them the property in an arms length deal. Transfer by trust, will, divorce, etc. (see 12 C.F.R. 1024.31 and 1026.2(a)(27) if you need to be more specific).
At the most basic level, the rule is best viewed as codification of good customer service.
To best understand what the regulators expect of me, I find it helpful to first understand the problem they are addressing. The Final Rule includes consumer group comments outlining the issues, from the perspective of the purported successors, starting on page 72165.
Consider a typical scenario: you’ve just inherited property from your recently deceased family member. That’s a busy time, and emotions are high. You’re making final arrangements, possibly from out of state. You might not even realize you’re going to inherit that house yet. But the mortgage payments are still due. Paying them isn’t a hardship here, you just need to know some simple info: how much, where do I send the check, etc. But the lender won’t talk to you without a complicated, time consuming process to verify you are entitled to the information. Finally, after hours on the phone they give you some info. You call back the next day, and the process starts over again … that is the core of the 2016 Mortgage Servicing Rule (continuity of contact is also addressed, so the entire scenario should be easier now).
What does the Rule Require?
Policies and procedures must be reasonably designed to ensure (reserve the right to change those bullets, anybody see a better way to break it down?):
Communication. promptly facilitate communication with any potential successors in interest regarding the property upon receiving notice of the death of a borrower or of any transfer of the property securing the mortgage.
Documentation. promptly determine what documents the servicer (that’s you) reasonably requires to confirm the person’s identity and ownership interest in the property, and promptly provide a description of those documents to the person and how the person may submit a written request for a description of such; and
Decision and Follow Up. upon receipt of such documents, promptly make a confirmation determination and notify the person that the servicer has confirmed, needs more documents, or determined the person is not a successor in interest.
What this means
It goes back to customer service. Which really means efficiency–in the “make more money faster” sense. We don’t want to foreclose on a property, right? This is both because the Rules tell us we don’t, and because foreclosure is a lose-lose proposition. When property changes hands unexpectedly, particularly with deaths, the heirs (etc.) will logically have a hard time doing a lot of things. Make the mortgage easy. Tough, but easy.
When they call, call them back. When they tell you who they are and why they need the information, be prepared with a list of documents you require from them. Don’t be over inclusive–more documents is more work for both them and YOU. Put some thought into the balance between too much and too little. (TIP-also a good time to discuss continuity of contact if you haven’t already. This too is common sense customer service)
When they send the info you asked for; let them know you’ll make a quick decision, and actually do it. Implicit in making a quick decision is a procedure for making that decision, within the bounds of the Rule.
Mortgage Servicing Rule
The successor in interest rule is only one part of the 2016 rule. Five or six key provisions kicked in late 2017, which you should already be prepared for and implemented policy as appropriate.
When taken together, the rules really make it easier from an operational standpoint. Don’t simply apply mechanical policy and procedure to meet the regulation; use the opportunity to tailor the procedure to your specific organizational abilities and weaknesses.
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**These are our opinions. We’re not authorized, or willing, to express those of others.**
Thank you to Gregg Oberg, Spillane Consulting Associates, Inc., who with the support of other experts at SCA have put together this newsletter.