Section 1 Short title
This Act may be cited as the “Homeowner Mortgage Servicing Fairness Act of 2018”.
Homeowner Mortgage Servicing Fairness Act of 2018
A BILL
To provide for the Director of the Federal Housing Finance Agency to establish prudential management and operations standards for mortgage servicers, and for other purposes.
Sec. 2 Findings and purpose
Findings— The Congress finds that—
mortgage servicing plays a critical role in determining the likelihood that a delinquent borrower will be able to save their home from foreclosure, but homeowners do not have the ability to choose their mortgage servicers;
a 2011 Yale Journal on Regulation article written by Adam Levitin and Tara Twomey, entitled “Mortgage Servicing”, confirmed that borrowers have no control over what bank or non-bank entity services their mortgage loan, whether the servicing rights on their mortgage are transferred to a new entity, or what contractual provisions govern the servicing of their mortgage loan;
a 2011 report entitled “Interagency Review of Foreclosure Policies and Practices” conducted by the Federal Reserve System, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision acknowledged that “a number of supervisory actions and industry reforms are required to address [weaknesses in foreclosure process governance] in a way that will hold servicers accountable for establishing necessary governance and controls”;
there has been abundant evidence since the financial crisis of 2007 to 2009 that has indicated that some single-family housing mortgage servicers are failing to provide mortgage borrowers with the protections against foreclosure that they are entitled to by law, including failure to provide mortgage borrowers with critical information about the process of applying for foreclosure relief and loan modifications;
multiple congressional hearings have uncovered additional evidence of failures in mortgage servicing, including—
the hearing of the Committee on Financial Services of the House of Representatives entitled “A Review of Mortgage Servicing Practices and Foreclosure Mitigation”, July 25, 2008 (Serial No. 110–132);
the hearing of the Subcommittee on Insurance, Housing, and Community Opportunity of the Committee on Financial Services of the House of Representatives entitled “Robo-Signing, Chain of Title, Loss Mitigation and Other Issues in Mortgage Servicing”, November 18, 2010 (Serial No. 111–166); and
the joint hearing of the Subcommittee on Financial Institutions and Consumer Credit and the Subcommittee on Oversight and Investigations of the Committee on Financial Services of the House of Representatives entitled “Mortgage Servicing: An Examination of the Role of Federal Regulators in Settlement Negotiations and the Future of Mortgage Servicing Standards”, July 7, 2011 (Serial No. 112–44);
in view of the heightened reliance by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) on unilateral reviews of borrowers for loss mitigation in place of reviews of applications initiated by borrowers, there is an increased need for oversight to bring accountability to the loss mitigation review process;
mortgage borrowers have also faced other wide-ranging problems with their mortgage servicers, including errors that have cost some borrowers money and have cost others their homes;
such problems have included lapses in basic mortgage servicing functions, such as inaccurate monthly statements, improperly credited payments, improper escrow handling, ignored customer complaints, and improper servicing transfers;
these failures in mortgage servicing are further evidenced by enforcement actions initiated by the Consumer Financial Protection Bureau against nine different bank and non-bank mortgage servicers from 2013 through 2017 for “mismanaging the loss mitigation process”, “mistreating mortgage borrowers who were trying to save their homes from foreclosure”, and “failing borrowers at every stage of the mortgage servicing process”;
although some Federal regulators, in particular the Federal Housing Finance Agency and the Consumer Financial Protection Bureau, have the authority to take enforcement and supervisory action against mortgage servicers that harm borrowers, Federal regulators should take additional action that will protect homeowners from the types of abuses that have led to stalled modifications, excess fees, and even foreclosure; and
to ensure market confidence in the United States housing system and improve accountability and transparency, Federal regulators should be empowered to fully exercise all statutorily mandated and implied powers to protect consumers from harmful mortgage servicers.
Purpose— It is the purpose of this Act to ensure that mortgage borrowers are protected from abusive servicing practices, to end engagement by mortgage servicers in illegal servicing practices, to keep more people in their homes whenever possible, to promote servicers’ compliance with the loss mitigation guidelines of Fannie Mae and Freddie Mac, and to minimize losses to companies and taxpayers.
Sec. 3 Regulation and oversight of mortgage servicers
In general— Subpart A of part 2 of subtitle A of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4541 et seq.) is amended by adding at the end the following new section:
“1327. Prudential management and operations standards for covered servicers
“(a) Definitions—For purposes of this section, the following definitions shall apply:
“(1) Director—The term “Director” has the meaning given such term in section 1303.
“(2) Covered servicer—The term “covered servicer” means a servicer, as such term is defined in section 6(i) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605(i)), that conducts mortgage servicing with respect to any single-family mortgage loans owned or guaranteed by any enterprise.
“(b) Standards—The Director shall establish standards, by regulation, for covered servicers relating to each of the following:
“(1) Adequacy of internal controls and information systems, taking into account the nature and scale of business operations.
“(2) Independence and adequacy of internal audit systems.
“(3) Overall risk management processes, including adequacy of oversight by senior management and policies to identify, measure, monitor, and control material risks, including data protection and reputational risks.
“(4) Compliance with the mortgage servicing requirements under the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2601 et seq.) and the regulations implementing such Act (12 C.F.R. Part 1024; Regulation X), in consultation with the Bureau of Consumer Financial Protection, including a system for solicitation and review of borrower complaints involving servicing of single-family housing mortgage loans owned or guaranteed by an enterprise.
“(5) Documentation and retention of records related to borrower interactions that enable the Director to evaluate the quality of service given to borrowers, including borrower contact, delinquency management practices, loan modifications and foreclosure alternatives, and foreclosure timelines, which shall provide that in each instance involving a default under a loan, the covered servicer shall document and retain a detailed description of the actions such servicer took to comply with the enterprises’ loss mitigation review requirements, including efforts to establish borrower contact, solicit a loss mitigation application, review the application under the appropriate guidelines, and inform the borrower of the servicer’s decisions.
“(6) Such other operational and management standards as the Director determines to be appropriate to carry out the purposes of this Act.
“(c) Failure To meet standards
“(1) Plan requirement
“(A) In general—If the Director determines that a covered servicer fails to meet any standard established under subsection (b), the Director shall require the covered servicer to submit an acceptable plan, in writing, to the Director within the time allowed under subparagraph (C).
“(B) Contents—Any plan required or authorized under subparagraph (A) shall specify the actions that the covered servicer will take to correct the deficiency.
“(C) Deadlines for submission and review—The Director shall by regulation establish deadlines that—
“(i) require a covered servicer to submit a plan required under this subparagraph not later than 30 days after the Director determines that the covered servicer fails to meet any standard established under subsection (a); and
“(ii) require the Director to approve, deny, or otherwise respond to the plan not later than 30 days after the plan is submitted.
“(2) Required order upon failure to submit or implement plan—If a covered servicer fails to submit an acceptable plan within the time allowed under paragraph (1)(C), or fails in any material respect to implement a plan accepted by the Director, the following shall apply:
“(A) Required correction of deficiency—The Director shall, by order, require the covered servicer to correct the deficiency.
“(B) Other authority—The Director may, by order, take one or more of the following actions until the deficiency is corrected:
“(i) Impose a civil monetary penalty upon the covered servicer in an amount not to exceed $10,000 for each day during which such deficiency continues.
“(ii) Mandate the transfer of loan servicing rights without providing compensation to the covered servicer.
“(iii) Limit or prohibit the covered servicer from conducting business with the enterprises.
“(iv) Require the covered servicer to take any other action that the Director determines will better carry out the purposes of this section than any of the actions described in this subparagraph.
“(3) Mandatory restrictions—In complying with paragraph (2), the Director shall take one or more of the actions described in clauses (i) through (iv) of paragraph (2)(B) if—
“(A) the Director determines that the covered servicer fails to meet any standard prescribed under subsection (b); and
“(B) the covered servicer has not corrected the deficiency within a reasonable period or within a period established by the Director.
“(d) Other enforcement authority not affected—The authority of the Director under this section is in addition to any other authority of the Director and does not limit the additional or concurrent authority of the Bureau of Consumer Financial Protection as established in title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5481 et seq.).
“(e) Oversight—The Director shall conduct oversight of covered servicers on a regular and ongoing basis and in a manner designed to ensure that such servicers comply with the requirements of this Act and the regulations established by the Director for servicing of such mortgages and to identify systemic problems and trends with such compliance.
“(f) Examinations
“(1) Authority—The Director shall have power to make a thorough examination of any covered servicer whenever the Director determines an examination of any such servicer is necessary to carry out the purposes of this section.
“(2) Manuals—The Director may issue and revise examination manuals as necessary to carry out paragraph (1).
“(g) Regulatory fees
“(1) Authorization—The Director may assess and collect from covered servicers a reasonable fee, in an amount not exceeding the amount sufficient to provide for reasonable costs (including administrative costs) and expenses incurred by the Director in connection with carrying out the responsibilities of the Director under this section.
“(2) Establishment—The Director shall establish the amount of fees under this subsection for a fiscal year so as to generate a total revenue amount not exceeding the Director's estimate of 100 percent of the costs of the Agency in carrying out the responsibilities under this section during such year.
“(3) Availability—Fees authorized under paragraph (1) for a fiscal year shall be available for obligation only—
“(A) to the extent and in the amount provided in advance in appropriations Acts; and
“(B) to pay the costs of the Agency in carrying out the responsibilities under this section during such fiscal year.
“(h) Issuance of regulations—The Director shall issue such regulations as may be necessary to enable the Director to administer or to carry out the purposes of this section and to prevent evasions thereof.”
Timing— The Director of the Federal Housing Finance Agency shall issue final regulations, as required by section 1327 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (as added by subsection (a) of this section), not later than the expiration of the 12-month period beginning on the date of the enactment of this Act.