BLOG VIEW: Under RESPA, servicers are required to respond to qualified written requests (QWRs) from borrowers. Regulation X divides these requests into two categories: a request for information (RFI) or notice of error (NOE). Recently, the U.S. Court of Appeals for the 4th Circuit in Virginia issued an opinion narrowing the definition of a QWR. Meanwhile, the 9th Circuit is considering a similar issue and is expected to rule on it later this year. Interestingly, the Consumer Financial Protection Bureau (CFPB) has filed an amicus brief in that case, asking for a much broader interpretation of a servicer’s responsibilities.
The case before the 4th Circuit was brought as a class action with a putative class of all residential loan borrowers who submitted QWRs to the servicer in the preceding three years. The suit claimed that the servicer failed to respond to written communications involving the reporting of adverse information and a denial of a loan modification. The only question was whether the communications at issue were QWRs.
Class representatives are two borrowers who sent very different letters to the servicer and later asserted that the letters constituted QWRs. Neither letter was identified as a Qualified Written Request, Notice of Error, or Request for Information by the servicer.
LETTER 1: Described the amount showing as past due on the borrower’s credit report and verbally conveyed to the borrower in a communication with a customer service representative and asked the servicer to correct their records.
LETTER 2: After being denied a loan modification due to a priority solar panel lien, the borrower sent a letter challenging the existence of “title issues” and requesting “an accounting of all sums you have imposed upon and collected related to my loan including convenience fees for accepting payment over the phone and property inspection fees.”
The court focused on the definition of a qualified written request in RESPA, which is “a written correspondence from the borrower to the servicer that includes, or otherwise enables the servicer to identify, the name and account of the borrower, and either:
–States the reasons the borrower believes the account is in error; or
–Provides sufficient detail to the servicer regarding information relating to the servicing of the mortgage loan sought by the borrower.”
In its ruling, the court held: “We conclude that where a written correspondence to a loan servicer provides sufficient information to identify the account and an alleged servicing error, such correspondence is a QWR for the purpose of RESPA and Regulation X. Conversely, where such written correspondence merely challenges a contractual issue, it does not implicate a servicing issue and therefore is not a QWR pursuant to RESPA or Regulation X.”
For this reason, it found that LETTER 1 was a QWR because it adequately identified the account and amounts being challenged and provided sufficient information to allow the servicer to know that the borrower is questioning his account balance.
LETTER 2, however, was not a QWR because it was contesting the denial of the borrower’s loan modification application, and “a loan modification is a contractual issue, not a servicing issue.”
The 9th Circuit
The case was brought as a class action by two borrowers who asserted that the servicer violated RESPA by failing to respond to their inquiries and notices of error.
The inquiries asked for extensive information about the borrowers’ loans, including payoff statements, copies of broker’s price opinions, information about the owner, servicer, and master servicer of the loan, and other information.
The notices of error related to the servicer’s failure to respond to the initial inquiries.
The district court held that none of the inquiries were QWRs because they did not fall within this narrow definition of servicing under RESPA.
RESPA defines “servicing” as “receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts, and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.”
The lower court found that the inquiries pertained to the “challenge of the foreclosure and the validity of the loan, not to servicing.”
The CFPB’s amicus brief asserts that Qualified Written Requests, Requests for Information, and Notices of Error are all legally distinct. Specifically:
- Qualified Written Requests – Defined by 12 USC 2605 – Limited to requests relating to the servicing of the loan, as narrowly defined
- Requests for Information – Defined by 12 CFR 1024.36 – includes any request for information with respect to the borrower’s loan
- Notices of Error – Defined by 12 CFR 1024.35 – includes any* assertation that the servicer has made an error
Therefore, the CFPB argues that even though the borrowers’ requests are not QWRs, they are Requests for Information, and thus the servicer had to timely respond with the information requested.
The 9th Circuit is expected to rule by this summer. If it agrees with the CFPB, it will create a circuit split, and servicers’ obligation to respond to borrower inquiries could differ depending on where the borrower lives.
Kara Snow is senior regulatory counsel for Covius Compliance Solutions.