On June 21, 2016, the FDIC adopted a final rule clarifying the relationship between the loan servicing provisions of the FDIC's securitization safe harbor rule (12 CFR 360.6) and the Consumer Financial Protection Bureau (CFPB) mortgage loan servicing requirements under Regulation X (12 CFR 1024.41), which implements the Real Estate Settlement Procedures Act (RESPA).

The FDIC's safe harbor rule protects banks and other investors from FDIC seizure of the securitized assets on the balance sheet a distressed bank that enters into receivership (see Practice Note, Summary of the Dodd-Frank Act: Securitization: Other Relevant US Securitization Regulations: The FDIC’s Bank Securitization Safe Harbor Rules). Under the rule, the FDIC would not exercise its authority to recover or reclaim the financial assets of a failed bank that were transferred in connection with securitization transactions that meet certain criteria set out in the rule.

For residential mortgage-backed securities (RBMS) transactions to qualify for the safe harbor, the securitization documentation must require that the servicer take “action to mitigate losses” within 90 days of a borrower's delinquency. However, the final rule clarifies that RMBS documentation may not require that a servicer act contrary to the CFPB's mortgage loan servicing requirements as set forth in Regulation X, which prohibit a servicer from commencing foreclosure proceedings unless the mortgage obligation is more than 120 days delinquent.

Regulation X also requires that a lender to further delay foreclosure if the borrower submitted a loss-mitigation plan before the foreclosure process was started or if the borrow borrower submits a loss-mitigation application more than 37 days before a foreclosure sale. For more information, see Practice Note, The Mortgage Servicing Rules Implementing Dodd-Frank.

The rule is effective July 27, 2016.