Two recent legislative developments, which have largely gone unnoticed, will dramatically raise the stakes for mortgage servicers and originators who file IRS Forms 1098. First, the Trade Preferences Extension Act of 2015, signed into law on June 29, 2015, more than doubled the financial penalties imposed for filing IRS Forms 1098 with incorrect information. Second, proposed legislation approved by the Senate Finance Committee on July 21, 2015 to extend certain expired tax provisions (a so-called “extenders bill”) would require servicers to include new information on IRS Form 1098. Although the extenders bill’s new required information may be relatively straightforward in basic situations, delinquent and modified loans present unique challenges. With the new increased penalties in place, the stakes to get it right have never been higher. Because there is scant IRS guidance upon which servicers may rely regarding various information reporting issues, it will be increasingly critical for the IRS to adhere to the legal standard that penalties do not apply when a servicer adopts and follows reasonable reporting methods in good faith.
Mortgage loan servicers are toiling away at executing all the new servicing requirements in the CFPB’s Regulation Z and Regulation X amendments by the January 10, 2014 deadline. Given this overwhelming task, it is understandable that some servicers may not be as familiar with the CFPB’s ECOA Valuation Rule amending Regulation B. The Rule, which imposes an obligation to furnish a copy of valuations to borrowers of first-lien loans and to provide notice to borrowers of this right, may apply to a servicer’s loss mitigation efforts.