A new Minnesota bill signed into law last week will require mortgage servicers to maintain recordings of all customer telephone interactions for five years, alongside a host of tightened rules affecting escrow and account transfers. 

Under the new law, companies servicing more than 500 residential loans in the North Star State must record phone conversations with borrowers or their representatives and retain the calls for five years. 

Similarly, after a complaint is received in writing, all servicers are mandated to keep any files related to each inquiry and the subsequent investigations for a period of 60 months. Correspondence regarding any borrower activity, which may include emails, telephone recordings, incomplete documentation and advertisements, is also expected to be on file for the same amount of time. 

First put forward in March this year, consumer omnibus bill 4188 was introduced by Democrat Rep. Erin Koegel and was passed both chambers of the Minnesota legislature last month. Gov. Tim Walz signed the bill into law on May 27. While many servicers likely had their own guidelines already in place, the bill's passage puts the rules into law and opens them up to penalties for noncompliance. 

Alongside the recording and requirements, bill 4188, servicers are also expected to respond to any inquiries about loss-mitigation options or new borrower disputes within 30 days of receipt or as stipulated by the particular servicing assistance program. 

All new mortgage-related rules are due to take effect on Aug. 1. 

New required timelines for changes in escrow

Additional new laws will also apply when changes affect required escrow amounts. Included in the legislation is a provision that introduces a 10-business-day deadline for notifying borrowers of any updates that lead to the modification of a homeowner's required escrow payment amount.

"A change requiring notification includes but is not limited to hazard insurance premiums, a reduction in the required reserve amount for the account or a change in the property's tax assessment," the omnibus measure said. 

Servicers must also send notification of the funding level needed in escrow reserve both annually and upon borrower request, along with a fee schedule for noncompliance or advances. 

New language affecting servicing transfers

State officials will also be keeping their eyes on the transfer of mortgage loans between servicers to ensure companies do not leave borrowers uninformed and keep all modifications in place.  

In case of the transfer or sale of servicing with pending modification requests, the company selling the loan must state the status of the mortgage, and the receiving party will be obligated to continue the process as well as accept and honor any existing loss mitigation on file.  

Subservicing agents and other third-party providers will also need to adhere to rules through clear written policies provided by the servicer. 

Similar regulations are also being enacted for student loans serviced within the state. 

The passage of the Minnesota omnibus bill comes as attorneys advise the home lending community to expect heightened scrutiny coming from state regulators, with federal oversight, notably from the Consumer Financial Protection Bureau, getting rolled back significantly in the second Trump term. Over the past 12 months, several states have not shied away from moving in to issue their own enforcement actions for alleged instances of servicer noncompliance. 

In a sign of potential increased scrutiny to come, California Gov. Gavin Newsom last month ordered the creation of a new business and consumer services agency to strengthen state protections. The new department will be led by Biden-era CFPB Director Rohit Chopra, who was sometimes accused of regulatory overreach in the financial services community during his tenure, and launches on July 1.

Among Chopra's initiatives while serving as federal watchdog was the reduction or elimination of so-called junk fees, moves reversed almost immediately by President Trump after he took office. In mortgage-related matters, though, Chopra was at times an ally to lenders with his outspoken criticism of Fair Isaac Corp., accusing the company of price gouging when it came to credit score costs.