The CFPB recently issued a final rule, effective August 31, 2021, amending Regulation X’s mortgage servicing provisions with the intent of assisting borrowers facing financial hardship as a result of the COVID-19 pandemic (the Final Rule). The CFPB expressed concerns about the number of borrowers soon to be exiting forbearance and how to address those borrowers who still may face significant financial risk post-forbearance.
The CFPB published its proposed rule in early April 2021 (see WBK’s coverage of the proposed rule here). The Final Rule largely finalized these proposed rules, with some modifications and clarifications. Thus, the Final Rule adds a number of temporary provisions to Regulation X, including, among other things:
- Defining “COVID-19-related hardship” as “a financial hardship due, directly or indirectly, to the national emergency for the COVID-19 pandemic declared in Proclamation 9994 on March 13, 2020 (beginning on March 1, 2020) and continued on February 24, 2021, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C.1622(d)).”
- Adding temporary early intervention live contact requirements related to the COVID-19 pandemic, which expire October 1, 2022. These requirements include that servicers must provide certain information regarding forbearances and loss mitigation options to delinquent borrowers, with the requirements depending on whether the borrower is in a forbearance program at the time of live contact or not.
- The Final Rule provides clarification as to the extent of the borrowers that need to receive certain such information (e.g., that borrowers should receive information about available forbearance programs unless they say they are not interested in receiving information about such programs, as opposed to requiring the borrower to first indicate that they are experiencing a COVID-19-related hardship in order to receive that information) and the timing of providing such information (e.g., that borrowers currently in a forbearance program receive the information in specified timeframes to ensure they have the information before the program ends).
- In addition to the elements identified in the proposed rule about providing forbearance program or loss mitigation information and options and related steps to take under each, the Final Rule also provides that a servicer must inform borrowers of at least one way that the borrower can find contact information for homeownership counseling services (such as referencing the borrower’s periodic statement).
- Adding provisions allowing mortgage servicers to temporarily offer certain loan modification options based on evaluation of an incomplete loss mitigation application to borrowers who have been affected by the COVID-19 pandemic, subject to certain parameters.
- Clarifying when a servicer must comply with reasonable diligence obligations with regard to loss mitigation applications for borrowers in a COVID-19 hardship payment forbearance program.
While much of the mortgage servicing COVID-19 Final Rule is similar to the proposed rule, one of the more significant changes in the Final Rule is that the CFPB did not finalize the proposed pre-foreclosure review period that would have prohibited servicers from making a first notice or filing required for any judicial or non-judicial foreclosure process until after December 31, 2021. Rather, under the Final Rule, until December 31, 2021, a servicer must ensure one of the following temporary procedural safeguards is met, before making a first notice or filing required for any judicial or non-judicial foreclosure process because of a delinquency:
- The borrower was evaluated based on a complete loss mitigation application and remained delinquent at all times after submitting the application, and existing foreclosure protection conditions in Regulation X are met;
- The property securing the mortgage is considered abandoned under state or local law at the time of the foreclosure referral; or
- The borrower is unresponsive to outreach efforts from the servicer, meaning that the servicer did not receive any borrower communications for at least 90 days prior to the foreclosure referral and the servicer meets certain conditions laid out in the Final Rule, including complying with the early intervention live contact requirements during that time and providing the early intervention written notice at least 10 days, but no more than 45 days, before the foreclosure referral.
The Final Rule provides additional guidance on how to determine if a servicer meets any of the above procedural safeguards, and sunsets these temporary safeguards for foreclosure referrals on or after January 1, 2022. There are certain exceptions to the procedural safeguards provision including that a borrower was more than 120 days delinquent before March 1, 2020, or that the statute of limitations applicable to the foreclosure action would expire before January 1, 2022.
The Final Rule generally has the same coverage as Regulation X’s mortgage servicing rules, applying to mortgage loans secured by the borrower’s principal residence and generally not to investment properties or second homes, or reverse mortgages (as defined by the mortgage servicing rules).
Although the Final Rule is effective August 31, 2021, servicers may voluntarily engage in certain required activities prior to such date.