CFPB Finalizes Amendments to Regulation X Mortgage Servicing Rules to Assist Borrowers Affected by COVID-19 | Practical Law

CFPB Finalizes Amendments to Regulation X Mortgage Servicing Rules to Assist Borrowers Affected by COVID-19 | Practical Law

The Consumer Financial Protection Bureau (CFPB) issued a final rule that amends its mortgage servicing rules in Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA). The CFPB issued the final rule to assist mortgage borrowers affected by COVID-19, help ensure a smooth and orderly transition as federal and state COVID-19 foreclosure protections expire, and help promote housing security by preventing avoidable foreclosures.

CFPB Finalizes Amendments to Regulation X Mortgage Servicing Rules to Assist Borrowers Affected by COVID-19

by Practical Law Finance
Published on 30 Jun 2021 • USA (National/Federal)
The Consumer Financial Protection Bureau (CFPB) issued a final rule that amends its mortgage servicing rules in Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA). The CFPB issued the final rule to assist mortgage borrowers affected by COVID-19, help ensure a smooth and orderly transition as federal and state COVID-19 foreclosure protections expire, and help promote housing security by preventing avoidable foreclosures.
On June 28, 2021, the Consumer Financial Protection Bureau (CFPB) issued a final rule (final rule) that amends its mortgage servicing rules in Regulation X (12 C.F.R. §§ 1024.30 to 1024.41), which implements the Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. §§ 2601 to 2617).
The final rule finalizes amendments to Regulation X in a proposed rule issued by the CFPB on April 25, 2021 (proposed amendments) (see Legal Update, CFPB Proposes Amendments to Regulation X Mortgage Servicing Rules to Assist Borrowers Affected by COVID-19).
The CFPB issued the final rule to:
  • Assist mortgage borrowers affected by COVID-19.
  • Help ensure a smooth and orderly transition as federal and state COVID-19 foreclosure protections (such as forbearances under the CARES Act and various federal and state foreclosure moratoria) end by providing borrowers with a meaningful opportunity to explore ways to resume making mortgage payments and avoid foreclosure.
  • Help promote housing security by preventing avoidable foreclosures.
  • Encourage borrowers and mortgage servicers to work together on foreclosure avoidance options.
The final rule is effective August 31, 2021.

Background

The CFPB's mortgage servicing rules address the servicing of mortgage loans and are set out in Regulation X and Regulation Z (12 C.F.R. §§ 1026.17 to 1026.24, 1026.36(c), and 1026.41). Among other things, they:
  • Provide for early intervention with delinquent borrowers.
  • Impose loss mitigation requirements, including:
    • setting procedures for reviewing loss mitigation applications; and
    • providing borrower protections during these reviews.
  • Prohibit a mortgage servicer from making the first notice or filing of a foreclosure, moving for a foreclosure judgment or order of sale, making a dispositive motion for a foreclosure judgment, or conducting a foreclosure sale (foreclosure referral) unless the borrower is more than 120 days delinquent.
  • Require that a mortgage servicer wait an additional period before initiating foreclosure against a borrower who submitted a complete loss mitigation application before foreclosure referral, absent satisfaction of either of the following (existing foreclosure protection conditions):
    • the mortgage servicer has determined that the borrower is not eligible for loss mitigation, has notified the borrower of this determination, and has determined that the borrower has exhausted the appeal process; or
    • the borrower has rejected all offered loss mitigation options or failed to perform under a loss mitigation option agreement.
  • Prohibit a mortgage servicer from:
    • completing certain foreclosure actions until satisfaction of the existing foreclosure protection conditions if the borrower submits a complete loss mitigation application after a foreclosure referral but at least 37 days before a foreclosure sale; or
    • offering a loss mitigation option based on evaluation of information provided in an incomplete loss mitigation application, although certain exceptions to this prohibition allow some loss mitigation offers not based on evaluation of a complete loss mitigation application (incomplete loss mitigation application exceptions).
  • Require that a mortgage servicer exercise reasonable diligence to complete an incomplete loss mitigation application. However, while a borrower is complying with a short-term payment forbearance program offered based on an incomplete loss mitigation application, this requirement may be suspended until the borrower is near the end of the forbearance program.
  • Require a mortgage servicer to:
    • make good faith efforts to establish live contact with a delinquent borrower on or before the borrower's 36th day of delinquency and no later than 36 days after each payment due date if the borrower remains delinquent (live contact) (12 C.F.R. § 1024.39(a)); and
    • inform the borrower about available loss mitigation options promptly after establishing live contact.
For more information on mortgage servicing rules, see Practice Note, The Mortgage Servicing Rules Implementing Dodd-Frank and Loss Mitigation During Foreclosure Checklist.

Application of the Final Rule

The final rule does not change the coverage of the mortgage servicing rules. The mortgage servicing rules, including the amendments in the final rule:

Amendments to Mortgage Servicing Rules

The final rule's mortgage servicing rules amendments temporarily:
  • Add to the existing foreclosure protection conditions. These added conditions (additional foreclosure protection conditions) establish COVID-19 special loss mitigation procedural safeguards to ensure a borrower has a meaningful opportunity to apply and be reviewed for loss mitigation before foreclosure referral. (See Additional Foreclosure Protection Conditions.)
  • Create a new incomplete loss mitigation application exception that permits mortgage servicers to offer certain COVID-19-related streamlined loan modifications without evaluating a complete loss mitigation application (see Additional Incomplete Loss Mitigation Application Exception).
  • Establish timing requirements for when a mortgage servicer must renew reasonable diligence efforts to obtain complete loss mitigation applications from certain borrowers (see Reasonable Diligence Renewal Timing).
  • Require a mortgage servicer to provide additional information to some delinquent borrowers after establishing live contact (see Additional Information After Live Contact).

Additional Foreclosure Protection Conditions

From August 31, 2021 through December 31, 2021, before a mortgage servicer can refer a 120-day delinquent account for foreclosure, one of the following additional foreclosure protection conditions must be satisfied:
  • The borrower has submitted a complete loss mitigation application, the mortgage servicer has evaluated the application, the borrower has remained delinquent since submitting the application, and the mortgage servicer can make a foreclosure referral because the existing foreclosure protection conditions have been satisfied.
  • The property is abandoned.
  • The borrower's forbearance program (if applicable) ended at least 30 days before a foreclosure referral and the mortgage servicer has:
    • not received any communication from the borrower for at least 90 days before a foreclosure referral;
    • made good faith efforts to establish live contact during the 90-day period before the foreclosure referral;
    • provided the early intervention 45-day written notice required by 12 C.F.R. § 1024.39(b) 10 to 45 days before the foreclosure referral; and
    • complied with all loss mitigation requirements in the mortgage servicing rules during the 90-day period before the foreclosure referral.
However, the additional foreclosure protection conditions do not apply if either:
  • Foreclosure referral is permitted by applicable law and occurs on or after January 1, 2022.
  • The borrower was more than 120 days delinquent before March 1, 2020.
  • The applicable statute of limitations will expire before January 1, 2022.
Unlike the proposed amendments may have indicated, the amendments in the final rule do not create a foreclosure moratorium until January 1, 2022. If there is compliance with the mortgage servicing rules as amended by the final rule, some foreclosures can occur before January 1, 2022.

Additional Incomplete Loss Mitigation Application Exception

The final rule's amendments to the mortgage servicing rules permit a mortgage servicer to offer COVID-19 loan modification options based on evaluation of an incomplete loss mitigation application (incomplete application loan modifications) if the mortgage servicer does not charge a fee for the incomplete application loan modification, the mortgage servicer waives any existing fees (including late fees, penalties, and stop-payment fees) the borrower owes that were incurred on or after March 1, 2020, and the incomplete application loan modification:
  • Does not extend the loan term more than 40 years from its effective date or increase the borrower's monthly principal and interest payments beyond the required amount before the incomplete application loan modification.
  • Does not permit accrual of interest on any amount for which the borrower can delay payment until:
    • sale of the property;
    • mortgage refinancing;
    • maturity of the incomplete application loan modification; or
    • termination of mortgage insurance (for Federal Housing Administration (FHA) insured loans only).
  • Is available to borrowers experiencing financial hardships directly or indirectly due to the national emergency for the COVID-19 pandemic declared on March 13, 2020 and continued on February 24, 2021 (COVID-19-related hardships).
  • Either:
    • ends any pre-existing delinquency on the borrower's acceptance of the offered incomplete application loan modification; or
    • if a trial period applies, is designed to end any pre-existing delinquency when the borrower satisfactorily completes any trial period requirements and accepts the permanent incomplete application loan modification.
If a borrower accepts an offer of an incomplete application loan modification, the final rule excludes mortgage servicers from certain requirements regarding any loss mitigation application submitted before the offer (including reasonable diligence to complete the loss mitigation application and sending the acknowledgment of receipt of the loss mitigation application required by 12 C.F.R. § 1024.41(b)(2)(i)(B) (application receipt acknowledgment). However, if a borrower either does not perform under a trial loan modification offered as part of an incomplete application loan modification or requests further assistance, the mortgage servicer must resume reasonable diligence efforts to obtain a complete loss mitigation application and send the borrower the application receipt acknowledgment.

Reasonable Diligence Renewal Timing

Under the amendments to the mortgage servicing rules in the final rule, if a borrower is in a short-term payment forbearance program made available to borrowers with a COVID-19-related hardship, the program was offered based on an incomplete loss mitigation application, and the borrower remains delinquent, a mortgage servicer must:
  • Contact the borrower at least 30 days before the scheduled end of the forbearance period to determine if the borrower wants to complete the loss mitigation application.
  • Reinstate reasonable diligence efforts to complete the loss mitigation application before the end of the forbearance period if the borrower chooses to do so.

Additional Information After Live Contact

Under the final rule's amendments to the mortgage servicing rules, until October 1, 2022:
  • If a delinquent borrower is not in a forbearance program when live contact is established and the mortgage holder provides forbearance programs for borrowers experiencing a COVID-19-related hardship, promptly after establishing live contact with the borrower, a mortgage servicer must:
    • inform the borrower that forbearance programs are available for borrowers experiencing a COVID-19-related hardship;
    • list and briefly describe the programs that are available when live contact is established and the action the borrower must take to be evaluated, unless the borrower states they are not interested in receiving this information; and
    • tell the borrower at least one way the borrower can find contact information for homeownership counseling (for example, by referencing the borrower's periodic statement).
  • If the borrower is in a forbearance program made available to borrowers experiencing a COVID-19-related hardship when live contact is established, during the live contact that occurs 10 to 45 days before the scheduled end of the forbearance program, a mortgage servicer must:
    • inform the borrower when the forbearance program is scheduled to end;
    • list and briefly describe any loss mitigation programs (including forbearance extensions and repayment options) that are available from the mortgage holder when live contact is established and how the borrower may apply for them; and
    • tell the borrower at least one way the borrower can find contact information for homeownership counseling (for example, by referencing the borrower's periodic statement).
Although not required to do so, a mortgage servicer can share additional information, such as information about eligibility criteria or how investor review standards may impact the available options that may be offered to the borrower.