CFPB Finalizes COVID-19 Mortgage Rules

On June 28, 2021, the Consumer Financial Protection Bureau issued its Final Rule amending Regulation X to provide significant foreclosure protections to borrowers. The Final Rule only applies to mortgage loans secured by a property that is a borrower’s principal residence. It becomes effective Aug. 31, 2021.

The principal provisions of the Final Rule are:

1. Restrictions on New Foreclosures Through End of 2021

The Final Rule bars new foreclosure filings until after Dec. 31, 2021, unless certain criteria are met. Regulation X already prohibits a servicer from making a first notice or filing for foreclosure until the borrower is more than 120 days delinquent. The new rule provides a temporary blanket protection on making any such first notice or filing until after Dec. 31, 2021. The Final Rule does not apply to small servicers as defined by Regulation Z, and only applies to mortgage loans secured by a property that is a borrower’s principal residence. 12 C.F.R. §1026.41(e)4 and 12 C.F.R. §1024.30(c)(2).

In order for a foreclosure to commence prior to Jan. 1, 2022, one or more of the following must apply:

a. The borrower must have has been evaluated based on a complete loss mitigation application, determined to be eligible for foreclosure under current regulations, and remained delinquent.

b. The property has been determined to be abandoned under state or local law.

c. The borrower has not responded to servicer outreach. To meet this safeguard, the servicer must not have received any communications from the borrower in the 90 days prior to the foreclosure referral, and the servicer must confirm that: (i) it has complied with the early intervention live contact requirements in the Mortgage Servicing Rules during that 90-day period; (ii) it has provided the early intervention 45-day written notice required by the Mortgage Servicing Rules, sending it at least 10 but no more than 45 days before foreclosure referral; (iii) it has complied with all loss mitigation notice requirements in the Mortgage Servicing Rules during that 90-day period, such as the notice of an incomplete loss mitigation application; (iv) The borrower’s forbearance program, if applicable, ended at least 30 days before foreclosure referral.

d. The borrower was more than 120 days delinquent prior to March 1, 2020, i.e., the borrower was substantially in default even prior to the COVID-19 pandemic, the final rule does not prohibit a referral to foreclosure.

e. The applicable statute of limitations will expire before Jan. 1, 2022.

2. Early Intervention

The Final Rule also requires servicers to take additional actions for certain borrowers during the early intervention efforts under 12 C.F.R. §1024.39(a). Current regulations already require that servicers establish, or make good faith efforts to establish, live contact with a delinquent borrower no later than 36 days after each payment due date, as long as the borrower remains delinquent, and that the servicer inform the borrower about the availability of loss mitigation options during or promptly after such live contact. The Final Rule requires additional actions at the time of live contact both for borrowers not yet in a forbearance plan (in order to advise them of the potential availability of such plans) and for those in an active forbearance (to make sure they are aware of when the plan will end and what other options exist to resolve the delinquency). The Final Rule adds a requirement that a servicer provide at least one way for a borrower to find contact information for homeownership counseling services during that period. Such information can be referenced in the borrower’s periodic statement.

3. Streamlined Loss Mitigation Options Permitted

The Final Rule permits (but does not require) servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships, based on the evaluation of an incomplete application, something that would be prohibited under the current mortgage servicing rule (which typically only allows loss mitigation decisions based on a complete application). The restrictions on such loan modifications are largely unchanged from the proposed rule, and must satisfy several criteria in order to qualify for this exception:

a. the borrower must be experiencing a COVID-19-related hardship, as defined in the regulation;

b. the loan modification must not cause the borrower’s monthly required principal and interest payment to increase;

c. the loan modification may not extend the term of the loan by more than 480 months from the date the loan modification is effective;

d. any amounts the borrower may delay paying until the mortgage loan is refinanced, the mortgaged property is sold, or the loan modification matures (any balloon payments) must not accrue interest;

e. the servicer may not charge any fee in connection with the modification, and must waive all existing late charges, penalties, stop payment fees, or similar charges promptly upon the borrower’s acceptance; and

f. the borrower’s acceptance of an offer of the loan modification must terminate any existing delinquency of the mortgage loan upon satisfaction of the servicer’s requirements for completing any trial loan modification plan and permanent loan modification.

4. Other Provisions

The Final Rule also imposes specific requirements for servicers of borrowers currently in short-term payment forbearance programs based on incomplete loss mitigation applications. No later than 30 days before the end of such a short-term payment forbearance program, the servicer must contact the borrower to determine if the borrower wants to complete their loss mitigation application and proceed with a full evaluation. If the borrower requests further assistance, the servicer is required to exercise reasonable diligence to complete the application before the end of the forbearance program.