I. INTRODUCTION
The Consumer Financial Protection Bureau (CFPB) has issued a final rule (2021 Mortgage Servicing COVID-19 Rule or 2021 Rule) amending certain provisions in Regulation X regarding additional assistance for borrowers experiencing a COVID-19-related hardship.
The 2021 Mortgage Servicing COVID-19 Rule was effective August 31, 2021. A servicer may voluntarily take certain actions discussed in the 2021 Rule before this date for certain provisions. Such pre-effective date actions can be used to establish compliance with the 2021 Rule after the effective date. Additionally, the CFPB does not intend to take supervisory or enforcement action against servicers that offer a borrower a streamlined loan modification based on an incomplete application prior to that date, so long as the modification meets the criteria outlined in the 2021 Rule.
II. BACKGROUND
The Mortgage Servicing Rules provide for early intervention with delinquent borrowers and impose certain loss mitigation requirements, including setting procedures for reviewing loss mitigation applications and providing borrower protections during those reviews.
The 2021 Mortgage Servicing COVID-19 Rule amended the Mortgage Servicing Rules to assist borrowers affected by the COVID-19 emergency. The 2021 Rule includes temporary provisions that: (1) require special COVID-19 loss mitigation procedural safeguards to ensure that a borrower has a meaningful opportunity to apply for loss mitigation before the mortgage account is referred to foreclosure after national foreclosure moratoria have ended; (2) provide servicers the ability to offer borrowers certain COVID-19-related streamlined loan modifications without a complete loss mitigation application; (3) require the provision of additional information promptly after early intervention live contacts are established with certain delinquent borrowers; and (4) establish timing requirements for when servicers must renew reasonable diligence efforts to obtain complete loss mitigation applications from certain borrowers.
III. COVERAGE
The 2021 Rule only applies to a mortgage loan secured by the borrower’s principal residence, and as such, generally does not apply to investment properties or second homes. The 2021 Rule does not apply to reverse mortgages, as defined by the Mortgage Servicing Rules. Similarly, small servicers, as defined in the Rules, are generally not subject to the new requirements.
IV. TEMPORARY SPECIAL COVID-19 PROCEDURAL SAFEGUARDS
Currently, the Mortgage Servicing Rules prohibit servicers from making a foreclosure referral (i.e., making the first notice or filing) or completing certain foreclosure actions (i.e., moving for foreclosure judgment or order of sale, making a dispositive motion for foreclosure judgment, conducting a foreclosure sale) in certain circumstances. Generally, a servicer may not make a foreclosure referral until the borrower is more than 120 days delinquent. In addition, if the borrower submits a complete loss mitigation application before foreclosure referral, generally the servicer must wait an additional period before initiating foreclosure in order to satisfy certain conditions to allow the borrower an opportunity to pursue loss mitigation. Specifically, the servicer must determine that the borrower is not eligible for any loss mitigation options and notify the borrower of such, determine that the borrower has exhausted the appeal process, or if a loss mitigation offer is made, the borrower must reject all offered loss mitigation options or fail to perform under a loss mitigation option agreement (the “foreclosure protection conditions”). Similarly, if a borrower submits a complete application after foreclosure referral but at least 37 days before foreclosure sale, the servicer must not complete certain foreclosure actions until these foreclosure protection conditions are met.
The 2021 Rule temporarily adds to the foreclosure protection conditions in certain circumstances. From August 31, 2021, through December 31, 2021, unless an exception applies, before referring certain 120-day delinquent accounts for foreclosure the servicer must make sure at least one of the temporary procedural safeguards has been met.
A. Procedural Safeguards.
The three procedural safeguards are:
1. The borrower was evaluated based on a complete loss mitigation application and existing foreclosure protection conditions are met. To meet this safeguard, the servicer must confirm that:
· The borrower submitted a complete loss mitigation application, and the servicer evaluated the application.
· The borrower remained delinquent since submission of the loss mitigation application.
· The foreclosure protection conditions in the existing Mortgage Servicing Rules discussed above, are met, such that a servicer is permitted by the Rules to make a foreclosure referral.
2. The property is abandoned. To meet this safeguard, applicable state or local law must consider the property securing the mortgage abandoned when referred to foreclosure.
3. The borrower is unresponsive 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:
· It has complied with the early intervention live contact requirements in the Mortgage Servicing Rules during that 90-day period.
· It has provided the early intervention 45-day written notice required by the Mortgage Servicing Rules. The servicer must have sent the notice at least 10 but no more than 45 days before foreclosure referral.
· 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.
· The borrower’s forbearance program, if applicable, ended at least 30 days before foreclosure referral.
B. Exceptions.
The temporary procedural safeguards are not required if:
· The foreclosure referral occurs (as permitted by applicable law) on or after January 1, 2022.
· The borrower was more than 120 days delinquent prior to March 1, 2020.
· The applicable statute of limitations will expire before January 1, 2022.
If the servicer has met the temporary procedural safeguards, or if the safeguards do not apply, the servicer may proceed with foreclosure referral, to the extent permitted by other law and the existing foreclosure protections in the Mortgage Servicing Rules. If the temporary procedural safeguards apply, a servicer is required to maintain records that evidence the servicer complied.
V. COVID-19 – RELATED STREAMLINED LOAN MODIFICATIONS
Currently, the Mortgage Servicing Rules generally prohibit the servicer from evading the requirement to evaluate a complete loss mitigation application for all loss mitigation options available to the borrower by offering a loss mitigation option based on the evaluation of any information provide by a borrower in connection with an incomplete loss mitigation application. However, the Rules do offer certain exceptions to this general prohibition, allowing some loss mitigation offers that are not based on the evaluation of a complete application, such as offers of certain short-term payment forbearance programs and certain COVID-19-related loss mitigation options discussed in the Bureau’s June 2020 Interim Final Rule.
The 2021 Mortgage Servicing COVID-19 Rule adds a new exception to that list. The 2021 Rule permits servicers to offer certain COVID-19-related loan modification options based on the evaluation of an incomplete application. To qualify for this exception, the loan modification offer must:
1. Limit loan term extensions. The loan modification must not extend the loan term more than 40 years from the date the modification is effective.
2. Limit periodic payment increases. The loan modification must not increase the borrower’s monthly principal and interest payment beyond the amount that was required prior to the modification.
3. Prohibit interest accrual on delayed amounts. If the loan modification allows the borrower to delay payment of any portion of the amount owed until the property is sold, the mortgage is refinanced, the modification matures, or, for FHA insured loans, until the mortgage insurance terminates, then the loan modification must not allow interest to accrue on those amounts. Such amounts could include, for example, forborne periodic payments.
4. Be available to borrowers with COVID-19-related hardships. The loan modification must be made available to borrowers experiencing COVID-19-related hardships, although it need not be only available to those borrowers.
5. End (or be designed to end) preexisting delinquency. The loan modification must end any pre-existing delinquency when the borrower accepts the modification offer. If a trial period applies, the loan modification must be designed to end any pre-existing delinquency when the borrower satisfactorily completes any trial period requirements and accepts the permanent loan modification.
6. Not include certain fees. The servicer must not charge fees in connection with the loan modification and must promptly waive certain existing fees the borrower owes, such as late fees, penalties, or stop-payment fees, that were incurred on or after March 1, 2020.
Once the criteria are met, servicers may offer a loan modification based on an incomplete application. However, if a borrower becomes delinquent, for example under a trial loan modification plan, or requests further assistance, the servicer must immediately resume reasonable due diligence efforts with regard to any loss mitigation application the borrower submitted prior to the trial period and must send an acknowledgement notice if one was not previously provided. The CFPB emphasized that a subsequent submission of a complete loss mitigation application does not count as a duplicative request and that the foreclosure protection conditions must be met before the servicer may make a foreclosure referral or complete certain foreclosure actions.
VI. TEMPORARY EARLY INTERVENTION COMMUNICATION REQUIREMENTS
Currently, the Mortgage Servicing Rules require a servicer to make good faith efforts to establish live contact with delinquent borrowers no later than the borrower’s 36th day of delinquency and again no later than 36 days after each payment due date so long as the borrower remains delinquent. Promptly after establishing live contact, the servicer must inform the borrower about the availability of loss mitigation options, although it has discretion to determine if providing this information is appropriate and the level of specificity provided. Separately, the Rules also require servicers to maintain policies and procedures that, among other things, ensure the servicer personnel assigned to a delinquent borrower can identify all loss mitigation options available from the owner or assignee of the borrower’s mortgage, and the actions the borrower must take to be evaluated for those options. The policies and procedures must ensure the servicer has the ability to provide that information accurately.
The 2021 Mortgage Servicing COVID-19 Rule temporarily requires a servicer to provide some delinquent borrowers with specific, additional information. This requirement only applies until October 1, 2022.
The final rule divides this section into two categories: borrowers not in a forbearance program and borrowers in a forbearance program.
A. For Borrowers Not in Forbearance Program, servicers must-
1. Inform the borrower that forbearance programs are available for borrowers experiencing COVID-19 related hardships;
2. List and describe applicable forbearance programs available at the time of live contact and the actions the borrowers must take to be evaluated for such programs; and
3. Notify the borrower of at least one way that they can find contact information for homeownership counseling services.
B. For Borrowers in Forbearance Program, servicers must-
1. Notify the borrower of forbearance scheduled end date;
2. List and describe any loss mitigation programs available at the time of live contact and the actions the borrower must take to be evaluated for such programs; and
3. Notify the borrower of at least one way they can find contact information for homeownership counseling services.
The CFPB revised the applicable time period for providing the above information for borrowers in a forbearance program and removed the “last live contact” language. Under the final rule, the servicer must provide the above information during the live contact that occurs 10 to 45 days before the scheduled end of the borrower’s program. However, if a plan is scheduled to end between August 31, 2021, and September 10, 2021, the servicer must provide the above information during the first live contact that is made after August 31, 2021.
The CFPB emphasized that nothing in the final rules prevents servicers from sharing additional information with borrowers, such as information about eligibility criteria, investor review standards, or waterfalls.
VII. DUE DILIGENCE REQUIREMENTS FOR BORROWERS IN FORBEARANCE
Under the final rule, servicers must contact borrowers who remain delinquent in a short-term payment forbearance program no later than 30 days before the scheduled end of the forbearance period to determine if they wish to complete a full loss mitigation application. If the borrower requests further assistance, the servicer must exercise reasonable diligence to complete the application before the end of the forbearance period.
VIII. APPLICATION TO SMALL SERVICERS
The final rule clarifies that “small servicers” are not subject to the requirements of this rule. However, the pre-foreclosure review period in the existing mortgage servicing rule still apply to small servicers, which states that a servicer may not make a first filing or notice for foreclosure unless: (1) a borrower’s mortgage loan obligation is more than 120 days delinquent; (2) the foreclosure is based on a borrower’s violation of a due-on-sale clause; or (3) the servicer is joining the foreclosure action of a superior or subordinate lienholder.
IX. MORTGAGE SERVICING RULES – SUPERVISORY AND ENFORCEMENT PRACTICES
The federal banking agencies have issued a joint statement to communicate to mortgage servicers the agencies' supervisory and enforcement approach as risks associated with the Coronavirus Disease (COVID-19) pandemic continue to change.
On April 3, 2020, the agencies issued the “Joint Statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules in Response to the COVID-19 Emergency and the CARES Act” (April 2020 Joint Statement) to clarify the application of the Regulation X mortgage servicing rules and explain the agencies’ approach to supervision and enforcement of the rules in response to the COVID-19 pandemic. In the April 2020 Joint Statement, the agencies announced that until further notice, they would not take supervisory or enforcement action against mortgage servicers for failing to meet certain timing requirements under the mortgage servicing rules as long as the servicers made good faith efforts to provide those required notices or disclosures and took the related actions within a reasonable period of time.
The agencies have indicated that the temporary flexibility described in the April 2020 Joint Statement is no longer necessary because servicers have had sufficient time to adjust their operations by, among other things, taking steps to work with consumers affected by the COVID-19 pandemic and developing more robust business continuity and remote work capabilities. Accordingly, the temporary supervisory and enforcement flexibility announced in the April 2020 Joint Statement no longer applies and the agencies will apply their respective supervisory and enforcement authorities, where appropriate, to address any noncompliance or violations of the Regulation X mortgage servicing rules that occur after the date of issuance of the statement.
The agencies will consider, when appropriate, the specific impact of servicers’ challenges that arise due to the COVID-19 pandemic and take those issues in account when considering any supervisory and enforcement actions. As part of their considerations, the agencies will factor in the time it takes to make operational adjustments in connection with this Joint Statement.