Regulatory Compliance Relief for Mortgage Servicing Loosens Timeframes but Doesn’t Eliminate Requirements
This blog is posted on behalf of Thomas Smith, Director of Compliance Services.
As COVID-19 continues to impact local economies, financial institutions are faced with the challenge of maintaining a consistent level of compliance with federal and state regulatory guidelines while helping their community and customers through this time of crisis. Though national regulators have offered flexibility in serving customers during this challenging time, the actions taken to date provide limited relief to institutions from a compliance perspective.
The CARES Act and Regulatory Action
On March 27th, Congress passed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). It provides, among other things, forbearance options for borrowers with a federally-backed mortgage loan, which would allow the borrower to defer their mortgage payments for up to 180 days and possibly longer.
Subsequently, the federal financial institution regulators issued an interagency joint policy statement providing a measure of regulatory flexibility to enable mortgage servicers to work with customers affected by COVID-19.
Flexibility and Some Loosening of RESPA
From a regulatory compliance perspective, the supervisory and enforcement flexibility does not impose any new or additional requirement on servicers working with borrowers, whether on CARES Act forbearance or otherwise. The flexibility applies regardless of whether a borrower is experiencing financial hardship due, either directly or indirectly, to COVID-19.
It also does not eliminate certain requirements and obligations the mortgage servicer has under the Real Estate Settlement Procedures Act (“RESPA”). Instead, it only loosens the time frames with which the servicer has to comply with the regulation.
Some of the key points from the interagency statement include:
- Regulatory agencies are not going to enforce provisions of RESPA for failing to provide the acknowledgment notice within 5 days of the receipt of an incomplete application (before or during the forbearance or repayment plan period), provided the servicer sends the acknowledgment notice before the end of the forbearance period.
- Regulatory agencies do not intend to take supervisory or enforcement action against servicers for delays in sending the loss mitigation-related notices and taking the actions described in RESPA which, among other things, include the five day acknowledgment notice, the 30-day evaluation and notice, and the appeals notice, provided the servicers make a good faith effort to provide the notices and take the actions within a reasonable time.
- Regulatory agencies do not intend to take supervisory or enforcement action against servicers for delays in establishing or making good faith efforts to establish live contact with delinquent borrowers, provided the servicers make a good faith effort to establish live contact within a reasonable time.
- Regulatory agencies do not intend to take supervisory or enforcement action against servicers for delays in sending the annual escrow statements required by RESPA, provided the servicers make a good faith effort to send those statements within a reasonable time. This does not relieve the servicer, however, from complying with RESPA’s requirements for timely disbursements from escrow accounts.
Next Steps
Financial institutions should continue to remain diligent during this time regarding their regulatory compliance programs and procedures as they work to serve their customers in new ways. There are still many questions regarding how provisions of the CARES Act, government lending programs, loan modifications, and other key areas may impact financial institutions from a regulatory compliance stand point.
CLA is here to help you navigate these uncertainties. Please contact us.
Amanda Garnett is a principal in the financial institutions practice of CliftonLarsonAllen (CLA) from Peoria, Illinois. She currently leads the firm’s Midwest financial institution tax team and serves institutions ranging in size from $15 million to $3.5 billion in total assets. In addition to tax compliance, Amanda assists clients in the areas of tax consulting, mergers and acquisitions, and regulatory reporting. She also routinely teaches courses for banking associations across the country.
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