CFPB Amends Mortgage Servicing Rule
The Consumer Financial Protection Bureau (CFPB) has issued a final rule amending Regulation X to provide relief to borrowers facing financial hardship amid the COVID-19 emergency. The final rule was effective as of August 31, 2021.
The final rule consists of five amendments to Regulation X intended to encourage borrowers and servicers to work collaboratively on foreclosure avoidance options.
Amendment One – The first amendment establishes temporary procedural safeguards in response to COVID-19 that afford borrowers the meaningful opportunity for loss mitigation review prior to the initiation of a foreclosure procedure. This requirement applies only when 1) the borrower’s mortgage payment becomes more than 120 days delinquent on or after March 1, 2020, and 2) the statute of limitations for the foreclosure action expires on or after January 1, 2022. This means that if the servicer makes the first notice or filing for a foreclosure action on or after January 1, 2022, the servicer has met this procedural safeguard and can proceed with the foreclosure.
Amendment Two – Servicers must now offer borrowers loan modification agreements based on an incomplete application for a loan modification. Additional safeguards must be observed to ensure that accepting a loan modification will not adversely affect the borrower. These safeguards consist of 1) ensuring that the modification agreement will not cause the borrower’s monthly payment to increase or exceed the term of the loan by more than 480 months from the modification’s effective date; 2) ensuring that any amounts the borrower may delay paying until the mortgage loan is refinanced, the mortgaged property is sold, the loan modification matures, or, for a mortgage loan insured by the Federal Housing Administration (FHA), the mortgage insurance terminates do not accrue interest; 3) ensuring that modifications are offered to borrowers experiencing financial hardships due to COVID-19; 4) ending any pre-existing mortgage delinquencies upon acceptance of the loan modification; and 5) refraining from charging any fee in connection with the loan modification and waiving all existing late charges, penalties, or similar charges.
Amendment Three – The third modification imposes an obligation on the servicer to communicate timely and accurate information to borrowers concerning the availability of forbearance programs. Unless a borrower specifically states they are not interested in such a program, a servicer is required to describe any forbearance programs for which the borrower is eligible and identify at least one way the borrower can locate and contact homeownership counseling services.
Amendment Four – The fourth change to the rule affects borrowers who have filed an incomplete application for loss mitigation with the servicer. In this scenario, servicers are required to contact the borrower within 30 days before the end of the forbearance period to determine whether the borrower wishes to proceed with the loss mitigation application and move on to a loss mitigation evaluation.
Amendment Five – Finally, the final rule has defined “COVID-19 related hardship” to mean “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)).”
How can we help?
CLA is prepared to assist your institution. Our mortgage professionals can help you evaluate the impact this new rule has on your operations. We are here to know you and help you. Contact Us with any questions or to learn how we can assist your mortgage operations.
Elizabeth Dailey, JD, is a Regulatory Compliance Director with CLA. She is a graduate of the University of New Hampshire and earned her juris doctor at New England Law. She is admitted to the Massachusetts Bar.
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