This month the Consumer Financial Protection Bureau (CFPB) doubled-down on its earlier warning that the end of 2021 could see widespread foreclosures as COVID-19-related protections expire, by issuing guidance to mortgage servicers, and a notice of proposed rulemaking, regarding actions mortgage servicers can take to deal with the onslaught. On April 1, 2021, it issued a compliance bulletin and policy guidance (Bulletin 2021-02) which cautioned mortgage servicers that it expects to prioritize mortgage servicing oversight in the coming year, with particular attention to how servicers react to the expected increase in loans exiting forbearance programs and related loss mitigation applications. On April 5, 2021, it proposed a set of rule changes to the implementing regulation of the Real Estate Settlement Procedures Act (RESPA), Regulation X, which would give borrowers more time, and servicers more options, in the face of potential foreclosures. Together, the CFPB’s policy guidance and the proposed rule reinforce that mortgage servicers should be prepared for the potentially unprecedented surge in borrowers entering foreclosure later this year.
As Lender Law previously reported, the CFPB has recently expressed concerns regarding the surge of foreclosures that are expected to occur once federal, state, and local pandemic protections come to an end. Its latest policy guidance now urges servicers to “dedicate sufficient resources and staff to ensure they can communicate clearly with borrowers, effectively manage borrower requests for assistance, promote loss mitigation, and ultimately reduce avoidable foreclosures and foreclosure-related costs.” Bulletin 2021-02, at 1. The CFPB warns that it will “consider a servicer’s overall effectiveness at achieving such goals, along with other relevant factors, in using its discretion to address violations of Federal consumer financial law in supervisory and enforcement matters,” and that it will “hold mortgage servicers accountable for complying with Regulation X.” Id. The CFPB’s guidance provides that it will, in its oversight work, pay particular attention to whether servicers are:
- “[P]roviding clear and readily understandable information to borrowers about their options for repayment assistance”;
- “[C]omplying with the outreach requirements in Regulation X to ensure that borrowers are getting needed information about loss mitigation options”;
- “[C]omplying with the Equal Credit Opportunity Act’s (ECOA’s) prohibition against discriminating against any applicant, with respect to any aspect of a credit transaction”;
- “[P]romptly handl[ing] loss mitigation inquiries and avoid[ing] unreasonably long hold times on phone lines,” including hold times that are “significantly longer than industry averages”;
- “[M]aintain[ing] policies and procedures that are reasonably designed to achieve the continuity of contact objectives to ensure that delinquent borrowers receive accurate information about their loss mitigation options”;
- “For borrowers who submit complete loss mitigation applications, . . . evaluat[ing] the applications consistent with Regulation X requirements to promote timely and consistent evaluations”;
- “[C]omply[ing] with foreclosure restrictions in Regulation X and other Federal or State foreclosure restrictions”; and
- “[C]omplying with the Fair Credit Reporting Act’s requirements to report the credit obligation or account appropriately.”
Consistent with the CFPB’s guidance related to how mortgage servicers can prepare for a wave of COVID-19-related foreclosures, the CFPB is also proposing to amend the implementing regulation of RESPA to help prevent foreclosures as emergency foreclosure protections expire. Protections for Borrowers Affected by the COVID–19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X, 86 Fed. Reg. 18,840 (Apr. 9, 2021) (to be codified at 12 C.F.R. pt. 1024). Specifically, the CFPB is seeking to amend Regulation X in the following ways:
- By “establish[ing] a temporary COVID–19 emergency preforeclosure review period that would generally prohibit servicers from making the first notice or filing required by applicable law for any judicial or nonjudicial foreclosure process until after December 31, 2021”;
- By “permit[ting] servicers to offer certain streamlined loan modification options made available to borrowers with COVID–19-related hardships based on the evaluation of an incomplete application,” if they “satisfy certain criteria that aim to establish sufficient safeguards to ensure that a borrower is not harmed if the borrower chooses to accept an offer of an eligible loan modification instead of completing a loss mitigation application”;
- By “requir[ing] servicers to discuss specific additional COVID–19-related information during live contact with borrowers” in certain circumstances; and
- By requiring servicers to “contact the borrower no later than 30 days before the end of the forbearance period to determine if the borrower wishes to complete the loss mitigation application and proceed with a full loss mitigation evaluation.”
The CFPB is requesting comments be submitted before May 11, 2021, and proposes an effective date for any final rule relating to its proposals of August 31, 2021.
The import of the policy guidance and proposed rule together is to emphasize the CFPB’s increased concern with mortgage servicers foreclosing on borrowers in large swaths in the coming months, and to signal that it will have heightened awareness of servicers’ compliance with existing and potentially forthcoming regulations regarding loss mitigation and foreclosure procedures. Mortgage servicers should tighten their loss mitigation and foreclosure compliance efforts over the coming months and prepare to swiftly implement measures for complying with the CFPB’s latest amendments to Regulation X, if finalized.