CFPB Finalizes Amendments to Regulation X to Protect Borrowers Against Forthcoming Increase In COVID-19 Foreclosures

On June 28, 2021, the Consumer Financial Protection Bureau (CFPB) finalized amendments to the implementing regulation of the Real Estate Settlement Procedures Act (RESPA), Regulation X, which would establish temporary protections for mortgage borrowers as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and various Federal and State foreclosure moratoria are phased out over the summer.  12 C.F.R. § 1024 (2021).  As noted in the CFPB’s executive summary of the final rule (Executive Summary), the amendments reflect four new sets of borrower protections.  First, the amendments require that a borrower has a meaningful opportunity to apply for loss mitigation before his or her mortgage account is referred to foreclosure.  Second, they provide servicers the ability to offer borrowers certain streamlined loan modifications without a complete loss mitigation application.  Third, they require servicers to provide additional information about the availability of loss mitigation options to certain delinquent borrowers promptly after early intervention live contacts are established.  Fourth, they establish timing requirements for servicers to renew reasonable diligence efforts to obtain complete loss mitigation applications from certain borrowers.

The first set of borrower protections noted in the Executive Summary requires that “[f]rom 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.”  The three procedural safeguards are: (1) “[t]he borrower was evaluated based on a complete loss mitigation application and existing foreclosure protection conditions are met,” (2) “[t]he property is abandoned,” and (3) “[t]he borrower is unresponsive to servicer outreach.”  The temporary procedural safeguards are not required if the foreclosure referral occurs on or after January 1, 2022, the borrower was more than 120 days delinquent prior to March 1, 2020, or the applicable statute of limitations will expire before January 1, 2022.

The second set of protections “permits servicers to offer certain COVID-19-related loan modification options based on the evaluation of an incomplete” – as opposed to complete – loss mitigation application, as long as the modification program meets certain criteria.  Specifically, the loan modification program must “not extend the loan term more than 40 years from the date the modification is effective,” “not increase the borrower’s monthly principal and interest payment beyond the amount that was required prior to the modification,” prohibit interest accrual on delayed amounts, be available to borrowers experiencing COVID-19-related hardships, end any pre-existing delinquency when the borrower accepts the modification offer, and not charge new fees in connection with the modification or collect existing fees.

The third set of protections, which apply only until October 1, 2022, requires a servicer to provide some delinquent borrowers with specific, additional information about the availability of loss mitigation options, depending on whether the borrower is in forbearance at the time live contact is established.  If the borrower is not in forbearance, then promptly after establishing live contact, the servicer must inform the borrower that “forbearance programs are available for borrowers experiencing a COVID-19-related hardship,” and “then list and briefly describe to the borrower the applicable programs and the actions the borrower must take to be evaluated,” unless the borrower states that they are not interested.  Additionally, “the servicer must tell the borrower at least one way that they can find contact information for homeownership counseling services, such as referencing the borrower’s periodic statement.”  For borrowers in forbearance, the servicer must inform the borrower of the date that the forbearance program is scheduled to end, “any loss mitigation programs, including forbearance extensions and repayment options, that are available through the owner or assignee of the mortgage, and how the borrower can apply for those options,” and “[a]t least one way that the borrower can find contact information for homeownership counseling services.”

Finally, the last set of protections noted by the Executive Summary applies when “a borrower is in a short-term payment forbearance program made available to borrowers with a COVID-19-related hardship and that  program was offered based on an evaluation of an incomplete application.”  “For such borrowers, if the borrower remains delinquent, the servicer is required to contact the borrower no later than 30 days before the scheduled end of the forbearance period to determine if they wish to complete the loss mitigation application.  If the borrower chooses to do so, the servicer must reinstate reasonable diligence efforts to complete the loss mitigation application before the end of the forbearance period.”

As Lender Law previously reported, the CFPB’s increased concern with mortgage servicers foreclosing on borrowers in large swaths in the coming months signals that it will have heightened awareness of servicers’ compliance with previously existing and the new regulations regarding loss mitigation and foreclosure procedures.  Accordingly, mortgage servicers should quickly prepare to implement measures for complying with the final rule, which is effective on August 31, 2021.