September 19, 2021

MP Now News

Mortgage News

CFPB Issues Final COVID-19 Mortgage Servicing Rules | Ballard Spahr LLP

On June 28, 2021, the CFPB published its Mortgage Servicing COVID-19 Last rule (the last rule). The final rule, which changes Rule X, will go into effect August 31, 2021 and will come along with certain updates from other federal agencies in this regard. We discuss these topics along with an overview of the final rule below.

Effective Date and related updates. The effective date of the final rule is August 31, 2021 and, as detailed below (and as expected), it includes enhanced foreclosure protection to combat the COVID-19 pandemic. According to the preamble, an earlier entry into force was not possible because the Congressional Review does not allow a “main rule” (which is the final rule to apply) no earlier than 60 days after publication in the Federal Register (which took place on June 30, 2021).

The preamble contains additional notes regarding the length of time between the expiration of federal foreclosure and / or eviction moratoriums (which the CDC, FHFA, FHA, and VA extended the previous week to July 31, 2021) and the effective date of the final rule. On this subject, the CFPB clarifies in the preamble and emphasizes in the associated summary that early implementation is permissible, also for the new exemptions for streamlined offers for harm reduction in accordance with Regulation X. The relevant part of the preamble states:

While servicers are not required to adhere to this rule by the effective date, servicers may voluntarily begin activities that are required by this definitive rule before the final rule takes effect. . . . While the Bureau declines to set an earlier Effective Date for the reasons stated above, it does not intend to use its limited resources to initiate regulatory or enforcement action against a mortgage servicer who offers a borrower an optimized loan modification that meets the criteria in Section 1024.41 (c) (2) (vi) (A) based on the assessment of an incomplete loss mitigation claim prior to the entry into force of this Final Rule. 86 Reg.No. 34886-34887 (June 30, 2021).

In order to clarify the expectations regarding this timeframe, the Federal Housing Finance Agency (FHFA) quickly announced that Fannie Mae and Freddie Mac service providers must comply with the Foreclosure Protection in the final rule before the Effective Date, starting August 1, 2021. Fannie Mae and Freddie Mac then each issued Lender Letter 2021-02 and Communication 2021-24who implements this policy.

Scope. Please note that the scope of these new regulations, including the temporary foreclosure safeguards discussed below, may be broader than the CARES Act and certain other borrower safeguards that have been imposed in connection with the pandemic. While the CARES Act applied to “federally secured mortgage loans” (ie, FHA, VA, USDA, Fannie, or Freddie program loans), the Final Rule applied to closed-end home mortgage loans, which are “federal mortgages.” Loans ”are subject to RESPA and are secured by the borrower’s primary residence. Therefore, the Temporary Foreclosure in the Final Rule and the other provisions discussed below may apply to portfolio loans that are not expressly subject to the CARES Act or certain other protections.

We also advise that “small service providers” are generally exempted from these new requirements in the final rule according to the Regulatory X-Mortgage Service Rules.

Temporary COVID-19 foreclosure protection measures. The final rule includes extended foreclosure protection that will be in effect from the Effective Date through December 31, 2021. During this period, servicers may make the first notice or filing required for foreclosure due to missed payments (and the borrower more than 120 days past due, as per the existing regime), unless one of three safeguards is in place:

  • Full assessment of damage control – The borrower has submitted a complete loss mitigation application, the borrower has been in default at all times since the application and this evaluation process is exhausted according to the existing criteria in § 1024.41 (f) (2) (i.e. rights of appeal.), The borrower has all offered Rejects loss mitigation options or the borrower fails to fulfill a loss mitigation option);
  • Abandoned property – the property securing the loan is given up in accordance with the laws of the state or municipality in which it is located; or
  • Unresponsive borrower – The servicer did not receive any communications from the borrower for at least 90 days prior to the initial notice or foreclosure request and all of the following conditions are met:
    • The servicer made good faith efforts to establish live contact with the borrower during that 90 day period after each payment due date under Section 1024.39 (a);
    • The servicer has sent the early intervention written notice required under Section 1024.39 (b) 10 to 45 days prior to the initial notice or foreclosure request;
    • During the 90-day period before the servicer makes the first notification or applies for foreclosure, the servicer has sent all communications required under Section 1024.41 to limit losses; and
    • The borrower’s deferral program, if applicable, ended at least 30 days before the servicer made the initial notice or requested foreclosure.

Please also note that the final rule supplements the comment with details on record retention and other requirements associated with these foreclosure guarantees. For example, the added comment indicates what records need to be kept under this backup option in order to adequately show that the borrower has not responded.

These temporary protective measures are not required in addition to the existing partitioning protection measures if:

  • Foreclosure begins on or after January 1, 2022;
  • The borrower was more than 120 days in arrears prior to March 1, 2020; or
  • The limitation period for enforcement expires before January 1, 2022.

Additional COVID-19 optimized credit modification options. The final rule contains new exceptions to the general prohibition on offering a loss mitigation option based on an incomplete loss mitigation application without examining a complete loss mitigation application for all other available loss mitigation options. In addition to short-term deferral or repayment plans or the COVID-related options provided for in the GFPBs Provisional final rule From June 2020, service providers can offer certain additional COVID-19-related credit modification options based on an incomplete application if the following criteria are met:

  • The change may not extend the term of the loan by more than 40 years from the date the change takes effect;
  • The change may not increase the borrower’s monthly principal and interest payment beyond what was required before the change;
  • If the amendment provides for a deferral of the amounts owed (i.e. until the property is sold or the loan is refinanced, or until the FHA mortgage insurance is terminated, if applicable), no interest may be accrued on those deferred amounts;
  • The change will be available to borrowers who are in COVID-19 related hardship;
  • The change must end all outstanding payment arrears upon acceptance or upon final acceptance after the expiry of an applicable test change period; and
  • The servicer may not charge any fees in connection with the loan modification and must immediately waive certain existing borrower fees incurred on or after March 1, 2020, such as:

The Final Rule also clarifies that if the Borrower fails to complete a Trial Modification Plan under the New Exemption or requests further assistance with Loss Mitigation, the Servicer must immediately take reasonable due diligence to assist in completing the Loss Mitigation Application and the Borrower must provide: if necessary, an updated notice with the information required to complete the application.

COVID-related early intervention live contact. The final rule contains temporary COVID-19 related live contact requirements as part of the early intervention rule. By October 1, 2022, servicers must submit the following information during this live contact if they meet the existing requirement for live contact for early intervention in Section 1024.39 (a):

  • For borrowers who are not on a moratorium at the time of the live contact, the servicer must:
    • Inform the borrower that forbearance programs are available for borrowers who are in a COVID-19 related emergency;
    • List all forbearance programs made available to the borrower at that time and briefly describe them and the actions the borrower must take in order to be assessed for such forbearance programs unless the borrower declares they are is not interested in information about such programs; and
    • Let the borrower know of at least one way they can find contact information for home ownership advisory services, such as: B. by referring to the borrower’s periodic bank statement.
  • For borrowers who are on a moratorium at the time of the live contact, the servicer must:
    • Inform the borrower of the date that the borrower’s current deferral plan is expected to end;
    • Briefly identify and describe each of the types of forbearance extensions, repayment options, and other loss mitigation options that are available to the borrower from the owner or assignee of the borrower’s mortgage loan at the time of the live contact and the steps the borrower must take in order for them Loss mitigation options are assessed; and
    • Let the borrower know of at least one way they can find contact information for home ownership advisory services, such as: B. by referring to the borrower’s periodic bank statement.

“Reasonable Care” for Borrowers in a COVID-19 Forbearance. The final rule adds wording to the regulation’s comment clarifying what “reasonable care” efforts are required to help the borrower complete a loss mitigation application if the borrower is in a COVID-19 forbearance Program is located. In this scenario, the added comment provides that the servicer must contact the borrower no later than 30 days prior to the scheduled end of the forbearance plan to determine if the borrower would like to complete the loss limit application and receive a full loss limit evaluation. If the borrower requests further assistance, the servicer must use reasonable care to complete the application before the grace period expires.