The CFPB recently launched a proposed rule and requested a public comment on the proposed changes to Regulation X aimed at helping borrowers affected by the Covid-19 pandemic.
The proposed changes would include a pre-foreclosure review period to allow borrowers affected by the Covid-19 pandemic to be harmless checked before a servicer applies for foreclosure. The foreclosure review period would run until December 31, 2021 and would only apply to primary residences. The CFPB is considering and asking for an opinion on a possible additional exemption that would allow Service Providers to make the initial notification or filing before December 31, 2021 if the Service Provider “(1) conducts a borrower and borrower loss mitigation review completed did not qualify for a non-foreclosure option or (2) made certain efforts to contact the borrower and the borrower did not respond to the servicer being contacted. “
In addition, the proposed changes would redesign the term “Covid-19-related hardship” as “financial hardship directly or indirectly related to the Covid-19 emergency as defined in the Coronavirus Economic Stabilization Act, Section 4022 (a) (1) (15 USC 9056 (a) (1)). ”
The proposed changes build on certain mitigation options that were added to the CFPB’s mortgage servicing rules in the June 2020 tentative closing rule discussed earlier WBK article. Mortgage service providers may temporarily offer borrowers affected by Covid-19 certain loan modification options based on the assessment of an incomplete application, subject to the following:
- “[T]The loan modification must be made available to a borrower suffering from Covid-19 hardship. “
- “[T]The loan modification must not increase the borrower’s monthly principal and interest payment, and the loan term cannot be extended by more than 480 months from the effective date of the loan modification. “
- “[A]Any amounts that the borrower may delay until the mortgage loan is refinanced, the pledged property is sold, or the loan modification is due, must not be interest-bearing. “
- “[T]The servicer may not charge any fee in connection with the modification of the loan and must immediately waive all existing late payment fees, penalties, fees for cessation of payment or similar charges once the borrower accepts the modification of the loan. “
- “[T]The borrower’s acceptance of an offer of loan modification must end a pre-existing insolvency of the mortgage loan, or the loan modification must be designed to end a pre-existing mortgage loan default for the borrower that meets the service provider’s requirements for entering into an experimental loan modification plan Accepting permanent loan modification. “
The proposed changes are designed to facilitate a timely transition as borrowers near the end of their forbearance terms. According to the CFPB, the proposed changes are in line with loan changes offered by the GSEs, the FHA and other similar programs.
Additionally, the proposed changes would change certain requirements for early intervention on live contacts to discuss information related to Covid-19. The service requirements are based on whether or not the borrower is on a forbearance plan at the time of the live contact. In general, the requirements relate to a servicer’s obligation to provide the borrower with an forbearance program or mitigation options and explain the actions the borrower must take as part of those actions. For example, for borrowers who are in a forbearance program at the time of live contact, the servicer must provide the borrower, among other things, with a list and brief description of the options available to resolve the borrower’s insolvency at the end of the forbearance period and the actions which the borrower must take in order to be evaluated for such options.
The proposed changes would clarify when a servicer is required to perform reasonable due diligence related to mitigation claims for borrowers in a Covid-19 hardship leniency program. If the offer for the short-term deferral program was based on an incomplete application, the servicer would need to contact the borrower and determine if the borrower would like to proceed no later than 30 days before the end of the short-term deferred program.
Comments must be received by May 10, 2021. The proposed date for the final rule to take effect is August 31, 2021.