On August 31, 2021, a new final rule will come into effect, changing the rules for servicing mortgages in Regulation X for borrowers experiencing difficulties due to COVID-19. The Financial Consumer Protection Bureau (CFPB) hopes these provisions will prevent a new foreclosure crisis when most of the existing foreclosure moratoriums imposed by the state and federal governments expire during this summer. Mastering these new regulations will be important knowledge for lenders, lending institutions and their advisors in the months and years to come.
The five main points of the CFPB Final Rule are:
First, the final rule defines COVID-19 hardship as financial hardship directly or indirectly caused by a country’s emergency in connection with the COVID-19 pandemic. Thus, the final rule is likely to be broadly applicable to a large number of borrowers who are currently unable to meet obligations or have deferred payments.
Second, the final rule sets out what the CFPB calls “procedural safeguards” that must be met for certain mortgages before service personnel can file a new notice or apply for a buyout. Procedural precautions on first notice or filing only apply if the borrower’s mortgage is overdue by more than 120 days on or after March 1, 2020, and the statute of limitations applicable to foreclosures is in accordance with with state or local law. where the mortgage backing property is located expires on or after January 1, 2022. In such circumstances, service personnel may only file a new foreclosure transfer notice or apply if: (1) the borrower has submitted a completed mitigation application and § 1024.41 (f) (2) authorizes the service organization to make the first notice or registration , (2) the property supporting the mortgage is abandoned, or (3) the service provider has conducted the outreach and the borrower is not responsible. The above procedural safeguards do not have to be respected for first notifications or applications filed after January 1, 2022.
Third, the latter rule allows service providers to offer certain optimized credit modification options to borrowers experiencing COVID-19 difficulties based on an assessment of an incomplete mitigation statement. Eligible loan modifications must meet certain criteria that seek to establish sufficient guarantees to ensure that no harm will be caused to the borrower if the borrower decides to accept an offer for an eligible loan modification based on the evaluation of an incomplete application. For example, a loan modification may not increase the monthly principal and interest payments required to the borrower and may not extend the loan term by more than 480 months from the effective date of the loan modification. If a loan modification allows the borrower to defer the payment of certain amounts until maturity or other factors specified in the Final Rule, no interest will be charged on those amounts. Acceptance of a loan modification proposal should aim to terminate any pre-existing mortgage loan delinquency after the borrower meets the service organization’s requirements for completing a loan modification trial plan and accepting permanent loan modification. In addition, service personnel cannot charge a loan change fee and must waive any existing late fees, penalties, or similar fees incurred on or after March 1, 2020, after the borrower accepts the loan change. The final rule also contains other restrictions on such changes.
If the borrower accepts the offer made under this new exemption, the final rule excludes the service companies from certain requirements for mitigation applications. However, if the borrower fails to comply with the loan modification trial plan proposed under the proposed new exemption, or requests additional assistance, the final rule requires service providers to take certain additional mitigation steps and provide the borrower with additional notices, as detailed in the final rule.
Fourth, the final rule amends early intervention obligations and requires service providers to discuss specific additional information related to COVID-19 during direct contact with borrowers established under existing § 1024.39 (a) if the borrower is not participating in the leniency program or if the borrower is near the end of the tolerance program available to borrowers experiencing difficulties related to COVID-19. This provision expires on October 1, 2022.
Fifth, the Final Rule clarifies the reasonable diligence obligations of service personnel when a borrower participates in a short-term deferred payment program available to a borrower experiencing COVID-19 difficulties based on an assessment of an incomplete application. Specifically, the final rule requires service providers to contact the borrower no later than 30 days before the end of the abstinence period if the borrower remains overdue to determine if the borrower wishes to complete a loss mitigation application and proceed with a full mitigation assessment.
The final rule and its official interpretation are two hundred and eight pages long. Thus, the above summary is by no means an exhaustive statement of the final rule and its many provisions, requirements and exceptions. As the CFPB recognizes, the final rule will take effect at a time when many mortgage servants are working remotely or have just recently returned to the office. Add to that the fact that a large number of borrowers are expected to file new claims for loss mitigation around the same time this summer, when many short-term abstinence plans expire and compliance with the final rule promises to be a problem for lenders. , lending institutions and their consultants need to prioritize before August 31, 2021, when it comes into force.