June 28 Consumer Financial Protection Bureau (CFPB) issued the final rule amend the Mortgage Service Regulation Z requirements to “establish temporary special precautions to ensure that borrowers have time before foreclosure to explore their options, including changing loans and selling their homes.”
The rule that applies to federally regulated mortgages secured by a primary residence serves four purposes:
- It creates “temporary special procedural precautions for COVID-19” that limit situations in which service personnel can “do[e] the first notice or filing required by applicable law for any litigation or out-of-court foreclosure process by December 31, 2021 “
- This allows service providers to offer borrowers struggling with COVID-19 optimized loan modification options based on an incomplete application, provided the modification options meet certain criteria.
- It is amending Regulation Z’s Early Intervention Requirements by requiring maintenance personnel to discuss COVID-19-related information with specific borrower-offenders at specific points of direct contact with designated offender borrowers by October 1, 2022.
- It clarifies “more precisely when service personnel should resume reasonable diligence efforts” when a borrower enters into a short-term COVID-19 deferred payment program based on an incomplete application.
Although the “procedural safeguards” of the rules are narrower than the original prohibition on the transfer of foreclosures discussed in proposed rule released in April, this will continue to limit the ability of maintenance personnel to initiate foreclosures. In addition, service providers will need to exercise due diligence and keep records to comply with the rule when moving forward with multiple divestitures allowed through January 1, 2022. Service providers will also need to evaluate their current borrower programs to ensure compliance with the rule early in the intervention requirement.
While this rule won’t take effect until August 31st, both Fannie Mae and Freddie Mac issued rules prohibiting service providers from July 31 to August 31 to initiate any foreclosure action that would violate the rule. Given the practical challenges of its implementation and the attention the CFPB will undoubtedly place on it in its future oversight and enforcement activities, this rule will require significant compliance efforts on the part of service organizations in the coming days.