CFPB recently released final ruleeffective August 31, 2021, and is amending X Regulation on Mortgage Loans to assist borrowers facing financial hardship as a result of the COVID-19 pandemic (Final Rule). The CFPB expressed concern about the number of borrowers who will soon give up abstaining and how to deal with those borrowers who may still face significant financial risk after rejection.
The CFPB published the proposed rule in early April 2021 (see WBK article on the proposed rule). here). The final rule largely modified these proposed rules with some modifications and clarifications. Thus, the Final Rule adds a number of provisional provisions to Rule X, including, but not limited to:
- Defining “COVID-19 hardship” as “financial hardship directly or indirectly related to the national emergency in connection with the COVID-19 pandemic declared in Proclamation 9994 on March 13, 2020 (effective March 1, 2020) and continued on February 24, 2021, pursuant to Section 202 (d) of the Emergency Situations Act (50 USC1622 (d)). “
- Adding early interim intervention requirements for the COVID-19 pandemic, which will expire on October 1, 2022. These requirements include that providers must provide certain information on abstinence and mitigation options to overdue borrowers, with requirements depending on whether the borrower is in the abstinence program during live contact or not.
- The final rule clarifies the extent to which borrowers should receive certain such information (for example, that borrowers should receive information about available abstinence programs, unless they declare that they are not interested in receiving information about such programs, and not require the borrower to first indicate that it is experiencing difficulties with COVID-19 to obtain this information) and the timing of the provision of such information (for example, that borrowers currently participating in the abstinence program receive the information within the specified timeframe to ensure that that they have the information until the end of the program).
- In addition to the elements defined in the proposed rule for the provision of an abstinence program or mitigation information, and the options and appropriate steps to be taken under each, the Final Rule also stipulates that service personnel must inform borrowers at least at least one way the borrower can find contact. information for homeownership advisory services (for example, link to the borrower’s periodic report).
- Adding provisions to allow mortgage service providers to temporarily offer certain loan modification options based on an assessment of an incomplete mitigation statement to borrowers affected by the COVID-19 pandemic, subject to certain parameters.
- Clarification of when service personnel must comply with a reasonable due diligence obligation for claims for loss mitigation for borrowers participating in the COVID-19 withholding program.
While much of the COVID-19 Final Rule mortgage service is similar to the proposed rule, one of the most significant changes to the Final Rule is that the CFPB did not complete the proposed pre-foreclosure review period, which would have prohibited service providers from issuing the first notice or filing required for any litigation or out-of-court foreclosure process prior to December 31, 2021. Rather, the Final Rule requires, by December 31, 2021, service personnel to comply with one of the following interim procedural safeguards before accepting the first notice or registration required for any litigation or an out-of-court foreclosure process due to an offense:
- The borrower was assessed on the basis of a full mitigation statement and remained overdue at all times after the application was submitted, while respecting the existing foreclosure protection conditions set out in Regulation X;
- The property supporting the mortgage is considered abandoned under state or local law at the time foreclosure is made; or
- The Borrower is unresponsive to the communication efforts of the service organization, which means that the service party has not received any communication from the borrower for at least 90 days prior to the foreclosure, and the service party is in compliance with certain conditions set out in the Final Rule, including compliance with early intervention. live contacts during this time and provide written notice of early intervention at least 10, but not more than 45 days prior to the filing of the foreclosure.
The Final Rule provides additional guidance on how to determine if service personnel are in compliance with any of the above procedural safeguards and cancels those interim safeguards for foreclosure on or after January 1, 2022. There are certain exceptions to the procedural safeguards clause, including that the borrower is more than 120 days overdue by March 1, 2020, or that the limitation period applicable to foreclosure claims will expire by January 1, 2022.
The latter rule usually has the same coverage as the Rule X mortgage service rules and applies to mortgages secured by the borrower’s primary residence, not investment property or second homes, or reverse mortgages (as defined by the mortgage service rules) …
Although the Final Rule takes effect on August 31, 2021, service providers may voluntarily engage in certain required activities prior to that date.