CFPB Releases Final COVID-19 Mortgage Service Rules | Ballard Spar LLP

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On June 28, 2021, CFPB released COVID-19 mortgage service. The final rule (Final rule). The final rule amending Rule X is effective August 31, 2021, and appears concurrently with some related updates from other federal agencies. We discuss these topics along with an overview of the Final Rule below.

Effective date and related updates. The Final Rule effective date is August 31, 2021 and, as detailed below (and expected), includes enhanced foreclosure protections to tackle the COVID-19 pandemic. According to the preamble, an earlier date of entry into force was not possible because the Congressional Review does not allow the “master rule” (which is considered the Final Rule) to enter into force earlier than 60 days after publication in Federal register (which happened on June 30, 2021).

The preamble also notes concerns about the time lag between the expiration of the federal moratorium on foreclosures and / or evictions (which CDC, FHFA, FHA, and VA had extended to 31 July 2021 during the previous week) and the effective date of Final rule. On this point, the CFPB clarifies in the preamble and emphasizes in an appropriate summary that early implementation is permitted, including for new exemptions for simplified loss reduction proposals under Rule X. The preamble states in the relevant part:

While service companies will not be required to comply with this rule prior to the effective date, service companies may voluntarily engage in activities required by this final rule prior to the effective date of the final rule. … … … Although the Bureau refuses to accept an earlier effective date, for the reasons described above, the Bureau does not intend to use its limited resources to supervise or enforce any mortgage service offering the borrower a simplified credit modification that meets the criteria in § 1024.41 (c) (2) (vi) (A) based on an assessment of an incomplete mitigation claim prior to the effective date of this final rule. 86 Fed. Reg. 34886-34887 (June 30, 2021).

To clarify expectations regarding this deadline, the Federal Housing Finance Agency (FHFA) is quick to announced that service companies Fannie Mae and Freddie Mac must comply with the foreclosure protection set out in the Final Rule prior to the effective date starting August 1, 2021. Fannie Mae and Freddie Mac then released, respectively, Lender Letter 2021-02 and Bulletin 2021-24by pursuing this policy.

Volume. We note that the scope of these new provisions, including the interim foreclosure protections discussed below, may apply more broadly than the CARES Act and some of the other borrower protections that were introduced in response to the pandemic. While the CARES Act applies to “federally backed mortgages” (that is, loans under the FHA, VA, USDA, Fannie, or Freddie program), the Final Rule provisions apply to closed-door residential mortgages, which are “mortgages related to to the federal law “. loans ”in accordance with the RESPA and secured by the borrower’s primary residence. Thus, the temporary foreclosure in the Final Rule and other provisions discussed below may apply to portfolio loans that were not expressly covered by CARES or some other protections.

We also note that “small service companies” under the X Mortgage Service Rules are generally exempted from these new requirements in the Final Rule.

Interim COVID-19 Ransom Protection Measures. The final rule includes enhanced foreclosure protections that will run from the effective date through December 31, 2021. During this period, service providers may not submit the first notice or registration required for foreclosure due to missed payments (and the borrower is more than 120 days overdue in accordance with the existing rule) if one of three precautions is not followed:

  • Full assessment of loss reduction – The borrower filed a full loss reduction application, the borrower remained overdue at all times since the application was filed, and this assessment process was exhausted in accordance with the existing criteria in § 1024.41 (f) (2) (i.e., the right to appeal has been exhausted. the borrower rejects all proposed loss mitigation options, or the borrower fails to meet the conditions in accordance with the loss mitigation option);
  • Abandoned property – The property that secures the loan was left in accordance with the laws of the state or municipality in which it is located; or
  • Borrower not responding – The Service Provider has not received any communications from the borrower for at least 90 days prior to the first notice or collection request and all of the following conditions are met:
    • The Service Provider has made a good faith effort to establish a live contact with the borrower after each due date in accordance with § 1024.39 (a) during that 90 day period;
    • The Service Provider has sent written notice of early intervention required by § 1024.39 (b) 10 to 45 days before the Service Provider makes the first notice or submits a foreclosure request;
    • The Service Provider has sent all loss reduction notices required by § 1024.41, as the case may be, within the 90-day period prior to the Service Provider making the first notice or filing a claim for foreclosure; and
    • The borrower abstinence program, if applicable, has ended at least 30 days before the service staff makes the first notice or requests for collection.

We also note that the Final Rule adds language to the commentary detailing recordkeeping and other requirements in relation to these enforceable guarantees. For example, the added comments detail what records need to be maintained to adequately show that the borrower has not responded to requests under this protection option.

These interim safeguards are not required in addition to existing foreclosure protections if:

  • Collection begins on or after January 1, 2022;
  • The borrower is overdue by more than 120 days before March 1, 2020; or
  • The applicable limitation period for foreclosure expires before 1 January 2022.

Additional optimized COVID-19 loan modification options. The final rule includes new exceptions to the general prohibition on proposing a loss reduction option based on an incomplete application of loss reduction, without evaluating the full application of loss reduction for all other available loss reduction options. Now, in addition to short-term deferrals or repayment plans or COVID-related opportunities stipulated in the CFPB Temporary final rule From June 2020, service centers may offer certain additional COVID-19 related credit modification options based on an incomplete application if the following criteria are met:

  • The amendment cannot extend the loan term for more than 40 years from the date the amendment becomes effective;
  • The change may not increase the monthly payment of the principal and interest of the borrower in excess of what was required prior to the change;
  • If the change provides for a deferral of repayment of amounts due (ie, until the property is sold, or until the loan is refinanced, or, if applicable, the FHA mortgage coverage is terminated), interest cannot accrue on those deferred amounts;
  • The modification is available to borrowers experiencing difficulties related to COVID-19;
  • The change must end any pre-existing delay upon acceptance or upon final acceptance after the end of any applicable trial change period; and
  • The Service Provider cannot charge a loan change fee and must immediately waive certain existing fees that the borrower owes that were incurred on or after March 1, 2020, such as late fees, interest or termination fees.

The Final Rule also clarifies that if the borrower fails to comply with the trial change plan under the new exemption or requests additional loss mitigation assistance, service personnel must immediately resume reasonable efforts to help complete the loss mitigation application and provide the borrower with updated notice if necessary. containing the information required to fill out the application.

Live contact for early intervention for COVID. The final rule includes timing requirements for live contacts related to COVID-19, in line with the early intervention rule. Until October 1, 2022, subject to the existing requirement for early intervention by direct contact in § 1024.39 (a), service personnel must transmit the following information during this direct contact:

  • For borrowers not participating in a direct contact abstinence plan, service personnel should:
    • Inform the borrower that abstinence programs are available for borrowers experiencing COVID-19 difficulties;
    • List and briefly describe to the borrower any such tolerance programs available at that time and the steps the borrower should take to evaluate for such tolerance programs, unless the borrower declares that it is not interested in receiving information about such tolerance programs; and
    • Tell the borrower at least one way the borrower can find contact information for home ownership advisory services, such as a link to the borrower’s periodic report.
  • For borrowers with a tolerance plan during live contact, the support staff should:
    • Notify the borrower of the expiration date of the current plan of refraining from liability of the borrower;
    • List and briefly describe each of the types of abstinence extensions, repayment options, and other loss mitigation options available to the borrower by the owner or assignee of the mortgage loan during direct contact, and the steps the borrower must take to be assessed for such loss mitigation options; and
    • Provide the borrower with at least one way that the borrower can find contact information for home ownership advisory services, such as a link to the borrower’s periodic report.

“Reasonable Diligence” for Borrowers in COVID-19 Tolerance. The final rule adds wording to a commentary to the ordinance clarifying what “reasonable diligence” efforts are required to help a borrower complete a loss mitigation application if the borrower is participating in the COVID-19 abstinence program. In this scenario, the added comment states that the service staff must contact the borrower no later than 30 days before the scheduled completion of the abstinence plan to determine if the borrower wishes to complete a loss mitigation application and receive full loss mitigation. grade. If a borrower requests additional assistance, service personnel must exercise reasonable diligence to complete the application before the end of the abstinence period.

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