Detailed Analysis of the CFPB’s Final Mortgage Service Rule on COVID-19 | Bradley Arant Bowl Cummings LLP

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With the release of the Bureau of Consumer Financial Protection The Final Rule of COVID-19 Mortgage Service and 31 August 2021, an effective date before we know it, the race for services continues to digest the new requirements and prohibitions of the law, and then implement them. It will not be an easy task.

As we noted in our previous postThe final rule of the Bureau contains four main components:

  • Moratorium on new foreclosures until December 31, 2021;
  • An exception to the clause on the inadmissibility of evading some COVID-19 modification options;
  • New communication requirements at an early stage of the intervention; as well as
  • Clarification of the standard of reasonable diligence for borrowers with respect to tolerance.

Below is a more detailed summary of each of the main aspects of the rule.

1. Moratorium on foreclosure

The hallmark of the Bureau’s final rule is a moratorium on new foreclosure actions. However, rather than calling it a moratorium or a “temporary COVID-19 emergency foreclosure period” as the proposal calls for, the Bureau labels foreclosure restrictions as temporary “procedural safeguards” that service organizations must comply with prior to initiating new action on collection. … Regardless of the name, the core of the rule still serves to prevent service personnel from providing the first notice or filing required to initiate foreclosure on most loans.

This new structure will take effect on August 31, 2021 and will remain in effect until December 31, 2021. Unlike the CARES Act and other initiatives launched throughout the pandemic, which only applied to federally backed mortgages, the Bureau’s rule applies to all closed-door mortgages secured by the borrower’s primary residence, regardless of whether the loan is government-backed or is in the portfolio. Procedural safeguards do not apply to small service companies and property not secured by the borrower’s primary residence. Notably, the Bureau has also created procedural guarantees exceptions for any accounts that are 120 days overdue by March 1, 2020, and any accounts that expire before January 1, 2022.

In addition to the aforementioned exceptions, the procedural safeguards structure in the final rule creates three different ways in which some foreclosures can be initiated during the last months of 2021. has been exhausted and the borrower does not end up using the mitigation option, then the maintenance staff can make the first notice or file the paperwork required to initiate a foreclosure. Notably, there is no time dimension to this guarantee, which means that applications received prior to the effective date of the rule may be eligible.

Further, it is considered a procedural guarantee if the maintenance staff determines that the property has been abandoned in accordance with the laws of the state or municipality in which it is located. Note that there is some overlap between this protection and the general scope settings of the rule that exempt property that is not the borrower’s primary residence. In any case, if the property is deemed abandoned by the law of the respective state or municipality, maintenance personnel can proceed with the first notice or registration.

Finally, the Bureau views this as a procedural guarantee if the borrower is not responsible. This means that the service provider has not received any messages or payments from the borrower for at least 90 days. In addition, maintenance personnel must comply with all early intervention commitments and all applicable notification requirements in Regulation X, Section 1024.41, during that time. In addition, written early intervention notice must be sent 10 to 45 days before the first notice or filing, and if the borrower was on an abstinence plan, the plan must have ended at least 30 days before the first notice or filing is in progress. … After all these fields are checked, the first notification or registration can be made.

Overall, this new procedural safeguards structure is a significant departure from what the Bureau originally proposed. The change in approach is intended to counterbalance the concerns expressed by commentators about the broad nature of the Bureau’s proposal. While service providers may now be able to initiate a foreclosure in some cases, service providers must be extremely diligent and ensure that various exceptions and procedural safeguards are fully respected. To this end, the Bureau emphasizes that service companies must retain evidence of compliance each time they initiate enforcement in accordance with the procedural safeguard framework.

2. Exception versus evasion

To facilitate quick and easy mitigation of losses for borrowers who may need help with the pandemic, the Bureau has refined its proposed exception to what is commonly referred to as the “no-evasion clause” in Rule X. In particular, the law has long been banned – for some very limited exceptions – mortgage companies offer valuation-based loss mitigation options incomplete Applications. Remember from our previous Blog posts and advocacy efforts, in the spring of 2020 we were able to ensure temporary final rule this provided a new exemption from the avoidance clause limitations for COVID-19 deferral options. During this process, we also raised concerns about other optimized programs and the need for service flexibility. A year later, the CFPB is now adding another exception designed to optimize modification options.

To take advantage of this exemption and offer a loan modification without first collecting and evaluating a complete mitigation statement, the modification option must meet the following criteria:

  • The change should be made available to borrowers experiencing difficulties related to COVID-19;
  • The loan term cannot be extended for more than 480 months from the date of the amendments;
  • The payment of the principal and interest of the borrower does not increase;
  • No interest is charged on any deferred amounts;
  • No commission is charged for the modification;
  • Any existing late payment penalties, penalties, termination fees and similar fees incurred on or after March 1, 2020 must be canceled after the borrower accepts the changes; as well as
  • Acceptance by the borrower of a loan change proposal or completion of any trial plan should result in an account update.

If these criteria are met, then the service center may suggest a modification option based on the evaluation of the incomplete application.

The Bureau has clearly stated that this exemption is largely based on programs run by federal agencies and government-sponsored organizations, including modification options for Fannie Mae and Freddie Mac Flex. This exception can be exploited by service centers that strive to provide borrowers with quick and meaningful assistance without going through the often complex and lengthy process of collecting a full application. At the same time, service providers should remain mindful of the non-evasion clause and ensure that offers are made in accordance with the law.

3. Early intervention

Starting from August 31, 2021 and until October 1, 2022, new, more specific requirements for operational contact with early intervention will apply to service personnel. As with the original proposal, the specific requirements depend on whether the borrower is showing leniency at the time of contact. If the borrower is not lenient during live contact and abstinence is available based on the difficulties associated with COVID-19, then the support staff should explain to the borrower:

  • Such patience programs are available;
  • If the borrower is not interested in receiving abstinence information, information on what abstinence options are available and how to apply; as well as
  • There is at least one way a borrower can find contact information for homeownership advisory services.

On the other hand, if the borrower is lenient, the service staff should explain to the borrower:

  • The expiration date of the abstinence plan;
  • What options for reducing losses are available and how to apply them; as well as
  • There is at least one way a borrower can find contact information for homeownership advisory services.

For a borrower who is not lenient, the standard requirements for timely live contact continue to apply. However, when a borrower is lenient, the rule sets unique timing requirements for when this content is to be delivered to an overdue borrower. Typically, this rule applies to live contact that occurs between 10 and 45 days prior to the scheduled end date of the borrower’s abstinence plan. However, for any plan that expires between Aug 31, 2021 and Sep 10, 2021, the rule applies to the first live contact made after Aug 31, 2021.

This framework raises an important question: Should service providers comply with early engagement requirements when the borrower is on a short-term abstinence plan that was proposed based on an assessment of an incomplete application? This issue was reviewed by the Bureau on April 3, 2020. Frequently asked Questions… However, the Bureau is now adding a comment that could be considered contrary to this guidance. We will have more information on this in the future, so stay tuned.

4. Reasonable diligence

Finally, in relation to the abstinence plans, the Bureau is specifying when the maintenance staff should resume reasonable efforts to help the borrower complete the loss mitigation application. Rule X has long noted that when a short-term abstinence plan has been proposed to a borrower based on an assessment of an incomplete mitigation statement, service personnel may suspend reasonable diligence efforts almost until the end of the plan, after which service personnel should contact the borrower to determine whether the borrower wants to fill out an application. Due to the programs proposed based on the difficulties associated with COVID-19, this contact must take place at least 30 days before the scheduled end of the abstinence plan.

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