New Federal Protections Adopted For Mortgage Borrowers Experiencing COVID-19 Hardships – Coronavirus (COVID-19)

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The Consumer Financial Protection Bureau (“CFPB”) has
amended its mortgage servicing rules to assist mortgage borrowers
experiencing a COVID-19-related hardship (the
“Amendments”). The Amendments add temporary provisions
that are designed to help borrowers avoid foreclosure in the wake
of many state and federal COVID-19-related protections ending. The
Amendments:

  • require special COVID-19 loss mitigation procedural safeguards
    to ensure that a borrower has a meaningful opportunity to apply for
    loss mitigation before the mortgage account is referred to
    foreclosure after national foreclosure moratoria have ended,

  • provide servicers the ability to offer borrowers certain
    COVID-19-related streamlined loan modifications without a complete
    loss mitigation application,

  • require the provision of additional information promptly after
    early intervention live contacts are established with certain
    delinquent borrowers, and

  • establish timing requirements for when servicers must renew
    reasonable diligence efforts to obtain complete loss mitigation
    applications from certain borrowers.

The Amendments are effective August 31, 2021 and generally apply
through December 31, 2021.

I. Background

The CFPB’s mortgage servicing rules (the “Rules”)
address the servicing of residential mortgage loans. Among other
things, the Rules provide for early intervention with delinquent
borrowers and impose certain loss mitigation requirements,
including setting procedures for reviewing loss mitigation
applications and providing borrower protections during those
reviews. The Rules generally apply only to a mortgage loan secured
by a borrower’s principal residence and, as such, generally do
not apply to investment properties or second homes. In addition,
mortgage servicers meeting the definition of a “small
servicer” are generally not subject to many parts of the
Rules.1

In the preamble to the Amendments, the CFPB has noted that
various federal and state protections for mortgage borrowers are
beginning to phase out, and the Amendments are designed to
“ensure a smooth and orderly transition…by providing
borrowers with a meaningful opportunity to explore ways to resume
making payments and avoid foreclosure.”

A summary of the Amendments is set forth below.

II. The Amendments

A. Loss Mitigation: Temporary Special COVID-19 Procedural
Safeguards

Currently, the Rules prohibit servicers from making a
foreclosure referral (i.e., making the first notice or filing) or
completing certain foreclosure actions (i.e., moving for
foreclosure judgment or order of sale, making a dispositive motion
for foreclosure judgment, conducting a foreclosure sale) in certain
circumstances. Generally, a servicer may not make a foreclosure
referral until the borrower is more than 120 days delinquent. In
addition, if the borrower submits a complete loss mitigation
application before foreclosure referral, generally the servicer
must wait an additional period before initiating foreclosure in
order to satisfy certain conditions to allow the borrower an
opportunity to pursue loss mitigation. Specifically, the servicer
must determine that the borrower is not eligible for any loss
mitigation options and notify the borrower of such, determine that
the borrower has exhausted the appeal process, or if a loss
mitigation offer is made, the borrower must reject all offered loss
mitigation options or fail to perform under a loss mitigation
option agreement (the “foreclosure protection
conditions”). Similarly, if a borrower submits a complete
application after foreclosure referral but at least 37 days before
foreclosure sale, the servicer must not complete certain
foreclosure actions until these foreclosure protection conditions
are met.

The Amendments temporarily add to the foreclosure protection
conditions in certain circumstances. From August 31, 2021 through
December 31, 2021, unless an exception applies, before referring
certain 120-day delinquent accounts for foreclosure the servicer
must make sure at least one of the temporary procedural safeguards
has been met.

Procedural Safeguards. The three temporary
procedural safeguards are:

  1. The borrower was evaluated based on a
    complete loss mitigation application and existing foreclosure
    protection conditions are met
    . To meet this safeguard, the
    servicer must confirm that:

    • The borrower submitted a complete loss mitigation application,
      and the servicer evaluated the application.

    • The borrower remained delinquent since submission of the loss
      mitigation application.

    • The foreclosure protection conditions in the existing Rules
      discussed above, are met, such that a servicer is permitted by the
      Rules to make a foreclosure referral.

  2. The property is abandoned. To meet this safeguard, applicable
    state or local law must consider the property securing the mortgage
    abandoned when referred to foreclosure.

  3. The borrower is unresponsive to
    servicer outreach
    . To meet this safeguard, the servicer must
    not have received any communications from the borrower in the 90
    days prior to the foreclosure referral and the servicer must
    confirm:

    • It has complied with the early intervention live contact
      requirements in the Mortgage Servicing Rules during that 90-day
      period.

    • It has provided the early intervention 45-day written notice
      required by the Mortgage Servicing Rules. The servicer must have
      sent the notice at least 10 but no more than 45 days before
      foreclosure referral.

    • It has complied with all loss mitigation notice requirements in
      the Mortgage Servicing Rules during that 90-day period, such as the
      notice of an incomplete loss mitigation application.

    • The borrower’s forbearance program, if applicable, ended at
      least 30 days before foreclosure referral.

Exceptions. The temporary procedural safeguards
are not required if:

  • The foreclosure referral occurs (as permitted by applicable
    law) on or after January 1, 2022.

  • The borrower was more than 120 days delinquent prior to March
    1, 2020.

  • The applicable statute of limitations will expire before
    January 1, 2022.

If the servicer has met the temporary procedural safeguards, or
if the safeguards do not apply, the servicer may proceed with
foreclosure referral, to the extent permitted by other law and the
existing foreclosure protections in the Rules. If the temporary
procedural safeguards apply, a servicer is required to maintain
records that evidence the servicer complied with them.

B. Loss Mitigation: COVID-19-related Streamlined Loan
Modifications

Currently, the Rules generally prohibit a servicer from evading
the requirement to evaluate a complete loss mitigation application
for all loss mitigation options available to the borrower by
offering a loss mitigation option based on the evaluation of any
information provided by a borrower in connection with an incomplete
loss mitigation application. However, the Rules offer certain
exceptions to this general prohibition, allowing some loss
mitigation offers that are not based on the evaluation of a
complete application, such as offers of certain short-term payment
forbearance programs and certain COVID-19-related loss mitigation
options.

The Amendments add a new exception, permitting servicers to
offer certain COVID-19-related loan modification options based on
the evaluation of an incomplete application. To qualify for this
exception, the loan modification program must:

  1. Limit loan term The loan modification must
    not extend the loan term more than 40 years from the date the
    modification is effective.

  2. Limit periodic payment The loan
    modification must not increase the borrower’s monthly principal
    and interest payment beyond the amount that was required prior to
    the modification.

  3. Prohibit interest accrual
    on delayed If the loan modification allows the
    borrower to delay payment of any portion of the amount owed until
    the property is sold, the mortgage is refinanced, the modification
    matures, or, for FHA insured loans, until the mortgage insurance
    terminates, then the loan modification must not allow interest to
    accrue on those amounts. Such amounts could include, for example,
    forborne periodic payments.

  4. Be available to borrowers with COVID-19-related The
    loan modification must be made available to borrowers experiencing
    COVID-19-related hardships, although it need not be only available
    to those borrowers.

  5. End (or be designed to end) pre-existing The loan
    modification must end any pre-existing delinquency when the
    borrower accepts the modification offer. If a trial period applies,
    the loan modification must be designed to end any pre-existing
    delinquency when the borrower satisfactorily completes any trial
    period requirements and accepts the permanent loan
    modification.

  6. Not include certain The servicer must not
    charge fees in connection with the loan modification and must
    promptly waive certain existing fees the borrower owes, such as
    late fees, penalties, or stop-payment fees, that were incurred on
    or after March 1, 2020.

Offering a loan modification under this exception does not
constitute offering a loan modification based on a complete
application. If a borrower becomes delinquent after accepting such
a loan modification, the servicer must resume reasonable diligence
efforts to obtain a complete loss mitigation application.
Additionally, a subsequent submission of a complete loss mitigation
application does not count as a duplicative request under the
Rules, and the borrower must still be evaluated and receive all the
protections that follow under the Rules for that subsequent
application. For example, if a borrower submits a complete loss
mitigation application after failing a trial period for an
applicable COVID-19-related streamlined loan modification offered
under this exception, the borrower is not considered to have
submitted a duplicative request and the servicer must review the
complete application and the foreclosure protection conditions must
be met before the servicer can make a foreclosure referral or
complete certain foreclosure actions.

C. Loss Mitigation: COVID-19-related Reasonable Diligence

Currently, when a servicer receives an incomplete loss
mitigation application from the borrower, the servicer is required
to exercise reasonable diligence to complete the application.
However, a servicer is permitted to suspend reasonable diligence
efforts while a borrower is complying with a short-term payment
forbearance program offered based on an incomplete application
until the borrower is near the end of that forbearance program.

Under the Amendments, if a borrower is in a short-term payment
forbearance program made available to borrowers with a
COVID-19-related hardship, and that program was offered based on an
evaluation of an incomplete application, the Rules specify more
precisely when the servicer must renew reasonable diligence
efforts. For such borrowers, if the borrower remains delinquent,
the servicer is required to contact the borrower no later than 30
days before the scheduled end of the forbearance period to
determine if they wish to complete the loss mitigation application.
If the borrower chooses to do so, the servicer must reinstate
reasonable diligence efforts to complete the loss mitigation
application before the end of the forbearance period.

D. Early Intervention: Additional Temporary COVID-19-related
Live Contact Information

Currently, the Rules require a servicer to make good faith
efforts to establish live contact with delinquent borrowers no
later than the borrower’s 36th day of delinquency and again no
later than 36 days after each payment due date so long as the
borrower remains delinquent. Promptly after establishing live
contact, the servicer must inform the borrower about the
availability of loss mitigation options, although it has discretion
to determine if providing this information is appropriate and the
level of specificity provided. Separately, the Rules also require
servicers to maintain policies and procedures that, among other
things, ensure the servicer personnel assigned to a delinquent
borrower can identify all loss mitigation options available from
the owner or assignee of the borrower’s mortgage, and the
actions the borrower must take to be evaluated for those options.
The policies and procedures must ensure the servicer has the
ability to provide that information accurately.

The Amendments will require a servicer, promptly after
establishing live contact under the existing Rules, to provide some
delinquent borrowers with specific, additional information. This
requirement only applies until October 1, 2022.

Borrowers not in forbearance.
For borrowers that are not in a forbearance program at the time
live contact is established under the existing Rules, if the owner
or assignee of the mortgage provides forbearance programs for
borrowers with a COVID-19-related hardship, then promptly after
establishing live contact, the servicer must inform the borrower of
the following:

  1. Program availability That forbearance programs are
    available for borrowers experiencing a COVID-19-related hardship.
    For example, the servicer could say, “We wanted to let you
    know that forbearance programs are available for borrowers that are
    having difficulty making their payments because of the COVID-19
    emergency.”

  2. List and description of applicable Unless the borrower
    states that they are not interested in receiving information about
    such programs, the servicer must then list and briefly describe to
    the borrower the applicable programs and the actions the borrower
    must take to be evaluated. The servicer is only required to list
    forbearance programs available at the time the live contact is
    established and does not need to include any programs that have
    already expired.

  3. Homeownership counseling Additionally, the
    servicer must tell the borrower at least one way that they can find
    contact information for homeownership counseling services, such as
    referencing the borrower’s periodic statement.

Borrowers in
forbearance. For borrowers in a
forbearance program made available to those experiencing a
COVID-19-related hardship at the time live contact is established,
the servicer must provide additional information during the live
contact that occurs 10 to 45 days before the scheduled end
of the borrower’s program. When live contact is established,
the servicer must inform the borrower of:

  1. Scheduled end When the forbearance program is
    scheduled to end.

  2. List and description of
    applicable A list and brief description of any loss
    mitigation programs, including forbearance extensions and repayment
    options, that are available through the owner or assignee of the
    mortgage, and how the borrower can apply for those options. The
    servicer is only required to list loss mitigation options available
    at the time the live contact is established and does not need to
    include any options that have already expired.

  3. Homeownership counseling At least one way
    that the borrower can find contact information for homeownership
    counseling services, such as referencing the borrower’s
    periodic statement.

III. Further Information

The Amendments can be found here.

Footnote

1 A “small servicer” generally includes a
servicer that, together with any affiliates, services 5,000 or
fewer mortgage loans for which the servicer or an affiliate is the
creditor or assignee.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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