CFPB Issues Proposed Rule to Amend Regulation X

The CFPB recently issued a proposed rule and requested public comment on proposed amendments to Regulation X intended to assist borrowers affected by the Covid-19 pandemic.

The proposed amendments would establish a pre-foreclosure review period to provide an opportunity for borrowers affected by the Covid-19 pandemic to be evaluated for loss mitigation before a servicer files for foreclosure.  The pre-foreclosure review period would run until December 31, 2021, and would only apply to principal residences.  The CFPB is also considering and seeking comment on a potential additional exemption that would allow servicers to make the first notice or filing before December 31, 2021, if the servicer “(1) has completed a loss mitigation review of the borrower and the borrower is not eligible for any non-foreclosure option or (2) has made certain efforts to contact the borrower and the borrower has not responded to the servicer’s outreach.”

In addition, the proposed amendments would define the term “Covid-19 related hardship,” as “a financial hardship due, directly or indirectly, to the Covid-19 emergency as defined in the Coronavirus Economic Stabilization Act, section 4022(a)(1) (15 U.S.C. 9056(a)(1)).”  

The proposed amendments build on certain loss mitigation options that were added to the CFPB’s mortgage servicing rules in its June 2020 Interim Final Rule, discussed in a prior WBK article.  Mortgage servicers would be allowed to temporarily offer certain loan modification options to borrowers affected by Covid-19 based on the evaluation of an incomplete application, subject to the following:

1. “[T]he loan modification must be made available to a borrower experiencing a Covid-19 related hardship.”
2. “[T]he loan modification may not cause the borrower’s monthly required principal and interest payment to increase and may not extend the term of the loan by more than 480 months from the date the loan modification is effective.”
3. “[A]ny amounts that the borrower may delay paying until the mortgage loan is refinanced, the mortgaged property is sold, or the loan modification matures, must not accrue interest.”
4. “[T]he servicer may not charge any fee in connection with the loan modification and must waive all existing late charges, penalties, stop payment fees, or similar charges promptly upon the borrower’s acceptance of the loan modification.”
5. “[T]he borrower’s acceptance of an offer of the loan modification must end any preexisting delinquency on the mortgage loan or the loan modification must be designed to end any preexisting delinquency on the mortgage loan upon the borrower satisfying the servicer’s requirements for completing a trial loan modification plan and accepting a permanent loan modification.”

The proposed amendments are intended to facilitate a timely transition as borrowers approach the end of their forbearance terms.  According to the CFPB, the proposed amendments are consistent with loan modifications offered by the GSEs, FHA, and other comparable programs.

In addition, the proposed amendments would modify certain live contact early intervention requirements to discuss Covid-19-related information.  The servicer requirements are based on whether or not the borrower is in a forbearance plan at the time of the live contact.  In general, the requirements address a servicer’s obligation to provide the borrower with a forbearance program or loss mitigation options and explain the actions the borrower must take under each of those.  For example, for borrowers in a forbearance program at the time of live contact, the servicer must provide to the borrower, among other things, a list and a brief description of the options available to resolve the borrower’s delinquency at the end of the forbearance period, and the actions the borrower must take to be evaluated for such options.

The proposed amendments would clarify when a servicer must comply with reasonable diligence obligations related to loss mitigation applications for borrowers in a Covid-19 hardship payment forbearance program.  If the offer for the short-term payment forbearance program was based on an incomplete application, the servicer would be required to contact the borrower and determine whether the borrower wants to proceed no later than 30 days before the end of the short-term payment forbearance program.

Comments must be received by May 10, 2021.  The final rule’s proposed effective date is August 31, 2021.