On April 5, 2021, the CFPB issued a Notice of Proposed Rulemaking to amend Regulation X in various ways related to the COVID-19 national emergency (the “Proposed Rule”). With the goal of enhancing protections for impacted borrowers, the Proposed Rule amends aspects of the early intervention requirements (12 C.F.R. § 1024.39), and loss mitigation procedures and foreclosure protections (12 C.F.R. § 1024.41).
As proposed, any final rule will be effective on or before August 31, 2021, and at least 30 days (or 60 days if it is a major rule), after its publication in the Federal Register. Comments are due on or before May 10, 2021, and the CFPB notes that it plans to work quickly to issue any final rule after receipt and evaluation of public comments.
Foreclosure Hold. Most notably, the Proposed Rule includes a sweeping hold on commencing foreclosure until 2022. Existing requirements prohibit the commencement of a foreclosure (making the first notice or filing under applicable law) for missed payments until the borrower’s loan obligation is more than 120 days delinquent. The Proposed Rule would additionally prohibit such a foreclosure referral until after December 31, 2021.
This provision applies to the entire scope of loans subject to Regulation X, and is not limited to federal agency or GSE loans (as with the CARES Act), and would essentially constitute a foreclosure moratorium for the remainder of the year. However, the CFPB has indicated it is seriously considering the inclusion of certain exemptions to this foreclosure hold in any final rule.
Definition of COVID-19 Related Hardship.
The proposed rule creates the term “COVID-19-Related Hardship,” which it uses to mean a financial hardship due, directly or indirectly, to the COVID-19 emergency as defined in the CARES Act.
Early Intervention. The Proposed Rule includes a “Temporary COVID-19-Related Live Contact” requirement for borrowers experiencing a COVID-19-Related Hardship. Until August 31, 2022, promptly after establishing live contact with a borrower in accordance with existing requirements, a servicer must do the following:
- Borrowers Not in Forbearance. If the borrower is not in a forbearance at the time the servicer establishes live contact, and the owner or assignee of the loan offers a forbearance program to borrowers experiencing a COVID-19-Related Hardship, the servicer is required to ask whether the borrower is experiencing a COVID-19-Related Hardship. If so, the servicer must list and briefly describe to the borrower any such available forbearance programs, and the actions the borrower must take to be evaluated for those programs.
- Borrowers in Forbearance. If the borrower is in a forbearance program available to borrowers experiencing a COVID-19-Related Hardship, during the last live contact made pursuant to existing requirements under 12 C.F.R. § 1024.39(a) that occurs prior to the end of the forbearance period, the servicer must provide to the borrower: (1) the date the borrower’s current forbearance ends; and (2) a list and brief description of each forbearance extension, repayment option, and any other loss mitigation option that the owner or assignee of the borrower’s loan makes available to resolve the borrower’s delinquency at the end of the forbearance period, and a description of the actions the borrower must take to be evaluated for such loss mitigation options.
Loss Mitigation Offers. The Proposed Rule creates additional leeway for offering loss mitigation options, based on an incomplete loss mitigation application, for borrowers experiencing a COVID-19-Related Hardship. By way of background, the Kraninger-era CFPB issued an Interim Final Rule in Summer 2020 to address this same issue. The previous Interim Final Rule allowed servicers to offer certain COVID-19 deferral or partial claim options, based on an incomplete loss mitigation application (in addition to the offers of a short-term forbearance or repayment plan already allowed under Regulation X in these circumstance).
The Proposed Rule now creates yet another exception to the general prohibition on offering loss mitigation based on an incomplete loss mitigation application. Under the Proposed Rule, a servicer can offer the borrower a loan modification that is available to borrowers experiencing a COVID-19-Related Hardship, based on an incomplete application, if all of the following criteria are met:
- The loan modification cannot extend the loan term by more than 480 months (40 years) from the date the loan modification is effective;
- The loan modification does not cause the monthly payment of principal and interest to increase;
- Any amounts for which repayment is delayed until refinance, sale of the property, or maturity of the loan, do not accrue interest;
- The servicer does not charge any fee in connection with the loan modification, and the servicer waives all existing late charges, penalties, stop payment fees or similar charges upon acceptance; and
- The borrower’s acceptance of the offer ends any preexisting delinquency, or the loan modification ends any preexisting delinquency upon the borrower satisfying requirements for completing a trial modification period and then accepting the permanent loan modification.
The Proposed Rule further provides that once a borrower accepts a loan modification meeting the above requirements, the servicer is no longer required to comply with the “reasonable diligence” requirements for completing an existing loss mitigation application, or the requirement to review the existing application and issue complete/incomplete application acknowledgment letters. However, if the borrower fails to perform under a trial payment plan or requests further assistance, such efforts must resume.
Finally, the Proposed Rule includes commentary to clarify measures that a servicer must take, during a COVID-related forbearance, to enable permanent loss mitigation relief upon the expiration of the forbearance. The commentary states that the servicer must contact the borrower at least 30 days prior to the end of the forbearance to determine if the borrower wishes to complete the loss mitigation application, and proceed with a full loss mitigation evaluation. If so, the servicer must engage in reasonable diligence to complete the application prior to the end of the forbearance.