On April 5, the Consumer Financial Protection Bureau (“CFPB”) proposed amendments to Regulation X with the effect of preventing foreclosure on certain residential mortgage loans until January 1, 2022.^[1]  With a proposed effective date of August 31, 2021, this action would apply not only to federally backed mortgage loans, but to all mortgage loans secured by a property that is a borrower’s principal residence^[2] – including those held in private trusts and on lender balance sheets.  On April 3, the CFPB and other governmental agencies charged with overseeing mortgage servicers issued a joint statement explaining that the Coronavirus Disease (“Covid-19”) emergency could cause “temporary business disruptions and challenges for mortgage servicers, including staffing challenges, that could impede their ability to assist consumers at this critical time.”^[3]

Importantly, the proposed rule would establish a temporary COVID-19 emergency pre-foreclosure review period that would generally prohibit servicers from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until after December 31, 2021.^[4]  The proposal would also amend the early intervention requirements until August 31, 2022 to require mortgage servicers to explain available forbearance options to borrowers not under a forbearance plan and experiencing a COVID-19 related hardship.  For those borrowers in a forbearance program, during the last live contact made pursuant to § 1024.39(a) that occurs prior to the end of the forbearance period, the servicer must confirm the end date of the forbearance period and provide certain information to the borrower designed to resolve the borrower’s delinquency at the end of the forbearance period, including informing the borrower of the actions the borrower must take to be evaluated for such loss mitigation options.  Mortgage servicers would also be required to perform a full loss mitigation evaluation no later than thirty days prior to the end of a forbearance plan for borrowers who were placed in a short-term forbearance plan based on an incomplete loss mitigation application.^[5]  The proposed rule would also amend § 1024.41(c)(2)(vi), permitting mortgage servicers the ability to offer certain streamlined modification options^[6] even though a full loss mitigation evaluation was not completed under § 1024.41(b).

Mortgage servicers responsible for less than five thousand loans, commonly referred to as “small servicers,”^[7] would generally be exempt from the proposed rule.  The CFPB is weighing two additional exemptions for mortgage servicers not otherwise exempt that would enable them to start the foreclosure process before January 1, 2022: (1) completion by the mortgage servicer of a loss mitigation review determining that the borrower is not eligible for any non-foreclosure option or (2) the borrower has not responded to their mortgage servicer’s certain efforts to contact the borrower.  The CFPB is requesting comments be submitted by May 10, 2021.

As you are aware, things are changing quickly in connection with proposed rules regarding Covid-19 pandemic relief.  This is not an unequivocal statement of the law, but instead represents our best interpretation of where things currently stand.  This article does not address the potential impacts of the numerous other local, state and federal orders that have been issued in response to the Covid-19 pandemic.  

FOOTNOTES

_{[1] Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X (https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing_nprm_2021-04.pdf).}

_{[2] As a matter of context, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provided for up to 12 months forbearance for mortgage borrowers subject to a federally backed mortgage – the federal agencies issued guidance in February 2021 extending the forbearance period to 18 months, through December 31, 2021.}

_{[3] Joint Statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules in Response to the Covid-19 Emergency and the Cares Act (https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_mortgage-servicing-rules-covid-19.pdf).}

_{[4] Amending § 1024.41(f)(1); § 1024.41(f)(3).}

_{[5] Amending 12 CFR 1024.41(b).}

_{[6] The modification must be made available to a borrower experiencing a Covid-19 related hardship, the modification may not cause the borrower’s monthly required P&I payments to increase and may not extend the term of the loan by more than 480 months from the date the modification is effective, any amounts the borrower may delay paying under a forbearance or loss mitigation plan may not accrue interest, the mortgage servicer may not charge a fee in connection with the modification and must waive all existing late charges, penalties, or similar charges promptly upon the borrower’s acceptance of a modification, and borrower’s acceptance of an offer of the modification must end, or be designed to end, any preexisting delinquency on the mortgage loan.}

_{[7] As defined under Regulation Z, 12 CFR 1026.41(e)(4).}