On April 5, 2021, the CFPB issued a proposed rule to amend the early intervention and loss mitigation requirements under the servicing rule of Regulation X. The proposed amendments are made in an attempt to prevent a wave of foreclosures as a result of the COVID-19 emergency. Comments to the proposed amendments must be received on or before May 10, 2021.
The proposed rule would amend the servicing rule by adding a new definition of “COVID-19-related hardship”. Under the proposed rule, COVID-19-related hardship would mean a financial hardship due, directly or indirectly, to the COVID-19 emergency as defined in the Coronavirus Economic Stabilization Act, Section 15 U.S.C. 9056(a)(1). The proposed COVID-19-related hardship definition would then be used in the proposed amendments to the early intervention and loss mitigation rules.
In general, the proposed rule would add a temporary live contact procedure that will be in effect until August 31, 2022. Under this procedure, servicers that establish live contact with borrowers under existing servicing rule would be required to take the following actions:
- For borrowers not yet in a forbearance plan at the time of live contact, if forbearance options are available to the borrower, the servicer would be required to ask the borrower if they are experiencing a COVID-19-related hardship. If the borrower indicates they are, the servicer would be required to list and describe forbearance programs made available to that borrower. The servicer would also be required to provide the actions the borrower must take to be evaluated for such forbearance programs.
- For borrowers in a forbearance plan at the time of live contact, the servicer would be required to identify the date the borrower’s forbearance program ends and list and describe loss mitigation options made available to the borrower to resolve any delinquency the borrower will have at the end of the forbearance program. The servicer would also be required to provide the actions the borrower must take to be evaluated for such loss mitigation options, information the servicer has under existing continuity of contact requirements. The servicer would only need to provide this information in the last live contact required under the existing servicing that occurs prior to the end of the forbearance period.
In addition, the proposed rule would make amendments to the loss mitigation rule. Specifically, the proposed rule would amend the servicer “reasonable diligence” requirement with respect to borrowers that received short-term payment forbearances due to COVID-19-related hardship based on evaluation of incomplete loss mitigation applications. For such borrowers, the servicer would be required to contact the borrower, no later than 30 days before the end of the short-term forbearance program, and determine if the borrower wants to complete their loss mitigation application and proceed with a full loss mitigation evaluation. If the borrower requests further assistance, the servicer would be required to exercise reasonable diligence to complete the application before the end of the forbearance program.
Also, the proposed rule would add an exception to the loss mitigation rule’s prohibition on offering a loss mitigation option based on incomplete loss mitigation application. Under the proposed exception, the service would be allowed to offer certain loan modifications based on the evaluation of an incomplete application if the loan modification would meet all of the following criteria:
- It would extend the term of the loan by no more than 480 months and would not result in an increase to the borrower’s periodic principal and interest payment.
- It would allow a deferral of amounts until certain points, such when the loan is refinanced or the property is sold, the amounts would not accrue interest; the servicer would not charge a fee connected to the loan modification; and certain existing charges owed by the borrower, such as late fees and stop payment fees, would be waived by the servicer upon acceptance of the loan modification.
- It would be made available to borrowers experiencing a COVID-19-related hardship.
- The borrower’s preexisting delinquency would be resolved by acceptance of the loan modification (and potential completion of a trial loan modification first, if required by the servicer).
Once a borrower accepts such loan modification, the acceptance would terminate the servicer’s obligation to exercise reasonable diligence to complete any loss mitigation application the borrower submitted prior to the borrower’s acceptance. It would also terminate the servicer’s obligation to review an application under the existing rule requirements.
However, if the borrower fails to perform under any required trial loan modification or if the borrower requests further assistance, the servicer’s obligation to exercise reasonable diligence to complete any loss mitigation application the borrower submitted prior to the borrower’s acceptance would restart.
Lastly, the proposed rule would extend the existing pre-foreclosure review period, under the loss mitigation rule, by adding a temporary blanket prohibition on making the first notice or filing for judicial or non-judicial foreclosure until after December 31, 2021.
The proposal contains also amendments to the official CFPB interpretation to the amended provisions above.
If you have any questions concerning these proposed revisions to the servicing rule, please contact Solomon Maman.Download Related Document