The federal Consumer Financial Protection Bureau (CFPB) recently issued its final rule entitled “Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X.”
The Final Rule is available at: Link to Final Rule.
The Final Rule becomes effective on Aug. 31, 2021. Of note, the federal foreclosure and eviction moratoria expire on July 31, 2021.
The Final Rule announcement cites a number of data points, including from private industry sources and from its own studies. For example, the CPFB notes that “[a]s of April 2021, there were still an estimated 1.9 million borrowers in forbearance programs who were more than 90 days behind on their mortgage payments,” and that “[w]hile the national delinquency rate fell to 4.66 percent in April, it remains about 1.5 percent above its pre-pandemic level.”
In summary, and among other things, the Final Rule provides:
A. Limitations on Foreclosure Starts
The Final Rule only applies when: (1) the foreclosure process is started on Aug. 31, 2021 through and including Dec. 31, 2021; and (2) “the borrower’s mortgage loan obligation became more than 120 days delinquent on or after March 1, 2020”; and (3) “the statute of limitations applicable to the foreclosure action being taken in the laws of the State or municipality where the property securing the mortgage loan is located expires on or after January 1, 2022.”
Stated differently, from Aug. 31, 2021 to Dec. 31, 2021, a mortgage servicer may start a judicial or non-judicial foreclosure process based on a payment default without the necessity to follow the new CFPB Final Rule only if: (1) the borrower’s mortgage loan obligation became more than 120 days delinquent before March 1, 2020; or (2) the statute of limitations applicable to the foreclosure action being taken in the laws of the State or municipality where the property securing the mortgage loan is located expires before Jan. 1, 2022.
Then, if the Final Rule applies, the servicer may proceed with foreclosure, if: (1) “the borrower submitted a completed loss mitigation application and [existing 12 CFR] § 1024.41(f)(2) permits the servicer to make the first notice or filing;” or (2) “the property securing the mortgage loan is abandoned under State or municipal law;” or (3) “the servicer has conducted specified outreach and the borrower is unresponsive.”
B. Provisions for Incomplete Loan Modification Applications
Subject to specified criteria, the Final Rule “permits servicers to offer certain streamlined loan modification options made available to borrowers with COVID-19-related hardships based on the evaluation of an incomplete loss mitigation application.”
“If the borrower accepts an offer made pursuant to this new exception,” the Final Rule temporarily “excludes servicers from certain requirements with regard to any loss mitigation application submitted prior to the loan modification offer, including exercising reasonable diligence to complete the loss mitigation application and sending the acknowledgement notice required by [existing 12 CFR] § 1024.41(b)(2).”
C. Communicating Additional COVID-19 Information and Options
The Final Rule “requires servicers to discuss specific additional COVID-19-related information during live contact with borrowers established under existing [12 CFR] § 1024.39(a)” in circumstances where “the borrower is not in a forbearance program,” or “the borrower is near the end of a forbearance program made available to borrowers experiencing a COVID-19 related hardship.”
D. “Reasonable Diligence” Obligations for COVID-19 Forbearances
The Final Rule also “clarifies servicers’ reasonable diligence obligations when the borrower is in a short-term payment forbearance program made available to a borrower experiencing a COVID-19-related hardship based on the evaluation of an incomplete application.”
The “servicer must contact the borrower no later than 30 days before the end of the forbearance period if the borrower remains delinquent to determine if the borrower wishes to complete the loss mitigation application and proceed with a full loss mitigation evaluation,” and “must exercise reasonable diligence to complete the application before the end of the forbearance program period” if the borrower requests further assistance.
E. “COVID-19-Related Hardship”
Lastly, the Final Rule provides that a “COVID-19-related hardship” means “a financial hardship due, directly or indirectly, to the national emergency for the COVID-19 pandemic declared in Proclamation 9994 on March 13, 2020 (beginning on March 1, 2020) and continued on February 24, 2021, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C.1622(d)).”