Rule2021-13964
Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 30, 2021
Effective
August 31, 2021
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Bureau of Consumer Financial Protection (Bureau) is issuing this final rule to amend Regulation X to assist mortgage borrowers affected by the COVID-19 emergency. The final rule establishes temporary procedural safeguards to help ensure that borrowers have a meaningful opportunity to be reviewed for loss mitigation before the servicer can make the first notice or filing required for foreclosure on certain mortgages. In addition, the final rule would temporarily permit mortgage servicers to offer certain loan modifications made available to borrowers experiencing a COVID-19- related hardship based on the evaluation of an incomplete application. The Bureau is also finalizing certain temporary amendments to the early intervention and reasonable diligence obligations that Regulation X imposes on mortgage servicers.
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<title>Federal Register, Volume 86 Issue 123 (Wednesday, June 30, 2021)</title>
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[Federal Register Volume 86, Number 123 (Wednesday, June 30, 2021)]
[Rules and Regulations]
[Pages 34848-34903]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-13964]
[[Page 34847]]
Vol. 86
Wednesday,
No. 123
June 30, 2021
Part II
Department of Consumer Financial Protection
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12 CFR Part 1024
Protection for Borrowers Affected by the COVID-19 Emergency Under the
Real Estate Settlement Procedures Act (RESPA), Regulation X; Final Rule
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 /
Rules and Regulations
[[Page 34848]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1024
[Docket No. CFPB-2021-0006]
RIN 3170-AB07
Protections for Borrowers Affected by the COVID-19 Emergency
Under the Real Estate Settlement Procedures Act (RESPA), Regulation X
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Final rule; official interpretation.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
issuing this final rule to amend Regulation X to assist mortgage
borrowers affected by the COVID-19 emergency. The final rule
establishes temporary procedural safeguards to help ensure that
borrowers have a meaningful opportunity to be reviewed for loss
mitigation before the servicer can make the first notice or filing
required for foreclosure on certain mortgages. In addition, the final
rule would temporarily permit mortgage servicers to offer certain loan
modifications made available to borrowers experiencing a COVID-19-
related hardship based on the evaluation of an incomplete application.
The Bureau is also finalizing certain temporary amendments to the early
intervention and reasonable diligence obligations that Regulation X
imposes on mortgage servicers.
DATES: This final rule is effective on August 31, 2021.
FOR FURTHER INFORMATION CONTACT: Elizabeth Spring, Program Manager,
Office of Mortgage Markets; Willie Williams, Paralegal; Angela Fox or
Ruth Van Veldhuizen, Counsels; or Brandy Hood or Terry J. Randall,
Senior Counsels, Office of Regulations, at 202-435-7700 or <a href="https://reginquiries.consumerfinance.gov/">https://reginquiries.consumerfinance.gov/</a>. If you require this document in an
alternative electronic format, please contact
<a href="/cdn-cgi/l/email-protection#c98a8f998b9688aaaaacbabaa0aba0a5a0bdb089aaafb9abe7aea6bf"><span class="__cf_email__" data-cfemail="10535640524f5173737563637972797c79646950737660723e777f66">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule
To provide relief for mortgage borrowers facing financial hardship
due to the COVID-19 pandemic, the Bureau is finalizing amendments to
Regulation X's mortgage servicing rules.\1\ As described in more detail
in part II, the COVID-19 pandemic has had a devastating economic impact
in the United States, making it difficult for some borrowers to stay
current on their mortgage payments. To help struggling borrowers,
various Federal and State protections have been established throughout
the last 16 months, including the forbearances made available by the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act) \2\ and
various Federal and State foreclosure moratoria.\3\ These protections
will begin to phase out over the summer. A large number of borrowers
remain seriously delinquent and will be at risk of foreclosure
initiation this fall. This final rule will help ensure a smooth and
orderly transition as the other Federal and State protections end by
providing borrowers with a meaningful opportunity to explore ways to
resume making payments and avoid foreclosure. This final rule will also
help promote housing security by preventing avoidable foreclosures and
keeping borrowers on the path to wealth creation through homeownership.
The Bureau recognizes that some foreclosures are unavoidable and that
not every borrower will be able to stay in their home indefinitely.
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\1\ This final rule finalizes the proposed amendments to
Regulation X that the Bureau issued on April 5, 2021, with revisions
as discussed herein. 86 FR 18840 (Apr. 9, 2021).
\2\ The Coronavirus Aid, Relief, and Economic Security Act,
Public Law 116-136, 134 Stat. 281 (2020) (CARES Act).
\3\ Id.
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Borrowers who are in forbearance, or behind on their mortgages and
not in forbearance, are disproportionately Black and Hispanic, just as
those workers whose re-employment continues to lag are
disproportionately Black and Hispanic.\4\ Black and Hispanic borrowers
also are disproportionately likely to have less equity in their homes.
Thus, Black and Hispanic borrowers, and the communities in which they
live, are especially likely to benefit from this rule.\5\ As
homeownership plays the primary role in wealth creation in the United
States,\6\ a wave of foreclosures due to the current crisis may have a
lasting impact on these borrowers' ability to maintain and accumulate
wealth.
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\5\ Bureau of Consumer Fin. Prot., Characteristics of Mortgage
Borrowers During the COVID-19 Pandemic at 5 (May 2021), <a href="https://files.consumerfinance.gov/f/documents/cfpb_characteristics-mortgage-borrowers-during-covid-19-pandemic_report_2021-05.pdf">https://files.consumerfinance.gov/f/documents/cfpb_characteristics-mortgage-borrowers-during-covid-19-pandemic_report_2021-05.pdf</a> (CFPB Mortgage
Borrower Pandemic Report).
\6\ Nat'l Ass'n of Home Builders, Homeownership Remains Primary
Driver of Household Wealth, NAHB Now Blog (Feb. 18, 2021), <a href="https://nahbnow.com/2021/02/homeownership-remains-primary-driver-of-household-wealth/">https://nahbnow.com/2021/02/homeownership-remains-primary-driver-of-household-wealth/</a>.
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Since last spring when the CARES Act was passed, servicers placed
over 7 million borrowers into forbearance programs.\7\ During this same
period, servicers have adapted to rapidly changing guidance and
transitioned their own workforces to remote work. The Bureau recognizes
the effort that took, and the challenge that still lies before the
industry. While forbearance numbers have continued to drop,\8\ those
borrowers still in forbearance are increasingly many months, even more
than a year, behind on their mortgage payments. At the same time,
increasing numbers of borrowers are exiting forbearance while
delinquent without loss mitigation in place.\9\ The ways servicers may
have handled loss mitigation in the past, including the allocation of
resources and communication methods used, may not be as effective in
these unprecedented circumstances.
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\7\ Black Knight Mortg. Monitor, April 2021 Report at 10 (Apr.
2021), <a href="https://cdn.blackknightinc.com/wp-content/uploads/2021/06/BKI_MM_Apr2021_Report.pdf">https://cdn.blackknightinc.com/wp-content/uploads/2021/06/BKI_MM_Apr2021_Report.pdf</a> (Black Apr. 2021 Report).
\8\ Id. at 7.
\9\ Id. at 10.
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The Bureau is concerned that a potentially historically high number
of borrowers will seek assistance from their servicers at approximately
the same time this fall, which could lead to delays and errors as
servicers work to process a high volume of loss mitigation inquiries
and applications. In addition, the Bureau is concerned that the
circumstances facing borrowers due to the COVID-19 emergency, which may
involve potential economic hardship, health conditions, and extended
periods of forbearance or delinquency, may interfere with some
borrowers' ability to obtain and understand important information that
the existing rule aims to provide borrowers regarding the foreclosure
avoidance options available to them.
Final Rule
To address these concerns, this final rule includes five key
amendments to Regulation X, all of which encourage borrowers and
servicers to work together to facilitate review for foreclosure
avoidance options. First, to help ensure that borrowers have a
meaningful opportunity to be reviewed for loss mitigation, this final
rule establishes temporary special COVID-19 procedural safeguards that
must be met for certain mortgages before the servicer can make the
first notice or filing required by applicable law for any judicial or
non-judicial foreclosure process because of a delinquency. This
requirement generally is applicable only if (1) the borrower's mortgage
loan obligation became more than 120 days
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delinquent on or after March 1, 2020, and (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 on or after January 1, 2022. This
provision expires on January 1, 2022, meaning that the procedural
safeguards are not applicable if a servicer makes the first notice or
filing required by applicable law for any judicial or non-judicial
foreclosure process on or after January 1, 2022. A procedural safeguard
has been met, and the servicer may proceed with foreclosure, if: (1)
The borrower submitted a completed loss mitigation application and
Sec. 1024.41(f)(2) permits the servicer to make the first notice or
filing; (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.
Second, 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. Eligible loan modifications must satisfy
certain criteria that aim to establish sufficient safeguards to help
ensure that a borrower is not harmed if the borrower chooses to accept
an offer of an eligible loan modification based on the evaluation of an
incomplete application. First, to be eligible, the 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.
Second, if the loan modification permits the borrower to delay paying
certain amounts until the mortgage loan is refinanced, the mortgaged
property is sold, the loan modification matures, or, for a mortgage
loan insured by the Federal Housing Administration (FHA), the mortgage
insurance terminates, those amounts must not accrue interest. Third,
the loan modification must be made available to borrowers experiencing
a COVID-19-related hardship. Fourth, the 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. Finally,
the 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 that were incurred on or after March
1, 2020, promptly upon the borrower's acceptance of the loan
modification. If the borrower accepts an offer made pursuant to this
new exception, the final rule 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 Sec. 1024.41(b)(2). However, if the
borrower fails to perform under a trial loan modification plan offered
pursuant to the proposed new exception or requests further assistance,
the final rule requires servicers to immediately resume reasonable
diligence with regard to any loss mitigation application the borrower
submitted prior to the servicer's offer of the trial loan modification
plan and to provide the borrower with the acknowledgement notice
required by Sec. 1024.41(b)(2) with regard to the most recent loss
mitigation application the borrower submitted prior to the offer that
the servicer made under the new exception, unless the servicer has
already provided that notice to the borrower.
Third, the final rule amends the early intervention obligations to
help ensure that servicers communicate timely and accurate information
to borrowers about their loss mitigation options during the current
crisis. In general, the final rule requires servicers to discuss
specific additional COVID-19-related information during live contact
with borrowers established under existing Sec. 1024.39(a) in two
circumstances: (1) If the borrower is not in a forbearance program and
(2) if the borrower is near the end of a forbearance program made
available to borrowers experiencing a COVID-19-related hardship.
Specifically, if the borrower is not in a forbearance program at the
time the servicer establishes live contact with the borrower pursuant
to Sec. 1024.39(a) and the owner or assignee of the borrower's
mortgage loan makes a forbearance program available to borrowers
experiencing a COVID-19-related hardship, the servicer must inform the
borrower that forbearance programs are available for borrowers
experiencing such a hardship. Unless the borrower states they are not
interested, the servicer must also list and briefly describe to the
borrower those forbearance programs made available at that time and the
actions the borrower must take to be evaluated. The servicer must also
identify at least one way that the borrower can find contact
information for homeownership counseling services, such as referencing
the borrower's periodic statement. If the borrower is in a forbearance
program made available to borrowers experiencing a COVID-19-related
hardship, then during the live contact made pursuant to Sec.
1024.39(a) that occurs at least 10 days and no more than 45 days before
the scheduled end of the forbearance program, the servicer must provide
certain information to the borrower. The servicer must inform the
borrower of the date the borrower's current forbearance program is
scheduled to end. In addition, the servicer must provide a list and
brief description of each of the types of forbearance extension,
repayment options, and other loss mitigation options made available by
the owner or assignee of the borrower's mortgage loan at that time, and
the actions the borrower must take to be evaluated for such loss
mitigation options. Finally, the servicer must identify at least one
way that the borrower can find contact information for homeownership
counseling services, such as referencing the borrower's periodic
statement. This provision is temporary and will end on October 1, 2022.
Fourth, the final rule 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.
Specifically, the final rule specifies that a 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. If the borrower requests further
assistance, the servicer must exercise reasonable diligence to complete
the application before the end of the forbearance program period.
Finally, the final rule defines COVID-19-related hardship to mean 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)).
[[Page 34850]]
II. Background
A. The Bureau's Regulation X Mortgage Servicing Rules
In January 2013, the Bureau issued a final mortgage servicing rule
to implement the Real Estate Settlement Procedures Act of 1974 (RESPA)
(2013 RESPA Servicing Final Rule),\10\ and included these rules in
Regulation X.\11\ The Bureau later clarified and revised Regulation X's
servicing rules through several additional notice-and-comment
rulemakings.\12\ In part, these rulemakings were intended to address
deficiencies in servicers' handling of delinquent borrowers and loss
mitigation applications during and after the 2008 financial crisis.\13\
When the housing crisis began, servicers were faced with historically
high numbers of delinquent mortgages, loan modification requests, and
in-process foreclosures in their portfolios.\14\ Many servicers lacked
the infrastructure, trained staff, controls, and procedures needed to
manage effectively the flood of delinquent mortgages they were
obligated to handle.\15\ Inadequate staffing and procedures led to a
range of reported problems with servicing of delinquent loans,
including some servicers misleading borrowers, failing to communicate
with borrowers, losing or mishandling borrower-provided documents
supporting loan modification requests, and generally providing
inadequate service to delinquent borrowers.\16\
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\10\ Real Estate Settlement Procedures Act of 1974, Public Law
93-533, 88 Stat. 1724 (codified as amended at 12 U.S.C. 2601 et
seq.).
\11\ 78 FR 10695 (Feb. 14, 2013) (2013 RESPA Servicing Final
Rule). In February 2013, the Bureau also published separate
``Mortgage Servicing Rules Under the Truth in Lending Act
(Regulation Z)'' (2013 TILA Servicing Final Rule). See 78 FR 10902
(Feb. 14, 2013). The Bureau conducted an assessment of the RESPA
mortgage servicing rule in 2018-19 and released a report detailing
its findings in early 2019. Bureau of Consumer Fin. Prot., 2013
RESPA Servicing Rule Assessment Report, (Jan. 2019), <a href="https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rule-assessment_report.pdf">https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rule-assessment_report.pdf</a> (Servicing Rule Assessment Report).
\12\ Amendments to the 2013 Mortgage Rules under the Real Estate
Settlement Procedures Act (Regulation X) and the Truth in Lending
Act (Regulation Z), 78 FR 44686 (July 24, 2013); Amendments to the
2013 Mortgage Rules under the Equal Credit Opportunity Act
(Regulation B), Real Estate Settlement Procedures Act (Regulation
X), and the Truth in Lending Act (Regulation Z), 78 FR 60382 (Oct.
1, 2013); Amendments to the 2013 Mortgage Rules under the Real
Estate Settlement Procedures Act (Regulation X) and the Truth in
Lending Act (Regulation Z), 78 FR 62993 (Oct. 23, 2013); Amendments
to the 2013 Mortgage Rules Under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth in Lending Act
(Regulation Z), 81 FR 72160 (Oct. 19, 2016) (2016 Mortgage Servicing
Final Rule); Amendments to the 2013 Mortgage Rules Under RESPA
(Regulation X) and TILA (Regulation Z), 82 FR 30947 (July 5, 2017);
Mortgage Servicing Rules Under RESPA (Regulation X), 82 FR 47953
(Oct. 16, 2017). The Bureau also issued notices providing guidance
on the Rule and soliciting comment on the Rule. See, e.g.,
Applicability of Regulation Z's Ability-to-Repay Rule to Certain
Situations Involving Successors-in-Interest, 79 FR 41631 (July 17,
2014); Safe Harbors from Liability Under the Fair Debt Collections
Practices Act for Certain Actions in Compliance with Mortgage
Servicing Rules Under the Real Estate Settlement Procedures Act
(Regulation X) and the Truth in Lending Act (Regulation Z), 81 FR
71977 (Oct. 19, 2016); Policy Guidance on Supervisory and
Enforcement Priorities Regarding Early Compliance With the 2016
Amendments to the 2013 Mortgage Servicing Rules Under RESPA
(Regulation X) and TILA (Regulation Z), 82 FR 29713 (June 30, 2017).
\13\ See generally 2013 RESPA Servicing Final Rule, supra note
11, at 10699-701.
\14\ See 2013 RESPA Servicing Rule Assessment Report, supra note
11, at 37-60.
\15\ 2013 RESPA Servicing Final Rule, supra note 11, at 10700.
\16\ See U.S. Gov't Accountability Off., Troubled Asset Relief
Program: Further Actions Needed to Fully and Equitably Implement
Foreclosure Mitigation Actions, GAO-10-634, at 14-16 (2010), <a href="https://www.gao.gov/assets/310/305891.pdf">https://www.gao.gov/assets/310/305891.pdf</a>; Problems in Mortgage Servicing
from Modification to Foreclosure: Hearing Before the S. Comm. on
Banking, Hous., and Urban Affairs, 111th Cong. 54 (2010) (statement
of Thomas J. Miller, Att'y Gen. State of Iowa), <a href="https://www.banking.senate.gov/imo/media/doc/MillerTestimony111610.pdf">https://www.banking.senate.gov/imo/media/doc/MillerTestimony111610.pdf</a>.
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The Bureau's mortgage servicing rules address these concerns by
establishing procedures that mortgage servicers generally must follow
in evaluating loss mitigation applications submitted by mortgage
borrowers \17\ and requiring certain communication efforts with
delinquent borrowers.\18\ The mortgage servicing rules also provide
certain protections against foreclosure based on the length of the
borrower's delinquency and the receipt of a complete loss mitigation
application.\19\ For example, Regulation X generally prohibits a
servicer from making the first notice or filing required for
foreclosure until the borrower's mortgage loan is more than 120 days
delinquent.\20\ These requirements are discussed more fully in the
section-by-section analysis in part IV.
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\17\ See generally 12 CFR 1024.41. Small servicers, as defined
in Regulation Z, 12 CFR 1026.41(e)(4), are generally exempt from
these requirements. 12 CFR 1024.30(b)(1).
\18\ 12 CFR 1024.39.
\19\ 12 CFR 1024.41(f) through (g).
\20\ 12 CFR 1024.41(f)(1)(i).
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The Bureau published an assessment of the 2013 RESPA Servicing
Final Rule in 2019.\21\ The assessment analyzed the effects of the rule
on borrowers and servicers. Among other things, the assessment
concluded that loans that became delinquent were less likely to proceed
to a foreclosure sale during the months after the rule's effective date
compared to months before the effective date.\22\ Moreover, the
assessment found that delinquent borrowers were somewhat more likely
than they were pre-rule to start applying for loss mitigation earlier
in delinquency.\23\ Also, the assessment found that loans that became
delinquent were more likely to recover from delinquency (that is, to
return to current status, including through a modification of the loan
terms) after the rule's effective date.\24\ The assessment also
determined that the rule's general prohibition on initiating
foreclosure within the first 120 days of delinquency prevented rather
than delayed foreclosures.\25\ Finally, the assessment also found that
servicing costs increased substantially between 2008 and 2013.\26\
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\21\ 2013 RESPA Servicing Rule Assessment Report, supra note 11.
\22\ Id. at 9.
\23\ Id. at 11.
\24\ Id. at 8.
\25\ Id. at 12.
\26\ Id. at 8.
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The COVID-19 pandemic was declared a national emergency on March
13, 2020, and the emergency declaration was continued in effect on
February 24, 2021.\27\ As described in more detail below, the pandemic
has had a devastating economic impact in the United States. In June of
2020, the Bureau issued an interim final rule (June 2020 IFR) amending
Regulation X.\28\ The June 2020 IFR aimed to make it easier for
borrowers to transition out of financial hardship caused by the COVID-
19 pandemic and for mortgage servicers to assist those borrowers. With
certain exceptions, Regulation X prohibits servicers from offering a
loss mitigation option to a borrower based on evaluation of an
incomplete application.\29\ The June 2020 IFR amended Regulation X to
allow servicers to offer certain loss mitigation options to borrowers
experiencing financial hardships due, directly or indirectly, to the
COVID-19 emergency based on an evaluation of an incomplete loss
mitigation application. Eligible loss mitigation options, among other
things, must permit borrowers to delay paying certain amounts until the
mortgage loan is refinanced, the mortgaged property is sold, the term
of the mortgage loan ends, or, for a mortgage insured by the FHA, the
mortgage insurance terminates.
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\27\ 86 FR 11599 (Feb. 26, 2021).
\28\ 85 FR 39055 (June 30, 2020).
\29\ See 12 CFR 1024.41(c)(2).
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B. Forbearance Programs Offered Under CARES Act
The CARES Act was signed into law on March 27, 2020. Under the
CARES Act, a borrower with a federally backed loan may request a 180-
day forbearance that may be extended for another 180
[[Page 34851]]
days at the request of the borrower if the borrower attests to having a
COVID-related financial hardship. Servicers must grant these
forbearance programs to borrowers with federally backed mortgages,
which are mortgage loans purchased or securitized by Fannie Mae or
Freddie Mac (the GSEs) and loans made, insured, or guaranteed by FHA,
VA, or USDA. Through its mortgage market monitoring throughout the
pandemic, the Bureau understands that servicers of mortgage loans that
are not federally backed offer similar forbearance programs to
borrowers affected by the COVID-19 emergency.
In February of 2021, FHA, the Federal Housing Finance Agency
(FHFA), Department of Agriculture (USDA), and Department of Veterans
Affairs (VA) announced they were expanding their forbearance programs
beyond the minimum required by the CARES Act. The agencies extended the
length of COVID-19 forbearance programs for up to an additional six
months for a maximum of up to 18 months of forbearance for borrowers
who requested additional forbearance by a date certain.\30\ In addition
to the expansion of the programs, on June 24, 2021, FHA, USDA, and VA
extended the period for borrowers to be approved for a forbearance
program from their mortgage servicer through the end of September.\31\
FHFA has not announced a deadline to request initial forbearance for
loans purchased or securitized by the GSEs. To date, data on borrowers
reentering or requesting forbearance suggests borrower are still using
these programs.
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\30\ FHA, VA, and USDA permit borrowers who were in a COVID-19
forbearance program prior to June 30, 2020 to be granted up to two
additional three-month payment forbearance programs. FHFA stated
that the additional three-month extension allows borrowers to be in
forbearance for up to 18 months. Eligibility for the extension is
limited to borrowers who are in a COVID-19 forbearance program as of
February 28, 2021, and other limits may apply. Id.
\31\ The Bureau recognizes that the government agencies may
adjust their programs further in the coming months, and the Bureau
will continue to coordinate with the agencies.
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While forbearance has been a resource for many borrowers, not all
borrowers will be able to recover from such severe delinquency. As
discussed more fully in part VII, historical data suggests that many
borrowers with who are delinquent a year or longer have trouble
resuming payments successfully and are more likely to experience
foreclosure than borrowers with shorter delinquencies. Additionally,
long-term forbearance can erode equity, which may make selling the home
as an alternative to foreclosure less viable. The risks of extended
forbearance and severe delinquency are more pronounced in some
communities. For example, Bureau research found that, during the
pandemic, mortgage forbearance and delinquency rates have been
significantly more common in communities of color and lower-income
areas.\32\ Since homeownership rates vary significantly by race and
ethnicity, if borrowers of these communities are not able to recover
and are displaced from their homes, as a result of foreclosure, it will
make homeownership more unattainable in the future, thus widening the
divide for this population of borrowers. For example, in 2019, the
homeownership rate among white non-Hispanic Americans was approximately
73 percent, compared to 42 percent among Black Americans. The
homeownership rate was 47 percent among Hispanic or Latino Americans,
50 percent among American Indians or Alaska Natives, and 57 percent
among Asian or Pacific Islander Americans.\33\ Given the racial
inequities in homeownership and disproportionately higher mortgage
forbearance and delinquency in communities of color and lower income
areas, the Bureau anticipates that these communities are especially
likely to benefit from the protections of this rule.
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\32\ CFPB Mortgage Borrower Pandemic Report, supra note 5.
\33\ USAFacts, Homeownership rates show that Black Americans are
currently the least likely group to own homes (Oct. 16, 2020),
<a href="https://usafacts.org/articles/homeownership-rates-by-race/">https://usafacts.org/articles/homeownership-rates-by-race/</a>.
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C. Borrowers With Loans in Forbearance
There is a lot of uncertainty about the number of borrowers who
will exit forbearance this fall. The volume of borrowers exiting
forbearance programs is expected to fluctuate throughout the summer as
borrowers' forbearance periods end and borrowers either exit
forbearance or extend their forbearance for another three-month period.
June 2021 presents a substantial period of potential exits of early
forbearance entrants, who reached 15 months of forbearance in June.
Black Knight estimates there could be slightly fewer than 400,000 exits
in June if current trends continue.\34\ This will be the last review
for exit or extension before the review in September for borrowers who
entered forbearance in March of 2020 and who will reach the maximum 18
months of forbearance that month. While a significant number of early
entrants exited forbearance in the last 60 days,\35\ an estimated
900,000 borrowers could still exit forbearance by the end of 2021.\36\
As a result, this fall, servicers may need to assist a significant
number of borrowers with post-forbearance loss mitigation review. As of
May 18, 2021, Black Knight reports 5 percent of borrowers remain past
due on their mortgage but are in active loss mitigation.\37\ This
number may also fluctuate as borrowers who remain in forbearance may
not be able to cure their delinquency when they exit forbearance and
many borrowers may need a more permanent reduction in their mortgage
payment amount through a loan modification.
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\34\ Id. at 8.
\35\ An estimated 413,000 borrowers exited forbearance in May.
Id. at 9.
\36\ Id.
\37\ Black Apr. 2021 Report, supra note 7, at 10.
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As of May 25, 2021, forbearance program starts hit their highest
level in several weeks.\38\ The increase in forbearance program starts
can be attributed to elevated volume of borrowers who were previously
in forbearance during the COVID-19 emergency reentering or restarting
forbearance.\39\ A similar scenario was observed after a spike in exits
in early October 2020 as restart activity increased then as well. This
was when the first wave of forbearance entrants reached their six-month
review for extension and removal.\40\ There was also a slight increase
in new forbearance plan starts. This may be an indication that many
borrowers continue to experience mortgage payment uncertainty.
---------------------------------------------------------------------------
\38\ Andy Walden, Forbearance Volumes Increase Again Moderate
Opportunity for Additional Improvement in June, Black Knight Mortg.
Monitor Blog (May 28, 2021), <a href="https://www.blackknightinc.com/blog-posts/forbearance-volumes-increase-again-moderate-opportunity-for-additional-improvement-in-early-june/?utm_term=Forbearance%20Volumes%20Increase%20Again%2C%20Moderate%20Opportunity%20for%20Additional%20Improvement%20in%20Early%20June&utm_campaign=An%20Update%20from%20Vision%20%5Cu2013%20Black%20Knight%27s%20Blog&utm_content=email&utm_source=Act-On_Software&utm_medium=RSS%20Email">https://www.blackknightinc.com/blog-posts/forbearance-volumes-increase-again-moderate-opportunity-for-additional-improvement-in-early-june/?utm_term=Forbearance%20Volumes%20Increase%20Again%2C%20Moderate%20Opportunity%20for%20Additional%20Improvement%20in%20Early%20June&utm_campaign=An%20Update%20from%20Vision%20%5Cu2013%20Black%20Knight%27s%20Blog&utm_content=email&utm_source=Act-On_Software&utm_medium=RSS%20Email</a> (Black May 2021 Blog).
\39\ A borrower that ``restarts'' a forbearance program is a
borrower whose loan was previously in forbearance, who formally
exited the forbearance program, arranged to pay-off any delinquent
amounts, but ultimately reentered into a forbearance program.
\40\ Black Apr. 2021 Report, supra note 7, at 8.
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D. Post-Forbearance Options for Borrowers Affected by the COVID-19
Emergency
Since the beginning of the COVID-19 emergency, investors and
servicers have implemented several post-forbearance repayment options
and other loss mitigation options to assist borrowers experiencing a
COVID-19-related
[[Page 34852]]
hardship. For example, servicers have offered borrowers repayment
plans, payment deferral programs or partial claims programs, and loan
modification programs. There are additional options for borrowers who
find themselves unable to stabilize their finances or do not wish to
remain in their home; servicers also offer short sales or deed-in-lieu
of foreclosure as an alternative to foreclosure.
E. Loans Exiting Forbearance
As of April 2021, there were 1.9 million borrowers 90 days or more
delinquent on their mortgage payments.\41\ Of those borrowers, 90
percent are either in forbearance or are involved in other loss
mitigation discussions with their servicers.\42\ This includes loans
that reentered or restarted forbearance previously. For loans that
became seriously delinquent after the COVID-19 emergency, 97 percent of
these loans are either in forbearance programs or other loss mitigation
options.\43\
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\41\ Black Apr. 2021 Report, supra note 7, at 5.
\42\ Id.
\43\ Id.
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While the industry seems to have recovered from the peak periods of
forbearance, many factors in the market suggest that overall risk is
still elevated. Since January 2020,\44\ there have been approximately
7.2 million loans that have entered a forbearance program.\45\ Of the
subset of loans that that exited forbearance and have either cured or
received a workout solution, such as loss mitigation, approximately 3.3
million borrowers are reperforming as of May 2021.\46\ Another 1.2
million have paid-off their mortgage in full most likely through
refinancing or selling their home.\47\ In addition, as of May 18, 2021,
there were an estimated 365,000 borrowers who have exited forbearance
and were in an active loss mitigation option.\48\ As the population of
borrowers exiting after 18 months of forbearance (and possibly as many
missed payments) grows, the Bureau expects the number of borrowers who
will not be able to bring their mortgage current will also grow. Many
of these borrowers will need to be evaluated for permanent loss
mitigation, such as loan modifications, which can decrease their
monthly payment, to avoid foreclosure. Also noted earlier, there is a
high volume of borrowers who remain in prolonged forbearance that are
FHA and VA borrowers. The programs offered by these borrowers may be
more complicated to navigate or streamlined products may not be
available resulting in the need for higher-touch communication with
their servicer.
---------------------------------------------------------------------------
\44\ Black Knight's Mortgage Monitoring forbearance data started
January 2020. See Black Knights Mortg. Monitor, January 2021 Report
(Jan. 2021), <a href="https://cdn.blackknightinc.com/wp-content/uploads/2021/03/BKI_MM_Jan2021_Report.pdf">https://cdn.blackknightinc.com/wp-content/uploads/2021/03/BKI_MM_Jan2021_Report.pdf</a> (Black Jan. 2021 Report).
\45\ Supra note 7, at 10.
\46\ Id.
\47\ Id.
\48\ Id.
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If borrowers who are currently in an eligible forbearance program
request an extension to the maximum time offered by the government
agencies, those loans that were placed in a forbearance program early
on in the pandemic (March and April 2020) will reach the end of their
maximum 18-month forbearance period in September and October of 2021.
Black Knight data suggested as of mid-March, there would be an
estimated 475,000 programs on track to remain active and reach their
18-month expirations at the end of September, with another 275,000 at
the end of October.\49\ However, due to recent forbearance exits, those
estimates have now fallen to approximately 385,000 and 225,000.\50\
These numbers are expected to fluctuate depending on exit volume of
early forbearance entrants, especially near the end of June 2021 during
the 15-month review. However, even with the recent exits, there could
be nearly 900,000 borrowers exiting forbearance by the end of the
year.\51\ This could pose challenges for servicers.
---------------------------------------------------------------------------
\49\ Id. at 9.
\50\ Id.
\51\ Id.
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This potentially historically high volume of borrowers exiting
forbearance within a short period of time could strain servicer
capacity, possibly resulting in delays or errors in processing loss
mitigation requests. It remains unclear how many borrowers in a
forbearance program will exit forbearance at 15 months in June rather
than exercising any additional remaining 3-month extensions.
The Bureau is not aware of another time when this many mortgage
borrowers were in forbearances of such long duration at once, or
another time when as many mortgage borrowers were forecast to exit
forbearance within a relatively short period of time. This lack of
historical precedent creates uncertainty. The Bureau anticipates that
many borrowers who continue to be adversely affected by the COVID-19
emergency will utilize the maximum allowable months of forbearance and
most will exit in the fall.
F. Delinquent Loans Not in a Forbearance Program or Loss Mitigation
Even though millions of borrowers have received assistance through
forbearance programs, there are still thousands of borrowers who are
delinquent or in danger of becoming delinquent and are not in a
forbearance program or in some type of loss mitigation.
As of end of April 2021, there were an estimated 158,000 seriously
delinquent borrowers who were delinquent before the pandemic started
and are not in a forbearance program. There are another 33,000
borrowers who became seriously delinquent after the pandemic began and
had not entered a forbearance program and were not in active loss
mitigation.\52\
---------------------------------------------------------------------------
\52\ Id. at 11.
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In addition, as of May 18, 2021, there were 168,000 forbearance
program exits by borrowers who are not yet in loss mitigation and
remain delinquent.\53\ However, more than an estimated 110,000 of those
loans were already delinquent before the COVID-19 emergency.\54\
---------------------------------------------------------------------------
\53\ Id. at 10.
\54\ Id.
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G. Loans at Heightened Risk of Avoidable Foreclosure
Since the CARES Act took effect in March of 2020, various Federal
and State foreclosure moratoria have been established. As of June 24,
2021, FHFA, FHA, VA, and USDA had emergency foreclosure moratoria in
effect until July 31, 2021.\55\ Most foreclosure proceedings have been
halted as a result of the moratoria, and therefore foreclosures are at
historic lows.\56\ In April 2021, there were 3,700 foreclosures
initiated and the
[[Page 34853]]
foreclosure inventory was down 26 percent from the same time last
year.\57\
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\55\ See Press Release, The White House, FACT SHEET: Biden-
Harris Administration Announces Initiatives to Promote Housing
Stability By Supporting Vulnerable Tenants and Preventing
Foreclosures (June 24, 2021), <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/24/fact-sheet-biden-harris-administration-announces-initiatives-to-promote-housing-stability-by-supporting-vulnerable-tenants-and-preventing-foreclosures/">https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/24/fact-sheet-biden-harris-administration-announces-initiatives-to-promote-housing-stability-by-supporting-vulnerable-tenants-and-preventing-foreclosures/</a> (the
Department of Housing and Urban Development (HUD), Department of
VeteransAffairs (VA), and Department of Agriculture (USDA)--will
extend their respective foreclosure moratorium for one, final month,
until July 31, 2021). Furthermore, the Bureau recognizes that these
government agencies may adjust their programs further in the coming
months, and the Bureau will continue to coordinate with these
agencies.
\56\ ATTOM Data Solutions, Q3 2020 U.S. Foreclosure Activity
Reaches Historical Lows as the Foreclosure Moratorium Stalls Filings
(Oct. 15, 2020), <a href="https://www.attomdata.com/news/market-trends/foreclosures/attom-data-solutions-september-and-q3-2020-u-s-foreclosure-market-report/">https://www.attomdata.com/news/market-trends/foreclosures/attom-data-solutions-september-and-q3-2020-u-s-foreclosure-market-report/</a>.
\57\ Black Apr. 2021 Report, supra note 7, at 3.
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In addition, before the pandemic, foreclosure activity was at half
the normal rate.\58\ Typically, about 1 percent of loans are in some
stage of foreclosure annually.\59\ In early 2020, the foreclosure rate
was below average at about 0.5 percent.\60\ In January 2020, there were
about 245,000 loans in the foreclosure process when the pandemic
started.
---------------------------------------------------------------------------
\58\ Statista, Foreclosure rate in the United States from 2005-
2020, (Apr. 15, 2021), <a href="https://www.statista.com/statistics/798766/foreclosure-rate-usa/">https://www.statista.com/statistics/798766/foreclosure-rate-usa/</a>.
\59\ Id.
\60\ Id.
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Since the Federal and State moratoria have been in place, most of
these borrowers have been protected but are at heightened risk of
referral to foreclosure or foreclosure soon after the moratoria end if
they do not resolve their delinquency or reach a loss mitigation
agreement with their servicer. The Bureau's mortgage servicing rules
generally prohibit servicers from making the first notice or filing
required for foreclosure until the borrower's mortgage loan obligation
is more than 120 days delinquent.\61\ Even where forbearance programs
pause or defer payment obligations, they do not necessarily pause
delinquency.\62\ A borrower's delinquency may begin or continue during
a forbearance period if a periodic payment sufficient to cover
principal, interest, and, if applicable, escrow is due and unpaid
during the forbearance. Because the forbearance programs offered as a
result of the COVID-emergency generally do not pause delinquency and
borrowers may be delinquent for longer than 120 days, it is possible
that a servicer may refer the loan to foreclosure soon after a
borrower's forbearance program ends unless a foreclosure moratorium or
other restriction is in place.
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\61\ 12 CFR 1024.41(f). See also 12 CFR 1024.30(c)(2) (limiting
the scope of this provision to a mortgage loan secured by a property
that is the borrower's principal residence).
\62\ For purposes of Regulation X, a preexisting delinquency
period could continue or a new delinquency period could begin even
during a forbearance program that pauses or defers loan payments if
a periodic payment sufficient to cover principal, interest, and, if
applicable, escrow is due and unpaid according to the loan contract
during the forbearance program. 12 CFR 1024.31 (defining delinquency
as the ``period of time during which a borrower and a borrower's
mortgage loan obligation are delinquent'' and stating that ``a
borrower and a borrower's mortgage obligation are delinquent
beginning on the date a periodic payment sufficient to cover
principal, interest, and, if applicable, escrow becomes due and
unpaid, until such time as no periodic payment is due and
unpaid.''). However, it is important to note that Regulation X's
definition of delinquency applies only for purposes of the mortgage
servicing rules in Regulation X and is not intended to affect
consumer protections under other laws or regulations, such as the
Fair Credit Reporting Act (FCRA) and Regulation V. The Bureau
clarified this relationship in the Bureau's 2016 Mortgage Servicing
Final Rule. 81 FR 72160, 72193 (Oct. 19, 2016). Under the CARES Act
amendments to the FCRA, furnishers are required to continue to
report certain credit obligations as current if a consumer receives
an accommodation and is not required to make payments or makes any
payments required pursuant to the accommodation. See Bureau of
Consumer Fin. Prot., Consumer Reporting FAQs Related to the CARES
Act and COVID-19 Pandemic (Updated June 16, 2020), <a href="https://files.consumerfinance.gov/f/documents/cfpb_fcra_consumer-reporting-faqs-covid-19_2020-06.pdf">https://files.consumerfinance.gov/f/documents/cfpb_fcra_consumer-reporting-faqs-covid-19_2020-06.pdf</a> (for further guidance on furnishers'
obligations under the FCRA related to the COVID-19 pandemic).
---------------------------------------------------------------------------
As 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.\63\ While the national delinquency rate fell
to 4.66 percent in April, it remains about 1.5 percent above its pre-
pandemic level.\64\
---------------------------------------------------------------------------
\63\ Supra note 7 (1.77 million 90-day delinquencies plus 153k
active foreclosures).
\64\ Id. at 3.
---------------------------------------------------------------------------
The Bureau remains focused on borrowers who might be at heightened
risk of avoidable foreclosure. The Bureau issued on May 4, 2021, a
research brief titled, Characteristics of Mortgage Borrowers During the
COVID-19 Pandemic, which showed that some borrowers and communities are
more at risk than others. The data from the brief showed that borrowers
in forbearance or delinquent are disproportionately Black and
Hispanic.\65\ For example, 33 percent of borrowers in forbearance (and
27 percent of delinquent borrowers) are Black or Hispanic, while only
18 percent of the total population of mortgage borrowers are Black or
Hispanic.\66\
---------------------------------------------------------------------------
\65\ CFPB Mortgage Borrower Pandemic Report, supra note 5.
\66\ Id.
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Forbearance and delinquency are significantly more common in
communities of color (defined as majority minority census tracts) and
lower-income communities (defined by census tract income
quartiles).\67\ If borrowers are displaced from their homes as a result
of avoidable foreclosure, it will make homeownership more unattainable
in the future, thus potentially widening the wealth divide for this
population of borrowers.
---------------------------------------------------------------------------
\67\ Id.
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H. Borrower and Servicer Engagement During the Pandemic
The Bureau is closely monitoring mortgage servicers to determine
how they are working with borrowers to achieve positive outcomes for
borrowers during the current crisis.
Among other things, the Bureau has utilized its supervisory
authority to obtain current information about servicer activities. For
example, in May of 2020, the Bureau began conducting high-level
Prioritized Assessments (PA) in response to the pandemic.\68\ The PAs
were designed to obtain real-time information from an expanded group of
supervised entities that operate in markets posing elevated risk of
consumer harm due to pandemic-related issues. The Bureau, through its
supervision program, analyzed pandemic-related market developments to
determine where issues were most likely to pose risk to consumers.
Supervision currently is conducting follow-up on the issues covered in
the 2020 Prioritized Assessments as well as the current issues related
to economic hardships consumers are facing in the ongoing pandemic.
This work may be conducted as part of ongoing monitoring, in a
supervisory inquiry apart from a scheduled examination, in a scheduled
examination, or in some cases, through enforcement. For example,
Supervision is reviewing instances where servicers did not implement
the CARES Act properly, such as charging fees that are not charged if
the borrower made all contractual payments on time, failing to process
CARES Act forbearances where borrowers made proper requests for the
forbearances, or failing to comply with the Fair Credit Reporting Act's
requirements to report the credit obligation or account appropriately.
Supervision is conducting oversight to ensure these servicers take
timely action to reverse fees, provide full remediation to affected
borrowers, and implement processes to promote compliance moving
forward.
---------------------------------------------------------------------------
\68\ Bureau of Consumer Fin. Prot., Supervisory Highlights
COVID-19 Prioritized Assessments Special Edition, Issue 23, (January
2021), <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-23_2021-01.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-23_2021-01.pdf</a>.
---------------------------------------------------------------------------
In March 2021, the volume of overall mortgage complaints to the
Bureau increased to more than 3,400 complaints, the greatest monthly
mortgage complaint volume since April 2018.\69\ Mortgage complaints
mentioning forbearance or related terms peaked in April 2020. Since
this initial spike and subsequent decrease in May and June 2020, the
volume of mortgage forbearance complaints remained steady
[[Page 34854]]
until increasing again in March 2021. The number of borrowers selecting
the struggling to pay mortgage issue increased in March and April 2020.
That number decreased in the following months. It increased again in
2021 but has only just regained pre-pandemic levels.\70\ The Bureau is
continuing to monitor complaint data about mortgage servicers.
---------------------------------------------------------------------------
\69\ Bureau of Consumer Fin. Prot., Complaint Bulletin: Mortgage
forbearance issues described in consumer complaints (May 2021),
<a href="https://files.consumerfinance.gov/f/documents/cfpb_mortgage-forbearance-issues_complaint-bulletin_2021-05.pdf">https://files.consumerfinance.gov/f/documents/cfpb_mortgage-forbearance-issues_complaint-bulletin_2021-05.pdf</a>.
\70\ Id.
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The Bureau encourages servicers to use all available tools to reach
struggling homeowners and to do so in advance of the end of the
forbearance period and expects servicers to handle inquiries promptly,
to evaluate income fairly, and to work with borrowers throughout the
loss mitigation process.
III. Summary of the Rulemaking Process
On April 5, 2021, the Bureau issued a proposed rule to encourage
servicers and borrowers to work together on loss mitigation before the
servicer can initiate the foreclosure process. The comment period
closed on May 10, 2021.
In response to the proposal, the Bureau received over 200 comments
from individual consumers, consumer advocate commenters, State
Attorneys General, industry, and others. Many commenters expressed
general support for the proposed rule, articulating, for example, the
importance of providing clear and consistent information to delinquent
borrowers about all of their options. Some commenters expressed general
support for the proposed rule and stated that they believed the
proposal would give time for borrowers to recover economically and
explore loss mitigation options to avoid foreclosure. Some commenters
expressed concern about the proposal generally, citing, for example,
the proposal's potential economic impact on the housing market and
specific industries. The Bureau also received requests from commenters
to alter, clarify, or remove specific provisions of the proposed rule,
with some focusing on issues relating to current industry practices and
capacity and some highlighting the need to ensure consumers have the
best information and resources available to them at the most
appropriate times. As discussed in more detail below, the Bureau has
considered comments that address issues within the scope of the
proposed rule in adopting this final rule.
In addition, some commenters expressed the view that the statement
that the Bureau, along with other Federal and State agencies, issued on
April 3, 2020 (Joint Statement), and that announced certain supervisory
and enforcement flexibility for mortgage servicers in light of the
national emergency \71\ may undermine the proposed amendments and urged
the Bureau to revoke the Joint Statement. The Joint Statement provides
that the agencies do not intend to take supervisory or enforcement
action against servicers for specified delays in sending certain
notices and taking certain actions required by Regulation X. The Joint
Statement merely expresses the agencies' intent regarding enforcement
and supervision priorities and does not alter existing legal
requirements, including a borrower's private right of action under
Sec. 1024.41. The Bureau also issued FAQs on April 3, 2020 as a
companion to the Joint Statement to provide mortgage servicers with
enhanced clarity about existing flexibility in the mortgage servicing
rules that they can use to help consumers during the COVID-19
pandemic.\72\ Those FAQs state unequivocally that servicers must comply
with Regulation X during the COVID-19 pandemic emergency.
---------------------------------------------------------------------------
\71\ Bureau of Consumer Fin. Prot., Joint Statement on
Supervisory and Enforcement Practices Regarding the Mortgage
Servicing Rules in Response to the COVID-19 Emergency and the CARES
Act (Apr. 3, 2020), <a href="https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_mortgage-servicing-rules-covid-19.pdf">https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_mortgage-servicing-rules-covid-19.pdf</a>.
\72\ Bureau of Consumer Fin. Prot., Bureau's Mortgage Servicing
Rules FAQs related to the COVID-19 Emergency (Apr. 3, 2020), <a href="https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rules-covid-19_faqs.pdf">https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rules-covid-19_faqs.pdf</a>.
---------------------------------------------------------------------------
In addition, the Bureau recently released a Compliance Bulletin and
Policy Guidance (Bulletin) announcing the Bureau's supervision and
enforcement priorities regarding housing insecurity in light of
heightened risks to consumers needing loss mitigation assistance in the
coming months as the COVID-19 foreclosure moratoriums and forbearances
end.\73\ The Bureau specified that the Bureau intends to continue to
evaluate servicer activity consistent with the Joint Statement,
provided servicers are demonstrating effectiveness in helping
consumers, in accord with the Bulletin.\74\ The Bulletin makes clear
that the Bureau intends to consider a servicer's overall effectiveness
in communicating clearly with consumers, effectively managing borrower
requests for assistance, promoting loss mitigation, and ultimately
reducing avoidable foreclosures and foreclosure-related costs. It
reiterates that the Bureau intends to hold mortgage servicers
accountable for complying with Regulation X with the aim of ensuring
that homeowners have the opportunity to be evaluated for loss
mitigation before the initiation of foreclosure.
---------------------------------------------------------------------------
\73\ 86 FR 17897 (Apr. 7, 2021).
\74\ News Release, Bureau of Consumer Fin. Prot., CFPB
Compliance Bulletin Warns Mortgage Servicers: Unprepared is
Unacceptable (Apr. 21, 2021), <a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-compliance-bulletin-warns-mortgage-servicers-unprepared-is-unacceptable/">https://www.consumerfinance.gov/about-us/newsroom/cfpb-compliance-bulletin-warns-mortgage-servicers-unprepared-is-unacceptable/</a>.
---------------------------------------------------------------------------
The Bureau believes that the flexibility provided in the Joint
Statement and the clarity provided by the FAQs enable servicers to
provide borrowers with timely assistance. The Bulletin reinforces the
Bureau's expectation that all borrowers are treated fairly and have the
opportunity to get the assistance they need. The Bureau believes that
these statements of supervisory and enforcement policy are consistent
with the final rule. The Bureau will continue to engage in supervisory
and enforcement activity to ensure that mortgage servicers are meeting
the Bureau's expectations regarding the provision of effective
assistance to borrowers and prevention of avoidable foreclosures.
IV. Legal Authority
The Bureau is finalizing this rule pursuant to its authority under
RESPA and the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act),\75\ including the authorities, discussed below. The
Bureau is issuing this final rule in reliance on the same authority
relied on in adopting the relevant provisions of the 2013 RESPA
Servicing Final Rule,\76\ as discussed in detail in the Legal Authority
and Section-by-Section Analysis of the 2013 RESPA Servicing Final Rule.
---------------------------------------------------------------------------
\75\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\76\ 2013 RESPA Servicing Final Rule, supra note 11.
---------------------------------------------------------------------------
A. RESPA
Section 19(a) of RESPA, 12 U.S.C. 2617(a), authorizes the Bureau to
prescribe such rules and regulations, to make such interpretations, and
to grant such reasonable exemptions for classes of transactions, as may
be necessary to achieve the purposes of RESPA, which include its
consumer protection purposes. In addition, section 6(j)(3) of RESPA, 12
U.S.C. 2605(j)(3), authorizes the Bureau to establish any requirements
necessary to carry out section 6 of RESPA, section 6(k)(1)(E) of RESPA,
and 12 U.S.C. 2605(k)(1)(E) and authorizes the Bureau to prescribe
regulations that are appropriate to carry out RESPA's consumer
protection
[[Page 34855]]
purposes. The consumer protection purposes of RESPA include ensuring
that servicers respond to borrower requests and complaints in a timely
manner and maintain and provide accurate information, helping borrowers
prevent avoidable costs and fees, and facilitating review for
foreclosure avoidance options. The amendments to Regulation X in this
final rule are intended to achieve some or all these purposes.
Specifically, and as described below, during the COVID pandemic,
borrowers have faced unique circumstances including potential economic
hardship, health conditions, and extended periods of forbearance.
Because of these unique circumstances, the procedural safeguards under
the 2013 RESPA Servicing Final Rule and subsequent amendments to date,
may not have been sufficient to facilitate review for foreclosure
avoidance. Specifically, the Bureau is concerned that the present
circumstances may interfere with these borrowers' ability to obtain and
understand important information that the existing rule aims to provide
borrowers regarding the foreclosure avoidance options available to
them. As a result, the Bureau believes that a substantial number of
borrowers will not have had a meaningful opportunity to pursue
foreclosure avoidance options before exiting their forbearance or the
end of current foreclosure moratoria.
The Bureau is also concerned that based on the unique circumstances
described above, there exists a significant risk of a large number of
potential borrowers seeking foreclosure avoidance options in a
relatively short time period. Such a large wave of borrowers could
overwhelm servicers, potentially straining servicer capacity and
resulting in delays or errors in processing loss mitigation
requests.\77\ These strains on servicer capacity coupled with potential
fiduciary obligations to foreclose could result in some servicers
failing to meet required timeline and accuracy obligations as well as
other obligations under the existing rule with resulting harm to
borrowers.
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\77\ The Bureau recognizes that other Federal agencies may take
steps to protect borrowers from avoidable foreclosures in the
aftermath of the pandemic in light of the number of borrowers
exiting forbearance and an associated increased need for loss
mitigation assistance. The Bureau believes that these efforts would
be focused on federally backed mortgage loans. In that event, the
final rule may have less impact on those loans. Nevertheless, even
in that circumstance, the Bureau believes that the rule is necessary
to serve the purposes of RESPA with respect to private mortgage
loans.
---------------------------------------------------------------------------
In light of these unique circumstances, the Bureau's interventions
are designed to provide advance notice to borrowers about foreclosure
avoidance options and forbearance termination dates, as well as to
provide new procedural safeguards. The interventions aim to help
borrowers understand their options and encourage them to seek available
loss mitigation options at the appropriate time while also allowing
sufficient time for servicers to conduct a meaningful review of
borrowers for such options in the present circumstances that the
existing rules were not designed to address.
B. Dodd-Frank Act
Section 1022(b)(1) of the Dodd-Frank Act, 12 U.S.C. 5512(b)(1),
authorizes the Bureau to prescribe rules ``as may be necessary or
appropriate to enable the Bureau to administer and carry out the
purposes and objectives of the Federal consumer financial laws, and to
prevent evasions thereof.'' RESPA is a Federal consumer financial law.
The authority granted to the Bureau in Dodd-Frank Act section
1032(a) is broad and empowers the Bureau to prescribe rules regarding
the disclosure of the ``features'' of consumer financial protection
products and services generally. Accordingly, the Bureau may prescribe
rules containing disclosure requirements even if other Federal consumer
financial laws do not specifically require disclosure of such features.
In addition, section 1032(a) of the Dodd-Frank Act authorizes the
Bureau to prescribe rules to ensure that the features of any consumer
financial product or service, both initially and over the term of the
product or service, are fully, accurately and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances.
Dodd-Frank Act section 1032(c) provides that, in prescribing rules
pursuant to Dodd-Frank Act section 1032, the Bureau ``shall consider
available evidence about consumer awareness, understanding of, and
responses to disclosures or communications about the risks, costs, and
benefits of consumer financial products or services.'' 12 U.S.C.
5532(c). Accordingly, in developing the final rule under Dodd-Frank Act
section 1032(a), the Bureau has considered available studies, reports,
and other evidence about consumer awareness, understanding of, and
responses to disclosures or communications about the risks, costs, and
benefits of consumer financial products or services.\78\
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\78\ The Bureau is unaware of research that explicitly
investigates the link between COVID-19-related stress and
comprehension of information about forbearance and foreclosure and
solicited comment on available evidence. No commenters provided
additional evidence. However, previous research demonstrates that
prolonged or excessive stress can impair decision-making and may be
associated with reduced cognitive control, including in financial
contexts. See, e.g., Katrin Starcke & Matthias Brand, Effects of
stress on decisions under uncertainty: A meta-analysis, 142 Psych.
Bulletin 909 (2016), <a href="https://doi.apa.org/doi/10.1037/bul0000060">https://doi.apa.org/doi/10.1037/bul0000060</a>.
Further research has shown that thinking that one is or could get
seriously ill can lead to stress that negatively affects consumer
decision-making. See, e.g., Barbara Kahn & Mary Frances Luce,
Understanding high-stakes consumer decisions: mammography adherence
following false-alarm test results, 22 Marketing Sci. 393 (2003),
<a href="https://doi.org/10.1287/mksc.22.3.393.17737">https://doi.org/10.1287/mksc.22.3.393.17737</a>. Additionally, research
conducted in the last year has identified substantial variability in
(1) COVID-19-related anxiety and traumatic stress, which has been
linked to consumer behavior including panic-buying; and (2)
perceived threats to physical and psychological well-being. See,
e.g., Steven Taylor et al., COVID stress syndrome: Concept,
structure, and correlates, 37 Depression & Anxiety 706 (2020),
<a href="https://doi.org/10.1002/da.23071">https://doi.org/10.1002/da.23071</a>; Frank Kachanoff et al., Measuring
realistic and symbolic threats of COVID-19 and their unique impacts
on well-being and adherence to public health behaviors, Soc. Psych.
& Personality Sci. 1 (2020), <a href="https://journals.sagepub.com/doi/pdf/10.1177/1948550620931634">https://journals.sagepub.com/doi/pdf/10.1177/1948550620931634</a>. Taken together, the available evidence
suggests that experiencing heightened stress and anxiety can impair
decision-making in financial contexts, and this association may be
particularly strong during the COVID-19 pandemic. In addition, the
Bureau's assessment of the 2013 RESPA Servicing Final Rule in 2019
analyzed the effects of the early intervention disclosures and found
that after the effective date of the early intervention
requirements, delinquent borrowers were somewhat more likely than
they were pre-Rule to start applying for loss mitigation earlier in
delinquency. 2013 RESPA Servicing Rule Assessment Report, supra note
11, at 113.
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In addition, section 1032(a) of the Dodd-Frank Act authorizes the
Bureau to prescribe rules to ensure that the features of any consumer
financial product or service, both initially and over the term of the
product or service, are fully, accurately and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances.
V. Section-by-Section Analysis
Section 1024.31 Definitions
COVID-19-Related Hardship
The Bureau proposed to define a new term, ``a COVID-19-related
hardship,'' for purposes of subpart C. The proposal defined COVID-19-
related hardship to mean 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.
[[Page 34856]]
9056(a)(1)). The Bureau solicited comment on this proposed definition.
A few commenters, including some industry commenters and
individuals, stated that the definition was too broad and would include
individuals with hardships that commenters alleged were not due to the
COVID-19 emergency. Others urged the Bureau to adopt a definition that
more precisely detailed the amount of financial loss sufficient to
constitute a financial hardship.
The Bureau declines to narrow the definition as requested. The
Bureau modeled this definition after section 4022 of the CARES Act,
which established the forbearance program made available for borrowers
with federally backed mortgages. Servicers have utilized this
definition since March 23, 2020 when the CARES Act took effect and have
experience with its application. A new more tailored definition would
be harder for servicers to implement before the rule takes effect.
The Bureau also received a suggestion during its interagency
consultation process that the Bureau should tie the definition to the
national emergency itself rather than the national emergency as defined
in section 4022 of the CARES Act because the covered period of section
4022 of the CARES Act is undefined and the reference to that section
may cause confusion. In addition, the March 13, 2020 national emergency
referenced in section 4022 of the CARES Act was continued on February
24, 2021.\79\ Even though the CARES Act section referenced in the
proposal refers to the national emergency declared on March 13, 2020,
it is possible that the lack of clarity about the covered period in
section 4022 itself may create confusion. The Bureau is revising the
definition for clarity.
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\79\ Presidential Action, The White House, Notice on the
Continuation of the National Emergency Concerning the Coronavirus
Disease 2019 (COVID-19) Pandemic (Feb. 24, 2021), <a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/notice-on-the-continuation-of-the-national-emergency-concerning-the-coronavirus-disease-2019-covid-19-pandemic/">https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/notice-on-the-continuation-of-the-national-emergency-concerning-the-coronavirus-disease-2019-covid-19-pandemic/</a>.
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For the reasons discussed above, the Bureau is finalizing the
definition of COVID-19-related hardship to mean 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)).
Section 1024.39 Early Intervention
39(a) Live Contact
Currently, Sec. 1024.39(a) provides that a servicer must make good
faith efforts to establish live contact with delinquent borrowers no
later than the borrower's 36th day of delinquency and again no later
than 36 days after each payment due date so long as the borrower
remains delinquent.\80\ Promptly after establishing live contact, the
servicer must inform the borrower about the availability of loss
mitigation options, if appropriate.\81\ Current comment 39(a)-4.i
clarifies that the servicer has the discretion to determine whether it
is appropriate to inform the borrower of loss mitigation options.\82\
Current comment 39(a)-4.ii, in part, clarifies that if the servicer
determines it is appropriate, the servicer need not notify borrowers of
specific loss mitigation options, but rather may provide a general
statement that loss mitigation options may apply.\83\ The servicer is
not required to establish or make good faith efforts to establish live
contact with the borrower if the servicer has already established and
is maintaining ongoing contact with the borrower under the loss
mitigation procedures under Sec. 1024.41.\84\
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\80\ Small servicers, as defined in Regulation Z, 12 CFR
1026.41(e)(4), are not subject to these requirements. 12 CFR
1024.30(b)(1).
\81\ 12 CFR 1024.39(a).
\82\ 12 CFR 1024.39(a); Comment 39(a)-4.i.
\83\ 12 CFR 1024.39(a); Comment 39(a)-4.ii.
\84\ 12 CFR 1024.39(a); Comment 39(a)-6.
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As discussed below in the section-by-section analysis of Sec.
1024.39(e), the Bureau proposed to add temporary additional early
intervention live contact requirements for servicers to provide
specific information about forbearances and loss mitigation options
during the COVID-19 emergency. The Bureau proposed conforming
amendments to Sec. 1024.39(a) and related comments 39(a)-4-i and -ii
\85\ to incorporate references to proposed Sec. 1024.39(e).
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\85\ When amending commentary, the Office of the Federal
Register requires reprinting of certain subsections being amended in
their entirety rather than providing more targeted amendatory
instructions and related text. The sections of commentary text
included in this document show the language of those sections with
the changes as adopted in this final rule. In addition, the Bureau
is releasing an unofficial, informal redline to assist industry and
other stakeholders in reviewing the changes this final rule makes to
the regulatory and commentary text of Regulation X. This redline is
posted on the Bureau's website with the final rule. If any conflicts
exist between the redline and the text of Regulation X or this final
rule, the documents published in the Federal Register and the Code
of Federal Regulations are the controlling documents.
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As discussed in more detail below and in the section-by-section
analysis for Sec. 1024.39(e), generally the comments received on
proposed Sec. 1024.39(a) supported the changes to Sec. 1024.39(a) and
(e). Among those comments, the Bureau received a couple of comments
specific to the proposed amendments to Sec. 1024.39(a). A consumer
advocate commenter suggested the Bureau should include additional
amendments to Sec. 1024.39(a) commentary to further the goals of and
properly incorporate proposed Sec. 1024.39(e). The commenter
encouraged the Bureau to amend comment 39(a)-3, which addresses good
faith efforts to establish live contact, in light of proposed Sec.
1024.39(e). They also encouraged the Bureau to further amend comment
39(a)-4.ii, which clarifies when the servicer must promptly inform a
borrower about the availability of loss mitigation options, to address
when the written notice required under Sec. 1024.39(b)(2) may be an
alternative for live contact during the period Sec. 1024.39(e) is
effective. Additionally, an industry commenter discussed how Sec.
1024.39(e) intersects with the guidance provided in existing comment
39(a)-6, indicating that it felt the Bureau should not require Sec.
1024.39(e) under the circumstances described in comment 39(a)-6.
For the reasons discussed below, the Bureau is adopting the
amendments to Sec. 1024.39(a) and commentary as proposed, with
additional revisions to comments 39(a)-3 and 39(a)-6 to address certain
suggestions raised by commenters or points of clarity, and to make
certain conforming changes given the revisions to the foreclosure
review period in Sec. 1024.41(f)(3). Currently, comment 39(a)-3
clarifies that good faith efforts to establish live contact for
purposes of Sec. 1024.39(a) consist of reasonable steps, under the
circumstances, to reach a borrower. Those steps may depend on factors,
such as the length of the borrower's delinquency, as well as the
borrower's failure to respond to a servicer's repeated attempts at
communication. The commentary provides examples illustrating these
factors, including that good faith efforts to establish live contact
with an unresponsive borrower with six or more consecutive missed
payments might require no more than including a sentence requesting
that the borrower contact the servicer with regard to the delinquencies
in the periodic statement or in an electronic communication.
Given the length of forbearance programs during the pandemic, the
Bureau is revising comment 39(a)-3 to specify that if a borrower is in
a
[[Page 34857]]
situation such that the additional live contact information is required
under Sec. 1024.39(e) or if a servicer plans to rely on the temporary
special COVID-19 loss mitigation procedural safeguards in Sec.
1024.41(f)(3)(ii)(C)(1), servicers doing no more than including a
sentence in written or electronic communications encouraging the
borrower to establish live contact are not taking reasonable steps
under the circumstances to make good faith efforts to establish live
contact. When making good faith efforts to establish live contact with
borrowers in the circumstances described in Sec. 1024.39(e),
generally, reasonable steps to make good faith efforts to establish
live contact must include telephoning the borrower on one or more
occasion at a valid telephone number, although they can include sending
written or electronic communications encouraging the borrower to
establish live contact with the servicer, in addition to those
telephone calls. While the Bureau believes that it should be apparent
that if either Sec. 1024.39(e) or Sec. 1024.41(f)(3)(ii)(C) apply,
these unique circumstances present factors that differ from the
existing guidance in comment 39(a)-3 such that the example would not
apply in those cases, the Bureau is persuaded that the revision is
necessary to ensure clarity.
The Bureau also believes this clarification as to good faith
efforts is appropriate during the unique circumstances presented by the
COVID-19 pandemic emergency. As discussed more fully in part II above,
the Bureau estimates that a large number of borrowers will be more than
a year behind on their mortgage payments, including those in 18-month
forbearance programs, and many will have benefited from temporary
foreclosure protections due to various State and Federal foreclosure
moratoria. As explained in the proposal, to encourage these borrowers
to obtain loss mitigation to prevent avoidable foreclosures and given
the length of delinquency during these unique circumstances, the Bureau
believes that additional efforts are necessary to reach borrowers at
this time. Additionally, for the reasons discussed more fully in the
section-by-section analysis of Sec. 1024.41(f)(3)(ii)(C), because
compliance with Sec. 1024.39(a) during a certain timeframe is one of
several temporary procedural safeguards that servicers may rely on to
comply with the temporary special COVID-19 loss mitigation procedural
safeguards in Sec. 1024.41(f)(3)(ii)(C), the Bureau has concluded that
it must be explicitly clear that servicers are required to do more than
provide a sentence encouraging unresponsive borrower contact to prove
they have completed the temporary special COVID-19 loss mitigation
procedural safeguards. To achieve the goals of Sec. 1024.39(e)
discussed in the proposal to Regulation X and the goals of new Sec.
1024.41(f)(3)(ii)(C), in these circumstances presented by the COVID-19
pandemic, good faith efforts to establish live contact require a higher
standard of conduct.
For similar reasons, the Bureau is also amending comment 39(a)-6.
As identified by a commenter, without revision, current comment 39(a)-6
might be interpreted to allow for a lower standard of ongoing contact
than is necessary to assist borrowers in these circumstances. Existing
comment 39(a)-6 says, in part, that if the servicer has established and
is maintaining ongoing contact with the borrower under the loss
mitigation procedures under Sec. 1024.41, the servicer complies with
Sec. 1024.39(a) and need not otherwise establish or make good faith
efforts to establish live contact. The Bureau is revising this comment
to add that if a borrower is in a situation such that the additional
live contact information is required under Sec. 1024.39(e) or if a
servicer plans to rely on the temporary special COVID-19 loss
mitigation procedural safeguards in Sec. 1024.41(f)(3)(ii)(C)(1), then
certain loss mitigation related communications alone are not enough for
compliance with Sec. 1024.39(a). The Bureau is revising the comment to
specify that, in these circumstances, the servicer is not maintaining
ongoing contact with the borrower under the loss mitigation procedures
under Sec. 1024.41 in a way that would comply with Sec. 1024.39(a) if
the servicer has only sent the notices required by Sec.
1024.41(b)(2)(i)(B) and Sec. 1024.41(c)(2)(iii) and has had no further
ongoing contact with the borrower concerning the borrower's loss
mitigation application.
As discussed above, the Bureau believes this higher standard of
conduct, which it notes some servicers are already holding themselves
to, is necessary under the current circumstances presented by COVID-19
emergency to help ensure that additional efforts are taken to reach
delinquent borrowers, including those that are unresponsive. In line
with the goals discussed in the proposal for Sec. 1024.39(e), the
Bureau believes this revision will help clarify and ensure that
borrowers in these circumstances are receiving ongoing communication
about loss mitigation options, whether it be through live contact
communications or through completion of a loss mitigation application
and reasonable diligence requirements. The Bureau believes this
revision will help to prevent instances where borrowers miss
opportunities to submit loss mitigation applications because they only
receive loss mitigation information at the beginning of their
forbearance program, and no other contact until foreclosure is
imminent. However, the Bureau is not removing this guidance altogether.
As discussed by the commenter and explained in the 2014 RESPA Servicing
Proposed Rule \86\, the Bureau believes when done properly, established
and ongoing loss mitigation communication that is maintained can work
as well as live contact to encourage and help borrowers file loss
mitigation applications earlier in the forbearance program or
delinquency, timing which is beneficial to both the servicer and the
borrower under the current circumstances.
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\86\ 79 FR 74175, 74199-74200 (Dec. 15, 2014).
---------------------------------------------------------------------------
The Bureau is not further revising comment 39(a)-4.ii as suggested
by a consumer advocate commenter. Comment 39(a)-4.ii provides, in part,
that, if appropriate, a servicer may satisfy the requirement in Sec.
1024.39(a) to inform a borrower about loss mitigation options by
providing the written notice required by Sec. 1024.39(b)(1), but the
servicer must provide such notice promptly after the servicer
establishes live contact. The existing requirement in Sec. 1024.39(a)
to inform a borrower about the availability of loss mitigation options
that this comment references is separate from the new information
requirements in Sec. 1024.39(e). Nothing in the existing rule would
prevent compliance with both the option to inform these borrowers about
the availability of loss mitigation options as provided in comment
39(a)-4.ii and the requirement to provide these borrowers the specified
additional information in Sec. 1024.39(e) promptly after establishing
live contact.
39(e) Temporary COVID-19-Related Live Contact
As discussed more fully above in the section-by-section analysis of
Sec. 1024.39(a), currently, a servicer must make good faith efforts to
establish live contact with delinquent borrowers no later than the
borrower's 36th day of delinquency and again no later than 36 days
after each payment due date so long as the borrower remains
delinquent.\87\ Promptly after establishing live contact, the servicer
[[Page 34858]]
must inform the borrower about the availability of loss mitigation
options, if appropriate.\88\
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\87\ Small servicers, as defined in Regulation Z, 12 CFR
1026.41(e)(4), are not subject to these requirements. 12 CFR
1024.30(b)(1).
\88\ 12 CFR 1024.39(a).
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The Bureau's Proposal
The Bureau proposed to add Sec. 1024.39(e) to require temporary
additional actions in certain circumstances when a servicer establishes
live contact with a borrower during the COVID-19 emergency. These
temporary requirements would have applied for one year after the
effective date of the final rule. In general, proposed Sec.
1024.39(e)(1) would have required servicers to ask whether borrowers
not yet in a forbearance program at the time of the live contact were
experiencing a COVID-19-related hardship and, if so, to list and
briefly describe available forbearance programs to those borrowers and
the actions a borrower must take to be evaluated. In general, for
borrowers in forbearance programs at the time of live contact, proposed
Sec. 1024.39(e)(2) would have required servicers to provide specific
information about the borrower's current forbearance program and list
and briefly describe available post-forbearance loss mitigation options
and the actions a borrower would need to take to be evaluated for such
options during the last required live contact made before the end of
the forbearance period. For the reasons discussed below, the Bureau is
finalizing Sec. 1024.39(e) generally as proposed, with some revisions
to address certain comments received, including revisions to the sunset
date of this provision, adding a requirement to provide certain housing
counselor information, revising the requirement that the servicer ask
the borrower to assert a COVID-19-related hardship, and revising the
applicable time period when the servicer must provide the additional
information to borrowers who are in a forbearance program.
Comments Received
In response to proposed Sec. 1024.39(e), the Bureau received
comments from trade associations, financial institutions, consumer
advocate commenters, government entities, and individuals. Some
commenters opposed the provision entirely. A few industry commenters
asserted the proposal was unnecessary, stating that servicers were
already performing the proposed requirements and the proposal
duplicated most GSE and FHA requirements. Additionally, a few industry
commenters asserted that, instead of adding Sec. 1024.39(e), the
Bureau should rely on existing Sec. 1024.39(a) requirements and
provide COVID-19-specific examples in the commentary to explain how
those provisions apply under the current circumstances.
However, in general, a majority of commenters that addressed
proposed Sec. 1024.39(e) supported the proposed amendments. Some
industry commenters provided general support. Other commenters,
industry and otherwise, supported proposed Sec. 1024.39(e) but
requested certain revisions. Below is a discussion of comments received
on the overall proposed requirements in Sec. 1024.39(e). See the
section-by-section analyses of Sec. 1024.39(e)(1) and (2) for a
discussion of comments received relating to each of those specific
proposed provisions.
Concerns about balancing borrower access to information and
servicer discretion. Several commenters discussed how proposed Sec.
1024.39(e) would affect the balance between borrower access to
information as they make loss mitigation decisions and servicer
discretion in how to facilitate borrower understanding and prevent
confusion. Several industry commenters and trade groups expressed the
desire that the Bureau continue to provide servicers with discretion as
to which forbearance options and other loss mitigation options are
listed and described to borrowers promptly after live contact is
established, even as it applies to the information required under Sec.
1024.39(e). The commenters expressed concern that if servicers provided
information about all available forbearance options or other loss
mitigation options, it may be overwhelming. Additionally, those
commenters indicated that providing information about all available
forbearance options and loss mitigation options may cause borrower
frustration during the loss mitigation application process. For
example, commenters asserted that, while certain loss mitigation
options may be available, review processes, such as investor
``waterfall'' requirements, may mean not all available options are
offered to the borrower. Further, the commenters indicated eligibility
and availability of forbearance options and other loss mitigation
options may change after the live contact, particularly if the borrower
is on the cusp of certain criteria, such as delinquency length, at the
time of the live contact.
In contrast, several consumer advocate commenters and an industry
commenter indicated that borrowers would benefit from receiving a list
and brief description of all available forbearance options and other
loss mitigation options during early intervention and requested that
the Bureau require additional information in some cases. For example, a
couple of commenters asserted that, not only should servicers be
required to provide all forbearance and loss mitigation options
available to the borrower, they should also be required to provide all
possible forbearance and loss mitigation options, regardless of
availability to the borrower. The commenters that supported requiring
servicers to provide all available forbearance options and other loss
mitigation options during early intervention cited concerns that
servicer staff may not be properly trained to accurately identify which
loss mitigation options are appropriate for the borrower, and provided
qualitative evidence of servicer staff providing inaccurate forbearance
and other loss mitigation information. These commenters also indicated
that unless borrowers receive information about all available loss
mitigation options, if not all loss mitigation options, they may not
have all necessary information to determine and advocate for the best
loss mitigation solution for their particular situation.
Both sets of comments reiterate concerns discussed in the section-
by-section analysis of proposed Sec. 1024.39(e). The Bureau is aware
of evidence supporting assertions that some servicers are providing
consistent and accurate information, but also evidence that some
borrowers are not receiving consistent and accurate information as they
seek loss mitigation assistance during the pandemic.\89\ The Bureau is
not persuaded that providing the borrower with information on all
possible loss mitigation options, regardless of whether those options
are available to the borrower, is beneficial. The Bureau agrees that it
is essential at this time to provide the borrower with as much loss
mitigation information as possible to support borrowers in their
decisions as to how to address their delinquency in a way that is best
for their situation. Nevertheless, the Bureau believes providing all
possible loss mitigation options, even those that are not applicable to
the borrower, would increase borrower confusion.
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\89\ 86 FR 18840 at 18851 (Apr. 9, 2021).
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However, the Bureau is also not persuaded that allowing complete
servicer discretion as to which, if any, specific loss mitigation
options are discussed is sufficient in the current crisis. The concerns
about servicers sometimes providing inconsistent and inaccurate
information during this
[[Page 34859]]
critical period for loss mitigation assistance seem only more likely to
continue or increase as the expected volume of borrowers needing the
assistance increases. Further, the anticipated forthcoming expiration
of many COVID-19-related programs may also contribute to these
concerns, as fast-paced or frequent changes in loss mitigation program
availability or criteria have been noted to cause some consistency and
accuracy issues with some servicers. For these reasons, the Bureau
concludes that the information required under final Sec. 1024.39(e)(1)
and (2), as discussed in more detail in the section-by-section analyses
of those provisions below, strikes the correct balance during of the
pandemic.
Require information in a written disclosure. Certain consumer
advocate commenters, industry commenters, and State government
commenters requested the Bureau consider requiring new written
disclosures as part of the proposed early intervention amendments. A
consumer advocate commenter and a State government group suggested the
Bureau require the additional content in proposed Sec. 1024.39(e) to
be provided in a written notice or added to the existing 45-day written
notice requirements in Sec. 1024.39(b). An industry group and a State
government group suggested that the Bureau add written pre-foreclosure
notice requirements, similar to those in New York, Iowa, and
Washington.
The Bureau is not finalizing any new written disclosures or
amendments to existing written disclosure requirements. Given the
expedited timeframe and urgent necessity for this rulemaking, there is
not sufficient time to complete consumer testing to help ensure any new
or updated required disclosures would sufficiently assist borrowers,
rather than contributing to any confusion. Additionally, the Bureau
believes adding new written disclosure requirements at this time could
be harmful to borrowers during the unique circumstances presented by
the COVID-19 emergency, as servicers would need to spend time and
resources implementing those disclosures, rather than focusing their
time and resources on assisting borrowers quickly. Given the upcoming
expected surge in borrowers exiting forbearance, the Bureau believes
those resources are better spent assisting borrowers. The Bureau notes
that nothing in the rule prevents servicers from listing and briefly
describing specific loss mitigation options available to the borrower
in the existing 45-day written notice or from adding any additional
information to the notice.\90\ In addition, the rule does not prevent a
servicer from following-up on its live contact with specific
information in a written communication.\91\
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\90\ Comment 39(b)(1)-1 states, in part, that a servicer may
provide additional information that the servicer determines would be
helpful.
\91\ For example, comment 39(a)-4.ii states, in part, that a
servicer may inform borrowers about the availability of loss
mitigation options orally, in writing, or through electronic
communication promptly after the servicer establishes live contact.
---------------------------------------------------------------------------
Require provision of HUD homeownership counselors or counseling
organizations list. Several consumer advocate commenters and State
Attorneys General commenters suggested the Bureau should require
servicers to provide information to borrowers about the Department of
Housing and Urban Development (HUD) homeownership counseling as part of
the additional information required by proposed Sec. 1024.39(e).
Commenters stated that homeownership counselors are often able to
assist borrowers that mistrust their servicer, or have difficulty
understanding their options or how to submit a loss mitigation
application.
The Bureau is persuaded that some borrowers may benefit from
homeownership counselor assistance during the pandemic. However, given
commenter concerns about the amount of information required by Sec.
1024.39(e) that servicers must convey promptly after establishing a
live contact, the Bureau does not believe provision of detailed
homeownership counselor contact information during the live contact
would be beneficial to borrowers in these circumstances. Instead, the
Bureau is persuaded that borrowers may benefit from a reference to
where they can access homeownership counselor contact information.
Thus, as discussed more fully in the section-by-section analyses of
Sec. 1024.39(e)(1) and (2), the Bureau is adding a requirement that
the servicer must identify at least one way that the borrower can find
contact information for homeownership counseling services, such as
referencing the borrower's periodic statement. Other examples servicers
may choose to reference include, for example, the Bureau's website,
HUD's website, or the 45-day written notice required by Sec.
1024.39(b), but the servicer need only include one reference. By
requiring that servicers identify at least one way that the borrower
can find contact information for homeownership counseling services, the
Bureau believes it will remind borrowers, especially those who believe
they would benefit from homeownership counselor assistance, of where
this information is located and how they may access it. Additionally,
this requirement may help address concerns about servicer resource
capacity, as discussed in the proposal, given that homeownership
counselors can help answer borrower's questions regarding their loss
mitigation options. The Bureau notes that servicers are already
required to provide certain information about homeownership counseling
to borrowers,\92\ and that servicers may comply with this provision by
referencing existing disclosures, further minimizing servicer burden.
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\92\ See, e.g., 12 CFR 1026.41(d)(7)(v).
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Exempt federally backed mortgages. One industry trade group
requested the Bureau exempt ``federally backed'' mortgage loans from
proposed Sec. 1024.39(e). The commenter indicated that these mortgages
are already subject to Federal investor or other Federal guarantor
requirements that are similar to or more extensive than those proposed.
The Bureau is not persuaded that exempting federally backed
mortgages from the Sec. 1024.39(e) requirements is necessary. The
Bureau believes final Sec. 1024.39(e) does not conflict with GSE or
FHA requirements and does not add additional burdens on servicers of
those loans. Further, the Bureau also believes exempting federally
backed mortgages from this provision may add unnecessary implementation
complexity that may affect the ability of servicers to provide critical
assistance to borrowers at this time.
Require translation for limited English proficiency borrowers. A
consumer advocate commenter and a State Attorney General commenter
advocated for adding a translation requirement to proposed Sec.
1024.39(e) to assist limited English proficiency borrowers. The Bureau
is not revising Sec. 1024.39(e) to require translation for limited
English proficiency borrowers. In the interest of issuing the final
rule on an expedited basis to bring relief as soon as possible to the
largest number of borrowers, the Bureau did not undertake to
incorporate a requirement to provide disclosures in languages other
than English or to incorporate model forms in other languages. This
does not mean the Bureau will or will not take that step in a future
rulemaking. Additionally, Regulation X permits servicers to provide
disclosures in languages other than English.\93\ The Bureau both
permits and encourages servicers to ascertain the language preference
of their borrowers, when done in a legal manner
[[Page 34860]]
and without violating the Equal Credit Opportunity Act or Regulation B,
to be responsive to borrower needs during this critical time for
borrower communication.\94\ The Bureau will be providing on its website
a Spanish language translation of Appendix MS-4 of Regulation X that
servicers may use, as permitted by applicable law.
---------------------------------------------------------------------------
\93\ See 12 CFR 1024.32(a)(2).
\94\ See Bureau of Fin. Prot., Statement Regarding the Provision
of Financial Products and Services to Consumers with Limited English
Proficiency (Jan. 13, 2021), <a href="https://www.consumerfinance.gov/rules-policy/notice-opportunities-comment/open-notices/statement-regarding-the-provision-of-financial-products-and-services-to-consumers-with-limited-english-proficiency/">https://www.consumerfinance.gov/rules-policy/notice-opportunities-comment/open-notices/statement-regarding-the-provision-of-financial-products-and-services-to-consumers-with-limited-english-proficiency/</a>; 86 FR 6306 (Jan. 13,
2021). See also 82 FR 55810 (Nov. 20, 2017).
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Electronic media use for live contacts. A consumer advocate
commenter and State Attorney General commenter requested the Bureau
provide guidance about which electronic communication media satisfy the
live contact requirements. The Bureau has previously declined to
require or explicitly permit certain methods of electronic media for
required communications under the mortgage servicing rules, stating it
believes it would be most effective to address the use of such media
after further study and outreach to enable the Bureau to develop
principles or standards that would be appropriate on an industry-wide
basis.\95\ Similarly now, the Bureau is not finalizing language in the
rule to discuss specific electronic media use for early intervention
live contact requirements, but notes that certain electronic media,
such as live chat functions, can, in certain circumstances, be compared
to telephone or in-person conversations that are permitted as live
contact under the rule.
---------------------------------------------------------------------------
\95\ See, e.g., 78 FR 10695, 10745 (Feb. 14, 2013) (discussing
the suggestion to require establishing electronic portals for intake
of notices of error under Sec. 1024.35(c)).
---------------------------------------------------------------------------
Sunset date. A few commenters discussed the sunset date for
proposed Sec. 1024.39(e). These commenters generally supported having
a sunset date. However, they differed about whether the proposed August
31, 2022 sunset date was the appropriate choice. A government commenter
and an industry commenter supported the existing sunset date,
suggesting it was long enough, with one indicating it should not be
shortened. Conversely, another industry commenter asserted the proposed
sunset date conflicted with certain existing GSE requirements and
requested the sunset date correlate with the emergency declaration or
COVID-19-related forbearance program end dates. The Bureau also
received a suggestion during its interagency consultation process to
revise the sunset date to June 30, 2022, the anticipated end date of
certain Federal COVID-19-related forbearance programs.
The Bureau is persuaded a sunset date for Sec. 1024.39(e) is
appropriate and provides servicers with certainty as to how long they
are required to provide the additional information during live
contacts. However, the Bureau is revising the sunset date to better
align with the pandemic, rather than the effective date of this final
rule. The Bureau is persuaded that aligning the sunset of Sec.
1024.39(e) more closely to the pandemic is necessary to prevent
conflicts between Sec. 1024.39(e) and pandemic-related investor or
guarantor requirements, such as those related to additional
communications and loss mitigation options.
As such, Sec. 1024.39(e) will sunset on October 1, 2022. The
Bureau anticipates that COVID-19-related forbearance programs will be
offered through at least September 30, 2021, and anticipates that most
borrowers utilizing the full 360 days offered under the CARES Act will
exit forbearance by September 30, 2022. Once COVID-19-related
forbearance programs expire and borrowers exit the applicable
forbearance programs, the circumstances that warranted the additional
information in Sec. 1024.39(e) will no longer apply. The Bureau
anticipates that will occur sometime after September 30, 2022, but
there is significant uncertainty about exactly when such programs will
expire. Taking that uncertainty into consideration, to best ensure a
sufficient period of coverage, the Bureau concludes that it is
appropriate to extend the proposed sunset date. The Bureau notes that
the final sunset date will align with the mandatory compliance date for
the final rule titled Qualified Mortgage Definition under the Truth in
Lending Act (Regulation Z): General QM Loan Definition (General QM
Final Rule). The Bureau recently extended, that mandatory compliance
date, in part, to preserve flexibility for consumers affected by the
COVID-19 pandemic and its economic effects. As similarly noted in that
rule, the Bureau will continue to monitor for any unanticipated effects
of the COVID-19 pandemic on market conditions to determine if future
changes are warranted.
While commenters suggested the Bureau could tie the sunset date to
the end of these loss mitigation programs, the Bureau believes that,
because investors and guarantors may differ as to when their respective
pandemic-related requirements will expire, it will simplify compliance
for the requirements to sunset on a universal date. The Bureau believes
this change to the sunset date will address comments indicating the
proposed date conflicted with guidance from other agencies.
Additionally, the Bureau believes this change will address commenter
concerns that the provision should sunset with the circumstances of the
pandemic. Further, the Bureau believes this time period is necessary to
allow servicers to reach most borrowers. While, as discussed above in
part II, the anticipated surge and largest amount of strain on servicer
resources is expect to begin to decline after January 1, 2022, the
volume of borrowers expected to exit forbearance each month will remain
high beyond that date and the unique circumstances of the pandemic,
including the unusually long delinquencies, will persist. The Bureau
concludes the sunset date for Sec. 1024.39(e) must cover both the
expiration of COVID-19-related forbearance programs, which would be
relevant for the requirements for Sec. 1024.39(e)(1), and also
borrowers exiting COVID-19-related forbearance programs who entered on
the last possible day and utilized a full 12 months of forbearance,
which would be relevant for the requirements in Sec. 1024.39(e)(2). To
cover both groups of borrowers, and particularly to reach all borrowers
exiting the relevant forbearance programs discussed in Sec.
1024.39(e), the Bureau believes it is necessary to extend this
provision beyond the anticipated surge of borrowers existing
forbearance, unlike other provisions in this rule.
Final Rule
As discussed in more detail in the section-by-section analyses of
Sec. 1024.39(e)(1) and (2) below, the Bureau is finalizing Sec.
1024.39(e) generally as proposed, with some revisions to address
certain comments received, including revisions to the sunset date of
this provision, adding a requirement to provide certain homeownership
counseling information, revising the requirement that the servicer ask
the borrower to assert a COVID-19-related hardship, and revising the
applicable time period when the servicer must provide the additional
information to borrowers who are in a forbearance program. The Bureau
believes the addition of Sec. 1024.39(e) will help encourage and
support borrowers in seeking available loss mitigation assistance
during this unprecedented time. Section 1024.39(e) temporarily requires
servicers to provide specific additional information to certain
delinquent borrowers promptly after establishing live contact.
[[Page 34861]]
As revised, the requirements apply until October 1, 2022.
The Bureau notes that this final rule does not change the scope of
any current live contact requirements more generally under Sec.
1024.39(a). Thus, the Bureau reiterates that Sec. 1024.39(e) does not
apply if the borrower is current. The Bureau also notes that nothing in
the rule prevents a servicer from providing additional information than
what is required under the rule to borrowers about forbearance programs
or other loss mitigation programs. For example, if the forbearance
program may end soon after the live contact is established, has certain
eligibility criteria, or is subject to investor ``waterfall'' review
procedures, a servicer may choose to discuss that information with the
borrower to attempt to prevent confusion.
Additionally, both Sec. 1024.39(e)(1) and (2) require servicers to
provide a list of forbearance programs or loss mitigation programs made
available by the owner or assignee of the borrower's mortgage loan to
borrowers experiencing a COVID-19-related hardship. The list of
forbearance programs is limited to only those that are available at the
time the live contact is established. The Bureau has added language to
both sections to clarify this timing limitation. If a forbearance
program or loss mitigation program is no longer available at the time
of the live contact, the servicer need not include that forbearance
program or loss mitigation program in the list.
If a borrower's COVID-19-related hardship would not meet applicable
eligibility criteria for a forbearance program or a loss mitigation
program, the servicer also need not include that in the lists required
by Sec. 1024.39(e)(1) or (2). However, the Bureau reiterates that the
required information under Sec. 1024.39(e) is not limited to
forbearance programs or loss mitigation programs specific to COVID-19
or only available during the COVID-19 emergency. The servicer must
provide information about COVID-19-specific programs, as well as any
generally available programs where COVID-19-related hardships are
sufficient to meet the hardship-related requirements for the program.
Further, the servicer must inform the borrower about program options
made available by the owner or assignee of the borrower's mortgage loan
regardless of whether the option is available based on a complete loss
mitigation application, an incomplete application, or no application,
to the extent permitted by this rule. Finally, the existing rule
provides guidance as to what constitutes a brief description and the
steps the borrower must take to be evaluated for loss mitigation
options.\96\
---------------------------------------------------------------------------
\96\ 12 CFR 1024.38(b)(2); 12 CFR 1024.40(b)(1)(i) and (ii).
---------------------------------------------------------------------------
39(e)(1)
The Bureau's Proposal
Proposed Sec. 1024.39(e)(1) would have temporarily required
servicers to take certain actions promptly after establishing live
contact with borrowers who are not currently in a forbearance program
where the owner or assignee of the borrower's mortgage loan makes a
payment forbearance program available to borrowers experiencing a
COVID-19-related hardship. In those circumstances, proposed Sec.
1024.39(e)(1) would have required that the servicer ask if the borrower
is experiencing a COVID-19-related hardship. If the borrower indicated
they were experiencing a COVID-19-related hardship, proposed Sec.
1024.39(e)(1) would have required the servicer to provide the borrower
a list and description of forbearance programs available to borrowers
experiencing COVID-19-related hardships and the actions the borrower
would need to take to be evaluated for such forbearance programs. For
the reasons discussed below, the Bureau is finalizing Sec.
1024.39(e)(1) generally as proposed, with some revisions to address
certain comments received, including removing the requirement that the
servicer ask whether the borrower is experiencing a COVID-19-related
hardship, and adding a requirement to provide certain housing counselor
information.
Comments Received
Commenters generally supported proposed Sec. 1024.39(e)(1). One
industry commenter opposed this provision overall, asserting servicers
were already performing the requirements proposed in Sec.
1024.39(e)(1) and that adding new regulatory requirements at this time
will further strain servicer capacity. Of those that supported the
proposal, commenters generally suggested certain scope and content
revisions, discussed below.
Scope. Several commenters discussed which borrowers would benefit
from proposed Sec. 1024.39(e)(1) requirements. A consumer advocate
commenter and an individual supported the proposed requirement that the
servicer ask the borrower to assert a COVID-19-related hardship. A
consumer advocate commenter suggested that the requirements should
instead apply to all delinquent borrowers not yet in forbearance, not
just those that assert a COVID-19-related hardship. This comment
asserted that requiring Sec. 1024.39(e)(1) information for all such
delinquent borrowers removes the onus from borrowers to identify
whether their hardship qualifies as COVID-19-related. A few industry
commenters asserted that servicers should have discretion to determine
whether the borrower has a COVID-19-related hardship, rather than
asking the borrower. Further, as discussed above in the section-by-
section analysis for the definition of COVID-19-Related Hardship in
Sec. 1024.31, commenters expressed concern about servicer and borrower
understanding of the term and ability to accurately implement its use.
The Bureau is persuaded it should remove the requirement that
servicers ask borrowers whether they are experiencing a COVID-19-
related hardship, and instead require servicers to provide certain
information under Sec. 1024.39(e)(1) to delinquent borrowers during
the period the provision is effective unless the borrower asserts they
are not interested. The Bureau indicated in the proposal that it was
considering expanding this provision to all delinquent borrowers not in
forbearance at the time live contact is established. As mentioned by
commenters and in the proposal, borrowers may not know or may be more
hesitant to assert that their hardship qualifies as a COVID-19-related
hardship. This seems particularly applicable to the borrowers that have
not yet obtained forbearance assistance. As discussed in the proposal,
the Bureau believes these borrowers may not yet have taken advantage of
the offered forbearance programs because they may be more hesitant to
assert hardship, may not fully trust their ability to receive
assistance, or may not understand whether their hardship is COVID-19-
related. By removing the requirement that borrowers take action to
receive the information, and instead requiring that borrowers take
action to be excluded, the rule helps to ensure that borrowers are not
missing beneficial information due to any misunderstanding or
hesitancy, reducing the likelihood that target borrowers may miss this
important information.
However, the Bureau is also persuaded by commenters that some
delinquent borrowers may not benefit from receipt of this information.
Thus, the final rule continues to provide a method for borrower-
initiated exclusion. Unlike the proposal, the final rule will require
borrowers to state that they are uninterested in receiving information
about the available forbearance programs. In doing so, the
[[Page 34862]]
Bureau continues to narrow the applicability of the provision to those
borrowers most likely to be experiencing a COVID-19-related hardship,
without requiring borrowers who are uncertain or hesitant to opt-in to
receiving this information. The Bureau believes borrowers who are
certain they do not have a COVID-19-related hardship are likely to
assert they do not need the additional information in Sec.
1024.39(e)(1). Borrowers that are certain they have a COVID-19-related
hardship or are unsure will likely not take such action, unless they
are uninterested forbearance program assistance. For those borrowers
that are unsure, the Bureau believes that receiving this information
likely will clarify whether their hardship qualifies as COVID-19-
related and will be beneficial even if ultimately the borrower does not
meet the required hardship criteria. Further, the Bureau does not
believe that requiring an assertion to be excluded, rather than an
assertion to be included, is likely to increase the probability of
borrower confusion. As with the proposal, the information seems equally
likely to be received by only those borrowers that may have a COVID-19-
related hardship.
Content. A few consumer advocate commenters indicated the Bureau
should expand Sec. 1024.39(e)(1) to require servicers to inform the
borrower of all possible or available loss mitigation options, not just
the available forbearance options. The commenters assert that while
forbearance may be beneficial for some borrowers, some delinquent
borrowers may have stabilized their income and may be ready for more
permanent loss mitigation options. The commenters also assert, as
discussed above in the section-by-section analysis for Sec.
1024.39(e), that borrowers may benefit from the knowledge of all
possible loss mitigation options, rather than those options only
available to them.
The Bureau is not persuaded that the current unique circumstances
presented by the COVID-19 emergency warrant requiring servicers to
inform delinquent borrowers who are not yet in a forbearance program
about all possible or available loss mitigation options. First, the
Bureau is not persuaded that it would be beneficial to expand the
content discussed to include options beyond forbearance programs. The
Bureau believes that forbearance programs at this time are beneficial
to delinquent borrowers, given they can provide borrowers with
additional time to recover from their hardships, develop a financial
plan, and apply for permanent loss mitigation. Additionally, limiting
the required information to just forbearance options first can help
prevent borrowers not yet in forbearance from becoming overwhelmed with
information, a concern noted by commenters as discussed above. Further,
the content required by Sec. 1024.39(e)(1) does not replace the
existing live contact requirements in Sec. 1024.39(a), which require
that, promptly after establishing live contact with a borrower, the
servicer must inform the borrower about the availability of loss
mitigation options, if appropriate. Thus, in some cases, it may be
appropriate for servicers to inform certain borrowers, such as those
who indicate that they have resolved their hardship, about the
availability of additional loss mitigation options in addition to the
information required in Sec. 1024.39(e)(1). Second, the Bureau is not
persuaded that the options discussed should be all possible options,
whether or not available to the borrower through the owner or assignee
of the mortgage. The potential for increased borrower confusion or
frustration outweighs any potential benefit this knowledge may provide
the borrower.
Final Rule
For the reasons discussed in this section and in more detail below,
the Bureau is finalizing Sec. 1024.39(e)(1) generally as proposed with
some revisions to address certain comments received. The Bureau
believes Sec. 1024.39(e)(1), as revised, will help encourage borrowers
not yet in forbearance to work with their servicer under these unique
circumstances and avoid unnecessary foreclosures.
For the reasons discussed above, the Bureau is revising Sec.
1024.39(e)(1) to remove the requirement that servicers ask borrowers
whether they are experiencing a COVID-19-related hardship before being
providing the additional forbearance program information. Instead, the
Bureau is finalizing Sec. 1024.39(e)(1) such that all delinquent
borrowers not yet in forbearance at the time live contact is
established will receive notification that forbearance programs are
available by the owner or assignee of the borrowers' mortgage loan to
borrowers experiencing COVID-19-related hardships. To provide this
information, the servicer need not use the exact language in the
regulation, and may find a more plain-language method, such as
informing the borrower that there are forbearance programs available if
they are having difficulty making their payments because of COVID-19.
Unless the borrower states they are not interested, servicers are then
required to provide a list and brief description of such forbearance
programs, as well as the actions the borrower must take to be evaluated
for such forbearance programs. In addition to the guidance discussed
above in the section-by-section analysis for Sec. 1024.39(e) more
generally, the Bureau notes that particular to Sec. 1024.39(e)(1), the
forbearance programs that servicers must identify also include more
than just short-term forbearance programs as defined in the mortgage
servicing rules.\97\ Additionally, as discussed above, the Bureau is
also requiring servicers to identify at least one way that the borrower
can find contact information for homeownership counseling services,
such as referencing the borrower's periodic statement.
---------------------------------------------------------------------------
\97\ Existing Sec. 1024.41(c)(2)(iii) and comment
41(c)(2)(iii)-1 define short-term payment forbearance program as a
payment forbearance program that allows the forbearance of payments
due over periods of no more than six months.
---------------------------------------------------------------------------
39(e)(2)
The Bureau's Proposal
Proposed Sec. 1024.39(e)(2) would have temporarily required a
servicer to provide certain information promptly after establishing
live contact with borrowers currently in a forbearance program made
available to those experiencing a COVID-19-related hardship. First, it
would have required the servicer to provide the borrower with the date
the borrower's current forbearance program ends. Second, it would have
required the servicer to provide a list and brief description of each
of the types of forbearance extensions, repayment options and other
loss mitigation options made available by the owner or assignee of the
borrower's mortgage loan to resolve the borrower's delinquency at the
end of the forbearance program. It also would have required the
servicer to inform the borrower of the actions the borrower must take
to be evaluated for such loss mitigation options. Proposed Sec.
1024.39(e)(2) would have required the servicer to provide the borrower
with this additional information during the last live contact made
pursuant to existing Sec. 1024.39(a) that occurs before the end of the
loan's forbearance period. For the reasons discussed below, the Bureau
is finalizing Sec. 1024.39(e)(2) generally as proposed, with some
revisions to address certain comments received, including revising the
timing for when this information is provided, and adding a requirement
to provide certain housing counselor information.
[[Page 34863]]
Comments Received
Commenters generally supported proposed Sec. 1024.39(e)(2). One
industry commenter opposed this provision overall, asserting servicers
were already performing the requirements proposed in Sec.
1024.39(e)(2), and that adding new regulatory requirements at this time
will further strain servicer capacity. Of those that supported the
proposal, commenters generally suggested certain scope, content, and
timing revisions, discussed below.
Scope. A few commenters discussed the scope of Sec. 1024.39(e)(2).
One individual commenter suggested the requirements in Sec.
1024.39(e)(2) should apply to all delinquent borrowers during the time
period, rather than just those in forbearance programs made available
to borrowers experiencing a COVID-19-related hardship at the time of
the live contact. A couple of industry commenters suggested the Bureau
should exempt borrowers that voluntarily exit the forbearance program
early.
The Bureau is not persuaded that the current pandemic warrants
expanding the scope of Sec. 1024.39(e)(2) to all delinquent borrowers.
Delinquent borrowers not yet in forbearance will receive additional
information under this final rule, as provided in Sec. 1024.39(e)(1).
As discussed above, the Bureau is persuaded that providing such
borrowers with forbearance information first provides additional time
for borrowers to then seek loss mitigation assistance and develop a
financial plan. Further, the Bureau notes that the requirements in
Sec. 1024.39(e) are in addition to the existing requirement in Sec.
1024.39(a). Thus, even if a delinquent borrower is not in forbearance
at the time live contact is established, if appropriate, a servicer is
already required to inform the borrower about the availability of loss
mitigation options.
The Bureau is also not persuaded that an exemption from Sec.
1024.39(e)(2) is necessary for borrowers that exit forbearance programs
early. First, Sec. 1024.39(e)(2), and Sec. 1024.39(a) more broadly,
only apply to delinquent borrowers. It seems likely that if a borrower
is voluntarily exiting forbearance early, it is because the borrower
has the ability to bring the account current and the hardship has
ended. If the borrower was current at the time the forbearance was
scheduled to end, Sec. 1024.39(e)(2), as revised, would not apply
because Sec. 1024.39(a) would not apply. If, however, a borrower
exited forbearance early but remained delinquent, the Bureau believes
that borrower would still benefit from the loss mitigation information
required by Sec. 1024.39(e)(2) and thus, it should still apply.
Content. Several consumer advocate commenters requested the Bureau
require servicers to provide information to borrowers about all
possible loss mitigation options, not just those that are available.
These commenters supported the Bureau in limiting servicer discretion.
Some indicated borrowers benefit from receiving information about all
possible loss mitigation options, even if not applicable, because it
allows borrowers to better identify mistakes in information they
receive. The commenters also asserted that available loss mitigation
options should include those that the borrower is eligible for even if
the investor ``waterfall'' requirements may prevent the borrower from
being offered a particular option. Conversely, feedback during an
interagency consultation and a few industry commenters expressed
concern about requiring servicers to provide all loss mitigation
options available to the borrower. These commenters cited concerns
about borrower confusion. They indicated that providing options that
may not be available after review of the loss mitigation application
due to investor ``waterfall'' requirements and changes in borrower
eligibility after the live contact may confuse borrowers or make them
believe they were provided with inaccurate information. Some of these
commenters requested that the Bureau give servicers discretion to
determine which loss mitigation options are appropriate for discussion,
rather than listing all available loss mitigation options, or allow
generalized statements that loss mitigation options are available.
As discussed in the proposed rule and above in the section-by-
section analysis for Sec. 1024.39(e), the Bureau believes that
information about specific loss mitigation options is crucial for
borrowers at this time. Additionally, the Bureau believes that
providing all borrowers exiting forbearance with consistent information
about loss mitigation options made available by the owner or assignee
of their mortgage loan will address concerns about consistency and
accuracy with respect to pandemic-related loss mitigation information.
As discussed above, the Bureau is not persuaded it should expand
the information provided to include all possible loss mitigation
options or that it should allow servicers to exercise discretion about
what information to share. As stated above, the Bureau is persuaded by
the comments that the proposed approach appropriately balances
providing the borrower transparency as to which loss mitigation options
the borrower may reasonably expect to potentially be reviewed for, with
the need to prevent borrower confusion. Because the options provided
are only those that might be available to the borrower, rather than all
options that the owner or assignee makes available to any borrowers,
the Bureau believes this will sufficiently tailor the information to
the borrower's particular situation. Additionally, because the rule
requires only a brief description, as discussed further below, rather
than a full review of the loss mitigation program, there will not be an
overwhelming amount of information provided.
With regard to concerns about investor waterfall requirements, the
Bureau is not persuaded these concerns and the potential implications
on borrower understanding justify eliminating the potential benefit of
the provision of information about all of the types of forbearance
extension, repayment options, and other loss mitigation options made
available to the borrower by the owner or assignee of the borrower's
mortgage loan at the time of the live contact. However, as noted above,
if a servicer believes that a borrower may be confused by the
investor's waterfall requirements and the impact they may have on the
loss mitigation options offered to the borrower, nothing in the rule
would prevent a servicer from providing additional information to
assist the borrower in understanding how an evaluation ``waterfall''
may affect the loss mitigation options for which a borrower is reviewed
and ultimately offered. The Bureau encourages this type of transparency
in communications.
``Last live contact'' timing. Several commenters discussed the
proposed requirement that servicers convey the information required by
Sec. 1024.39(e)(2) during the last live contact made pursuant to
existing Sec. 1024.39(a) that occurs before the end of the loan's
forbearance program. These commenters supported proposed Sec.
1024.39(e)(2) overall but suggested different timing than the ``last
live contact.'' Several industry commenters suggested the Bureau
require servicers to provide the information during the last live
contact that is no later than 30 days before the scheduled end of the
forbearance program, ensuring the information is not provided on the
last day of the forbearance program and noting that the scheduled end
date provides more
[[Page 34864]]
certainty for servicers. One industry commenter indicated that the last
live contact is too late, and that the information should be provided
earlier in the forbearance program. A few consumer advocate commenters
suggested the Bureau should require that the contact occur 45 days
before the end of forbearance. Further, some commenters suggested the
last live contact should be tied to the scheduled end of forbearance
programs, not the actual end date, citing that consumers may
voluntarily leave programs early or may extend their forbearance
program, effectively changing the actual end date.
Additionally, a few commenters suggested that the information
required under proposed Sec. 1024.39(e)(2) should be provided in more
than one live contact. A few consumer advocate commenters suggested the
information be provided during all live contacts established during the
forbearance program. One consumer advocate suggested the information be
provided during the live contact established at the start of the
forbearance program, in addition to the last live contact. One State
Attorney General commenter suggested the information be provided during
the live contact that is established immediately after final rule
issuance, as well as the last live contact.
The Bureau is persuaded by the comments that it should revise Sec.
1024.39(e)(2) to clarify when servicers must provide the information
required by Sec. 1024.39(e)(2). First, the Bureau agrees with
commenters that the timing should be tied to the scheduled end of the
forbearance program, rather than the actual end date. As discussed
above, the Bureau recognizes that some borrowers may extend their
forbearance programs and others may voluntarily exit before the
scheduled end date. The Bureau concludes that providing this
information based on the scheduled end date is beneficial for borrowers
that extend their forbearance program, so that they will receive this
information each time they extend their forbearance program.
Second, the Bureau declines to require servicers to provide the
information required by Sec. 1024.39(e)(2) to borrowers earlier in the
forbearance program or more than one time. As discussed in the
proposal, the Bureau believes providing this information towards the
end of forbearance programs better aligns with current borrower
behavior patterns, given economic uncertainty and the impact
foreclosure moratoria may have their sense of urgency, potentially
increasing the effectiveness of the messaging.\98\ In addition, the
Bureau is concerned that requiring this information too early before
the scheduled end date of the forbearance program may not align with
existing investor requirements, a timing misalignment which may require
duplicated efforts by servicers to contact with borrowers, burdening
servicers and potentially confusing borrowers. However, the Bureau
agrees that the servicer should provide this information before the
final day of the borrower's forbearance program. The Bureau does not
believe it is necessary to require this information under Sec.
1024.39(e)(2) in additional instances, such as at the beginning of
forbearance programs or during the live contact established immediately
after the effective date of this final rule. Most borrowers have
already started the relevant forbearance programs, and for those yet to
begin forbearance programs, servicers are already required under the
servicing rules to provide a written notice to borrowers promptly after
offering a borrower a short-term payment forbearance program based on
the evaluation of an incomplete application.\99\ Additionally, the
Bureau is concerned that requiring servicers to provide the additional
information at the effective date for all accounts would overwhelm
servicer capacity at a critical moment.
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\98\ 86 FR 18840, 18849-18850 (Apr. 9, 2021).
\99\ 12 CFR 1024.41(c)(2)(iii) requires servicers promptly after
offering a short-term payment forbearance program to provide
borrowers with a written notice stating the specific payment terms
and duration of the program, that the servicer offered the program
based on an evaluation of an incomplete application, that other loss
mitigation options may be available, and the borrower has the option
to submit a complete loss mitigation application to receive an
evaluation for all loss mitigation options available to the borrower
regardless of whether the borrower accepts the program or plan. This
requirement applies with respect to every such short-term payment
forbearance program offered, including each successive program
renewal or extension. See, e.g., 78 FR 60381, 60401 (Oct. 1, 2013)
(noting that the rule does not preclude a servicer from offering
multiple successive short-term payment forbearance programs).
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Thus, to balance the timing considerations, the Bureau is revising
Sec. 1024.39(e)(2) to clarify that servicers must provide the
additional information during the live contact that occurs at least 10
days and no more than 45 days before the scheduled end of the
forbearance program. The Bureau recognizes that this approach may mean
that certain borrowers exiting forbearance near the effective date of
this final rule could be missed. As a result, the Bureau is amending
this provision to require servicers to provide the additional
information during the first live contact made pursuant to Sec.
1024.39(a) after August 31, 2021, if the scheduled end date of the
forbearance program occurs between August 31, 2021 and September 10,
2021. Additionally, see part VI for discussion of voluntary early
compliance.
Final Rule
For the reasons discussed in this section and in more detail below,
the Bureau is finalizing Sec. 1024.39(e)(2) generally as proposed,
with some revisions to address certain comments received. As revised,
the Bureau concludes that Sec. 1024.39(e)(2) will help further the
Bureau's goal to encourage borrowers to begin application for loss
mitigation assistance before the end of the forbearance program.
As discussed above, the Bureau is revising Sec. 1024.39(e)(2) to
require that at least 10 and no more than 45 days before the scheduled
end date of their current forbearance program, the servicer must
provide the borrower a list and brief description of each of the types
of forbearance extension, repayment options, and other loss mitigation
options made available to the borrower at the time of the live contact,
the actions the borrower must take to be evaluated for such loss
mitigation options, and at least one way that the borrower can find
contact information for homeownership counseling services, such as
referencing the borrower's periodic statement. The loss mitigation
options listed under Sec. 1024.39(e)(2) are not limited to a specific
type of loss mitigation, as servicers must provide borrowers with
information about all available loss mitigation types, such as
forbearance extensions, repayment plans, loan modifications, short-
sales, and others.
As revised, Sec. 1024.39(e)(2) requires this additional
information be provided in the live contact established with the
borrower at least 10 days and no more than 45 days before the scheduled
end of the forbearance program. The Bureau is also revising Sec.
1024.39(e)(2) to address a servicer's obligations with respect to
forbearance programs scheduled to end within 10 days after the
effective date of this final rule. If the scheduled end date of the
forbearance program occurs between August 31, 2021 and September 10,
2021, final Sec. 1024.39(e)(2) requires the servicer to provide the
additional information during the first live contact made pursuant to
Sec. 1024.39(a) after August 31, 2021.
Finally, the Bureau notes that Sec. 1024.39(e)(2), as revised,
works with the new reasonable diligence obligations in comment
41(b)(1)-4.iv to ensure
[[Page 34865]]
borrowers that submit incomplete applications receive notification of
loss mitigation options that would be available after their COVID-19-
related forbearance program ends.
Section 1024.41 Loss Mitigation Procedures
41(b) Receipt of a Loss Mitigation Application
41(b)(1) Complete Loss Mitigation Application
Comment 41(b)(1)-4.iii discusses a servicer's reasonable diligence
obligations when a servicer offers a borrower a short-term payment
forbearance program or a short-term repayment plan based on an
evaluation of an incomplete loss mitigation application and provides
the borrower the written notice pursuant to Sec. 1024.41(c)(2)(iii).
It also provides that reasonable diligence means servicers must contact
the borrower before the short-term payment forbearance program ends
(``the forbearance reasonable diligence contact''), but it does not
specify when servicers must make the contact. Consequently, the Bureau
proposed adding a new comment, comment 41(b)(1)-4.iv, to specify that,
if the borrower is in a short-term payment forbearance program made
available to borrowers experiencing a COVID-19-related hardship,
servicers must make the forbearance reasonable diligence contact at
least 30-days prior to the end of the short-term forbearance program.
Additionally, the proposal specified that, if the borrower requests
further assistance, the servicer must also exercise reasonable
diligence to complete the loss mitigation application prior to the end
of forbearance period. The Bureau solicited comment on the proposed 30-
day deadline for completing the forbearance reasonable diligence
contact at the end of the forbearance and whether a different deadline
was appropriate. The Bureau also solicited comment on whether to extend
these requirements to all borrowers exiting short-term payment
forbearance programs during a specified time period, instead of
limiting it to borrowers in a short-term payment forbearance program
made available to borrowers experiencing a COVID-19-related hardship.
Overall, commenters generally supported the proposal. A few
commenters, including consumer advocate commenters and an industry
commenter, suggested a different deadline from the proposed 30-day
deadline would be appropriate. The commenters suggested an earlier or
later deadline. Specifically, the consumer advocate commenter indicated
they believe the appropriate timing might depend on whether and how the
Bureau finalizes proposed Sec. 1024.41(f). Under one scenario, they
believed that 30 days was appropriate, but under another scenario they
urged the Bureau to move the deadline to resume reasonable diligence to
at least 60 days before the end of the forbearance program. The
industry commenter encouraged the Bureau to adopt a later deadline,
which would allow servicers to complete the forbearance reasonable
diligence contact within 30 days before the end of the forbearance.
This commenter expressed the belief that borrowers would be more
responsive if servicers could complete the forbearance reasonable
diligence contact right before the borrower's forbearance ends.
The Bureau declines to revise the proposed 30-day deadline. The 30-
day deadline aligns with GSE Quality Right Party Contact (QRPC)
guidelines. Servicers are required to establish QRPC at least 30 days
before the end of the initial 12-month cumulative COVID-19 forbearance
period, or at least 30 days prior to the end of any subsequent
forbearance plan term extension.\100\ The Bureau aimed to make this
requirement complementary to existing GSE guidelines and to avoid
exacerbating confusion among servicers attempting to comply with
multiple compliance obligations.
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\100\ The Fed. Nat'l Mortg. Ass'n, Lender Letter (LL-2021-02),
at 6 (Feb. 25, 2021), <a href="https://singlefamily.fanniemae.com/media/24891/display">https://singlefamily.fanniemae.com/media/24891/display</a>; The Fed. Home Loan Mortg. Corp., COVID-19 Servicing:
Guidance for Helping Impacted Borrowers, at 5 (May 1, 2021), <a href="https://sf.freddiemac.com/content/_assets/resources/pdf/ebooks/helpstartshere-servicing-ebook.pdf">https://sf.freddiemac.com/content/_assets/resources/pdf/ebooks/helpstartshere-servicing-ebook.pdf</a>.
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The Bureau also received comments from industry commenters on
whether the Bureau should extend the reasonable diligence protections
of proposed comment 41(b)(1)-4.iv to all borrowers exiting short-term
payment forbearance programs during a specified time period or retain
the proposed limitation that the comment applies only to borrowers in
short-term payment forbearance programs made available to borrowers
experiencing a COVID-19-related hardship. These commenters encouraged
the Bureau to retain the proposed limitation. Commenters noted that the
proposed comment's requirements mirror current practices and would not
create an extra burden for servicers to implement. The commenters
cautioned against imposing any additional reasonable diligence
requirements, citing that many servicers are fatigued from constant
policy changes. The Bureau did not receive any comments suggesting that
the proposed provision should apply to all borrowers exiting short-term
payment forbearance programs. The Bureau is finalizing the
applicability of comment 41(b)(1)-4.iv as proposed.
A few commenters, including industry commenters encouraged the
Bureau to exclude servicers from the requirement to make the proposed
forbearance reasonable diligence contact if the borrower voluntarily
ends forbearance. To clarify that the reasonable diligence requirements
included in new comment 41(b)(1)-4.iv mirror the scope of existing
comment 41(b)(1)-4.iii and only apply if the borrower remains
delinquent, the Bureau is adding the phrase ``if the borrower remains
delinquent'' to proposed comment 41(b)(1)-4.iv. This language is in
comment 41(b)(1)-4.iii but was inadvertently omitted from proposed
comment 41(b)(1)-4.iv. The Bureau declines to exclude servicers from
the forbearance reasonable diligence contact if the borrower
voluntarily ends forbearance early. If a borrower voluntarily ends
forbearance early and remains delinquent, the servicer must still make
the forbearance reasonable diligence contact required by comment
41(b)(1)-4.iv. If a borrower voluntarily ends forbearance early and is
no longer delinquent, servicers need not make the forbearance
reasonable diligence contact.
Some industry commenters also urged the Bureau to eliminate the
proposed requirement to exercise reasonable diligence to complete an
application, stating that Sec. 1024.41(c)(2)(v), adopted in the June
2020 IFR,\101\ and proposed Sec. 1024.41(c)(2)(vi) permit servicers to
offer certain loss mitigation options based on the evaluation of an
incomplete application. Commenters indicated that they believe
borrowers will be confused if servicers contact borrowers to evaluate
them for a payment deferral or loan modification based on an incomplete
application, but then also contact them to inquire if they want to
complete a loss mitigation application. The Bureau holds that while
Sec. 1024.41(c)(2)(v) and new Sec. 1024.41(c)(2)(vi) empower
servicers to offer deferral or loan modifications based on the
evaluation of an incomplete application, a servicer is still required
to exercise reasonable diligence to complete an application unless the
borrower accepts the deferral or loan modification offer. There are
benefits to borrowers of being fully evaluated for all available loss
[[Page 34866]]
mitigation options based on complete application, and certain
protections under the rules apply only once the borrower completes an
application. In addition, if a servicer believes that a borrower may be
confused by the reasonable diligence outreach, a servicer may provide
additional information to the borrower to help explain the application
process. The Bureau encourages this type of transparency in
communications. However, once the borrower accepts a deferral offer or
loan modification offer based on that evaluation of an incomplete
application, the servicer is not required to continue to exercise
reasonable diligence to complete any loss mitigation application that
the borrower submitted before the servicer's offer of the accepted loss
mitigation option.
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\101\ 85 FR 39055 (June 30, 2020).
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A few commenters requested that the Bureau clarify the method of
compliance for the outreach requirements in comment 41(b)(1)-4.
Specifically, an industry commenter requested that the Bureau clarify
whether the outreach requirements could be satisfied either orally or
in writing. A consumer advocate commenter requested that the Bureau
clarify that the outreach must be sent in writing. The Bureau clarifies
that the forbearance reasonable diligence contact required by comment
41(b)(1)-4.iv, like the forbearance reasonable diligence contact
required by comment 41(b)(1)-4.iii can be oral or in writing. Servicers
will likely find it beneficial to communicate their decisions in
writing in some cases to prevent ambiguity and memorialize decisions.
However, there may be circumstances where oral notification is
advantageous due to time constraints, and the Bureau has concluded that
the best approach is to allow the servicer to choose the appropriate
mode of communication based on the particular facts and circumstances
of each case.
For the reasons discussed above, the Bureau is finalizing comment
41(b)(1)-4.iv as proposed with a minor edit to clarify the provision
applies only to delinquent borrowers. As finalized, comment 41(b)(1)-
4.iv explains that if the borrower is in a short-term payment
forbearance program made available to borrowers experiencing a COVID-
19-related hardship, including a payment forbearance program made
pursuant to the Coronavirus Economic Stability Act, section 4022 (15
U.S.C. 9056), that was offered to the borrower based on evaluation of
an incomplete application, a servicer must contact the borrower no
later than 30 days before the end of the forbearance period if the
borrower remains delinquent and determine if the borrower wishes to
complete the loss mitigation application and proceed with a full loss
mitigation evaluation. If the borrower requests further assistance, the
servicer must exercise reasonable diligence to complete the application
before the end of the forbearance period.
41(c) Evaluation of Loss Mitigation Applications
41(c)(2)(i) In General
Section 1024.41(c)(2)(i) states that, in general, servicers shall
not evade the requirement to evaluate a complete loss mitigation
application for all loss mitigation options available to the borrower
by making an offer based upon an incomplete application. For ease of
reference, this section-by-section analysis generally refers to this
provision as the ``anti-evasion requirement.'' Currently, the provision
identifies three general exceptions to this anti-evasion requirement,
Sec. 1024.41(c)(2)(ii), (iii), and (v). As further described in the
section-by-section analysis of Sec. 1024.41(c)(2)(vi) below, the
Bureau proposed to add a temporary exception to this anti-evasion
requirement in new Sec. 1024.41(c)(2)(vi) for certain loan
modification options made available to borrowers experiencing COVID-19-
related hardships. The Bureau also proposed to amend 1024.41(c)(2)(i)
to reference the new proposed exception in Sec. 1024.41(c)(2)(vi). The
Bureau did not receive any comments on the addition of this reference
and, because the Bureau is adopting Sec. 1024.41(c)(2)(vi), the Bureau
is finalizing the amendment to Sec. 1024.41(c)(2)(i) as proposed.
41(c)(2)(v) Certain COVID-19-Related Loss Mitigation Options
Definition of a COVID-19-related hardship. Section 1024.41(c)(2)(v)
currently allows servicers to offer a borrower certain loss mitigation
options made available to borrowers experiencing a COVID-19-related
hardship based upon the evaluation of an incomplete application,
provided that certain criteria are met. The Bureau added this provision
to the mortgage servicing rules in its June 2020 IFR. Section
1024.41(c)(2)(v)(A)(1) refers to a COVID-19-related hardship as a
financial hardship due, directly or indirectly, to the COVID-19
emergency. Section 1024.41(c)(2)(v)(A)(1) further states that the term
COVID-19 emergency has the same meaning as under the Coronavirus
Economic Stabilization Act, section 4022(a)(1)(15 U.S.C. 9056(a)(1)).
As discussed in the section-by-section analysis of Sec. 1024.31,
the Bureau proposed to define the term ``COVID-19-related hardship''
for purposes of subpart C, including Sec. 1024.41(c)(2)(v), 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)).'' Thus, the Bureau proposed
a conforming amendment to Sec. 1024.41(c)(2)(v) to utilize the
proposed new term.
As further explained in the section-by-section analysis of Sec.
1024.31, the Bureau is revising the proposed definition of the term
``COVID-19-related hardship'' for purposes of subpart C to refer in the
final rule to the national emergency proclamation related to COVID-19,
rather than to the COVID-19 emergency as defined in section 4022 of the
CARES Act. The Bureau did not receive any comments on the conforming
amendment in Sec. 1024.41(c)(2)(v), and is finalizing it as proposed.
The Bureau does not intend for this conforming amendment to
substantively change Sec. 1024.41(c)(2)(v).
Escrow Issues. As the Bureau stated in the June 2020 IFR, Sec.
1024.41(c)(2)(v)(A)(1) allows for some flexibility among loss
mitigation options that may qualify for the exception. For example,
although the loss mitigation options must defer all forborne or
delinquent principal and interest payments under Sec.
1024.41(c)(2)(v)(A)(1), the rule does not specify how servicers must
treat any forborne or delinquent escrow amounts. A loss mitigation
option would qualify for the exception if it defers repayment of escrow
amounts, in addition to principal and interest payments, as long as it
otherwise satisfies Sec. 1024.41(c)(2)(v)(A).
The Bureau has received questions about whether servicers should
issue a short-year annual escrow account statement under Sec.
1024.17(i)(4) prior to offering a loss mitigation option under Sec.
1024.41(c)(2)(v)(A). Regulation X does not require a short year
statement prior to offering any loss mitigation option, but the Bureau
strongly encourages servicers to conduct an escrow analysis and issue a
short-year statement or annual statement, depending on the applicable
timing. Doing so may help avoid unexpected potential escrow-related
payment increases after the borrower has already agreed to a loss
mitigation option, and can inform servicers of the information needed
to provide a history of the escrow account, pursuant to Sec.
1024.17(i)(2), after the loan becomes current.
The Bureau has also received questions about how servicers may
treat funds that they have advanced or plan to advance to cover escrow
shortages in
[[Page 34867]]
this context. Assume a servicer performs an escrow analysis before
offering a loss mitigation option to the borrower under Sec.
1024.41(c)(2)(v)(A), and the analysis reveals a shortage. The Bureau
has received questions about whether the servicer is permitted under
Regulation X to advance funds to cover the shortage (for example, if a
borrower is in a forbearance) and seek repayment of those advanced
funds as part of the non-interest bearing deferred balance that is due
when the mortgage loan is refinanced, the mortgaged property is sold,
the term of the mortgage loan ends, or, for a mortgage loan insured by
the FHA, the mortgage insurance terminates. Section 1024.17 has
specific rules and procedures for the administration of escrow accounts
associated with federally related mortgage loans, but it does not
address the specific situation described in the question. Regulation X
does not prohibit a servicer from seeking repayment of funds advanced
to cover the shortage as described above. Section 1024.17 is intended
to ensure that servicers do not require borrowers to deposit excessive
amounts in an escrow account (generally limiting monthly payments to 1/
12th of the amount of the total anticipated disbursements, plus a
cushion not to exceed 1/6th of those total anticipated disbursements,
during the upcoming year). Loss mitigation programs such as those
permitted under Sec. 1024.41(c)(2)(v)(A) give the borrower more time
to repay forborne or delinquent amounts and does not specify how
servicers must treat any forborne or delinquent escrow amounts.
Regulation X does not prohibit the borrower and servicer from agreeing
to a loss mitigation option that allows for the repayment of funds that
a servicer has advanced or will advance to cover an escrow
shortage.\102\
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\102\ Additionally, when a borrower is more than 30 days
delinquent, a servicer may recover a deficiency in the borrower's
escrow account pursuant to the terms of the mortgage loan documents.
Deficiencies exist when there is a negative balance in the
borrower's escrow account, which can occur, for example, when a
servicer advances funds for expenses such as taxes and insurance.
See Sec. 1024.17(f)(4)(iii).
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41(c)(2)(vi) Certain COVID-19-Related Loan Modification Options
The Bureau's Proposal
As discussed in more detail in the section-by-section analysis of
Sec. 1024.41(c)(2)(i), in general, servicers shall not evade the
requirement to evaluate a complete loss mitigation application for all
loss mitigation options available to the borrower by making an offer
based upon an incomplete application. The Bureau proposed to add a new
temporary exception to this anti-evasion requirement to permit
servicers to offer certain loan modification options made available to
borrowers with COVID-19-related hardships based on the evaluation of an
incomplete application. The exception is temporary because the Bureau
in this final rule is defining the term ``COVID-19-related hardship''
for purposes of subpart C to refer to 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. At some point after
the national emergency ends, servicers will no longer make available
loan modification options to borrowers with COVID-19-related hardships
for purposes of subpart C.
The proposal would have established eligibility criteria for the
new exception in proposed Sec. 1024.41(c)(2)(vi)(A). Specifically, a
loan modification eligible for the proposed new exception would have to
limit a potential term extension to 480 months, not increase the
required monthly principal and interest payment, not charge a fee
associated with the option, and waive certain other fees and charges.
For loan modifications to qualify under the proposed new exception,
they would not be able to charge interest on amounts that the borrower
may delay paying until the mortgage loan is refinanced, the mortgaged
property is sold, or the loan modification matures. However, loan
modifications that charge interest on amounts that are capitalized into
a new modified term would qualify for the proposed new exception, as
long as they otherwise satisfy all of the criteria in Sec.
1024.41(c)(2)(vi)(A). To qualify for the proposed new exception, a loan
modification also either (1) would have to cause any preexisting
delinquency to end upon the borrower's acceptance of the offer or (2)
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.
Once the borrower accepts an offer made pursuant to proposed Sec.
1024.41(c)(2)(vi)(A), the Bureau proposed to exclude servicers from the
requirement to exercise reasonable diligence required by Sec.
1024.41(b)(1) and to send the acknowledgement notice required by Sec.
1024.41(b)(1). However, the proposal would have required the servicer
to immediately resume reasonable diligence efforts required by Sec.
1024.41(b)(1) if the borrower fails to perform under a trial loan
modification plan offered pursuant to the proposed new exception or
requests further assistance.
The Bureau solicited comment on the proposed new exception. For the
reasons discussed below, the Bureau is finalizing proposed Sec.
1024.41(c)(2)(vi) largely as proposed, with some revisions to address
certain comments received, including limiting the requirement to waive
certain fees, as discussed in more detail below.
Comments Received
General comments about the proposed exception. The vast majority of
commenters, including industry, consumer advocate commenters, and
individuals, expressed general support for proposed Sec.
1024.41(c)(2)(vi). Most commenters who expressed support for proposed
Sec. 1024.41(c)(2)(vi) also urged the Bureau to make certain revisions
to the provision. In general, industry commenters requested that the
Bureau provide additional flexibility, clarification, or both
surrounding what loan modification options can qualify for the new
anti-evasion exception and the regulatory relief provided to servicers
after they offer these loan modifications. Consumer advocate commenters
generally requested that the final rule require that servicers provide
various additional disclosures and protections to borrowers who are
evaluated for a loan modification option based on the evaluation of an
incomplete application. The Bureau's responses to these comments are
discussed further in this section and the section-by-section analyses
below.
A few individuals and a few industry commenters expressed
opposition to the proposed new exception overall for a variety of
reasons and suggested removing it entirely or replacing it with various
alternatives. The Bureau concludes that it is appropriate to add a new
exception to the servicing rule's anti-evasion requirement for certain
loan modification options, like the GSEs' flex modification programs,
FHA's COVID-19 owner-occupant loan modification, and other comparable
programs (``streamlined loan modifications'').\103\ These programs will
[[Page 34868]]
help ensure that servicers have sufficient resources to efficiently and
accurately respond to loss mitigation assistance requests from the
unusually large number of borrowers who will be seeking assistance from
them in the coming months as Federal foreclosure moratoria and many
forbearance programs end. And borrowers dealing with the social and
economic effects of the COVID-19 emergency may be less likely than they
would be under normal circumstances to take the steps necessary to
complete a loss mitigation application to receive a full evaluation.
This could prolong their delinquencies and put them at risk for
foreclosure referral. Moreover, by allowing servicers to assist
borrowers eligible for streamlined loan modifications more efficiently,
servicers will have more resources to provide other loss mitigation
assistance to borrowers who are ineligible for or do not want
streamlined loan modifications.
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\103\ A loan modification that a servicer offers based upon the
evaluation of an incomplete loss mitigation application can qualify
for the exception in Sec. 1024.41(c)(2)(vi) even if the servicer
collects information, such as information to verify income, from a
borrower. Section 1024.41(b)(1) defines a complete loss mitigation
application as an application in connection with which a servicer
has received all the information that the servicer requires from a
borrower in evaluating applications for the loss mitigation options
available to the borrower. If a servicer collects a complete loss
mitigation application, the servicer is required to comply with all
of the provisions of Sec. 1024.41 relating to the receipt of
complete loss mitigation applications, such as a written notice of
determination, the right to an appeal, and dual tracking
protections. If a servicer collects information that does not
constitute a complete loss mitigation application, the servicer is
prohibited from making an offer for a loss mitigation option by
Sec. 1024.41(c)(2)(ii), unless one of the exceptions listed in
Sec. 1024.41(c)(2)(ii) through (vi) applies.
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Additional disclosures and protections. Some consumer advocate
commenters urged the Bureau to provide additional disclosures and
protections in connection with the evaluation of a streamlined loan
modification option under proposed Sec. 1024.41(c)(2)(vi). A few of
these commenters urged the Bureau to include additional requirements
for eligible loan modifications, including, for example, requiring
certain written notices, denial notices, the right to appeal a
decision, dual tracking protections, and simultaneous evaluation for
all available streamlined loan modification options. One of these
commenters also urged the Bureau to prohibit a servicer from requiring
a borrower to give up the option of obtaining a streamlined loan
modification if the borrower completes a loss mitigation application.
This commenter expressed concern that borrowers would be negatively
affected by not knowing the options for which they had been reviewed
if, for example, they had been denied for an option on the basis of
inaccurate information. A group of State Attorneys General also
commented generally that a borrower should be aware of all loss
mitigation options available to them.
One of the consumer advocate commenters urged the Bureau to require
that a servicer include streamlined options during a review of a
complete loss mitigation option that may take place after a borrower is
offered a loan modification under the exception, and expressed
skepticism that servicers would complete another loan modification
quickly after implementing a loan modification offered under the
exception. The same commenter expressed concern that defaults or trial
loan modification plan failures for loan modification options offered
under the exception would render a borrower ineligible to receive
another streamlined loan modification for a period of time.
The Bureau acknowledges that borrowers accepting a loan
modification offer under the new exception will not receive protections
under Sec. 1024.41 that are critical in other circumstances. However,
the Bureau concludes that the exception set forth in final Sec.
1024.41(c)(2)(vi)(A) will be unlikely to affect this benefit in most
cases, given the narrow scope and particular circumstances of the
exception. If a borrower is interested in another form of loss
mitigation after accepting an offer made pursuant to Sec.
1024.41(c)(2)(vi)(A), they would still have the right under Sec.
1024.41 to submit a complete loss mitigation application and receive an
evaluation for all available options. This would be the case even if,
for example, a borrower accepted a loan modification trial plan offered
pursuant to Sec. 1024.41(c)(2)(vi)(A) and then failed to perform on
that plan.
Further, to be eligible for the exception under Sec.
1024.41(c)(2)(vi)(A), a loan modification must bring the loan current
or 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. In most cases, a borrower must be more than 120 days
delinquent before a servicer may make the first notice or filing
required under applicable law to initiate foreclosure proceedings.
Thus, if a borrower wishes to pursue another loss mitigation option
after accepting a permanent loan modification offer, the borrower will
still have a considerable amount of time to complete a loss mitigation
application before they would be at risk for foreclosure.
Additionally, if a borrower fails to perform under a trial loan
modification plan offered pursuant to Sec. 1024.41(c)(2)(vi)(A) or
requests further assistance, under Sec. 1024.41(c)(2)(vi)(B) the
servicer must immediately resume reasonable diligence efforts to
collect a complete loss mitigation application as required under Sec.
1024.41(b)(1). Also, as further discussed below, in this final rule the
Bureau is amending Sec. 1024.41(c)(2)(vi)(B) to adopt as final a
requirement that if a borrower fails to perform under a trial loan
modification plan offered pursuant to Sec. 1024.41(c)(2)(vi)(A) or
requests further assistance, the servicer must send the borrower the
notice required by Sec. 1024.41(b)(2)(i)(B), with regard to the most
recent loss mitigation application the borrower submitted prior to the
servicer's offer of the loan modification under the exception, unless
the servicer has already sent that notice to the borrower.
Finally, as discussed in the section-by-section analysis of Sec.
1024.41(f)(3), the Bureau is finalizing requirements for special COVID-
19 loss mitigation procedural safeguards that will extend through
December 31, 2021. These requirements provide generally that a servicer
must ensure that certain procedural safeguards are met to give
borrowers a meaningful opportunity to pursue loss mitigation options
before a servicer initiates foreclosure. These special COVID-19 loss
mitigation procedural safeguards will temporarily provide borrowers
with more time to submit a complete loss mitigation application, should
they choose to do so, before they would be at risk of referral to
foreclosure.
With respect to some commenters' concerns that consumers should be
made aware of the loss mitigation options available to them, many
borrowers who would receive an offer pursuant to Sec.
1024.41(c)(2)(vi)(A) are likely to have received early intervention
efforts by their servicers, including the written notice required under
Regulation X stating, among other things, a brief description of
examples of loss mitigation options that may be available, as well as
application instructions or a statement informing the borrower about
how to obtain more information about loss mitigation options from the
servicer. In general, borrowers who previously entered into a
forbearance program will also have received the notice required under
Sec. 1024.41(b)(2) and written notification of the terms and
conditions of the forbearance program stating, among other things, that
other loss mitigation options may be available, and that the borrower
still has the option to submit a complete application to receive an
evaluation for all available options.
[[Page 34869]]
As noted above, a commenter expressed concern that a borrower
default on a loan modification or failure to perform under a trial loan
modification plan may render a borrower ineligible for certain
additional loan modifications for a period of time. The Bureau notes
that the flex modification guidelines cited by the commenter in
discussing this concern are Fannie Mae's general flex modification
guidelines. Fannie Mae's reduced eligibility guidelines apply to COVID-
19-related hardships, and the reduced eligibility guidelines do not
contain the limitation cited by the commenter related to previous
failure to perform on a trial loan modification or previous default on
a flex modification.\104\ The Bureau therefore understands that a
borrower experiencing a COVID-19-related hardship who previously failed
to perform on a trial loan modification or defaulted on a permanent
loan modification would not be precluded from obtaining another flex
modification for those reasons.
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\104\ See Fed. Nat'l Mortg. Ass'n, Servicing Guide: D2-3.2-07:
Fannie Mae Flex Modification (Sept. 9, 2020), <a href="https://servicing-guide.fanniemae.com/THE-SERVICING-GUIDE/Part-D-Providing-Solutions-to-a-Borrower/Subpart-D2-Assisting-a-Borrower-Who-is-Facing-Default-or/Chapter-D2-3-Fannie-Mae-s-Home-Retention-and-Liquidation/Section-D2-3-2-Home-Retention-Workout-Options/D2-3-2-07-Fannie-Mae-Flex-Modification/1042575201/D2-3-2-07-Fannie-Mae-Flex-Modification-09-09-2020.htm">https://servicing-guide.fanniemae.com/THE-SERVICING-GUIDE/Part-D-Providing-Solutions-to-a-Borrower/Subpart-D2-Assisting-a-Borrower-Who-is-Facing-Default-or/Chapter-D2-3-Fannie-Mae-s-Home-Retention-and-Liquidation/Section-D2-3-2-Home-Retention-Workout-Options/D2-3-2-07-Fannie-Mae-Flex-Modification/1042575201/D2-3-2-07-Fannie-Mae-Flex-Modification-09-09-2020.htm</a>.
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For the reasons discussed above, the Bureau declines to generally
extend the requirements in Sec. 1024.41 relating to the receipt of
complete loss mitigation applications, such as a written notice of
determination, the right to an appeal, and dual tracking protections,
to borrowers who are evaluated for or offered a streamlined loan
modification on the basis of an incomplete application. The Bureau also
declines to impose requirements on servicers regarding which and how
many streamlined loan modifications it must evaluate a borrower for on
the basis of an incomplete application or on the basis of a complete
loss mitigation application that the borrower may elect to submit after
the servicer has evaluated an incomplete loss mitigation application
under Sec. 1024.41(c)(2)(vi).
Expanded eligibility criteria. Some industry commenters asked that
the Bureau expand the eligibility criteria in Sec.
1024.41(c)(2)(vi)(A) to cover a much broader variety of loss mitigation
options available to borrowers with COVID-19-related hardships,
including, among other things, repayment plans and loan modifications
that would increase the monthly required principal and interest
payment. Another industry commenter urged the Bureau to apply the anti-
evasion exception to bankruptcy plans that are amended to cure COVID-19
delinquencies.
The Bureau declines to generally broaden the exception's
eligibility requirements to cover more loss mitigation solutions with
criteria different from those outlined in Sec. 1024.41(c)(2)(vi)(1)-
(5), as requested by some commenters, for reasons discussed in the
section-by-section analyses of those sections below.
Final Rule
For the reasons discussed herein, the Bureau is adopting Sec.
1024.41(c)(2)(vi) largely as proposed, with a few changes described
below.
41(c)(2)(vi)(A)
41(c)(2)(vi)(A)(1)
The Bureau's Proposal
Under proposed Sec. 1024.41(c)(2)(vi)(A)(1), the first criteria
would have been that the loan modification must extend the term of the
loan by no more than 480 months from the date the loan modification is
effective and not cause the borrower's monthly required principal and
interest payment to increase. As discussed more fully below, the Bureau
is adopting the criteria in Sec. 1024.41(c)(2)(vi)(A)(1) as proposed,
with minor clarifying changes as discussed below.
Comments Received
One consumer advocate commenter and one individual commenter
expressed specific support for the 480-month term limitation criterion.
Some individual commenters expressed opposition to the 480-month term
limitation criterion, stating generally that a 480-month term was too
long.
One consumer advocate commenter expressed support for the payment
increase limitation. One consumer advocate commenter and a few industry
commenters urged the Bureau to provide additional flexibility for a
streamlined loan modification to qualify for the new exception even if
it resulted in increases to the monthly required principal and interest
payment amount. The consumer advocate commenter advocated for a
percentage cap, such as 15 percent or 20 percent, on any potential
increase, noting that capitalizing a large amount of forborne payments
may make it hard to achieve payment reduction. The Bureau also received
feedback during its interagency consultation process indicating that
limiting the proposed new exception to loan modifications that do not
increase a borrower's monthly required principal and interest payment
would exclude from the exception some loan modifications offered under
FHA's COVID-19 owner-occupant loan modification program, which permits
payment increases in certain circumstances. The industry commenters
noted that some investors do not offer loan modifications with long-
term fixed rates, and urged the Bureau to clarify whether the criterion
as proposed would allow adjustable rate loan modifications to qualify
for the new anti-evasion exception.
A different industry commenter stated that certain State laws
prohibit balloon payments, which could make it difficult for servicers
to offer loan modifications that do not extend the term beyond 480
months or cause the monthly required principal and interest to
increase, because the servicer could not defer remaining delinquent
amounts to the end of the loan.
Final Rule
For the reasons discussed below, the Bureau is adopting Sec.
1024.41(c)(2)(vi)(A)(1) as proposed, with minor revisions to clarify
the criterion that, for a loan modification to qualify for the
exception, the monthly required principal and interest payment amount
must not increase for the entire modified term.
The Bureau believes that it will be advantageous to borrowers and
servicers alike to facilitate the timely transition of eligible
borrowers into certain streamlined loan modifications that do not cause
additional financial hardship, such as flex modifications offered by
the GSEs and COVID-19 owner-occupant loan modifications offered by FHA
that meet the eligibility criteria in Sec. 1024.41(c)(2)(vi)(A)(1)-
(5).\105\ The Bureau has concluded that the criteria discussed in this
section-by-section analysis relating to the term and payment features
of loan modifications eligible for the exception are appropriate to
achieve this goal.
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\105\ U.S. Dep't of Hous. and Urban Dev., Mortgagee Letter 2021-
05 at 10 (Feb. 16, 2021), <a href="https://www.hud.gov/sites/dfiles/OCHCO/documents/2021-05hsgml.pdf">https://www.hud.gov/sites/dfiles/OCHCO/documents/2021-05hsgml.pdf</a> (HUD Mortgagee Letter).
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The Bureau notes that Sec. 1024.41(c)(2)(vi) itself will not
prevent borrowers from qualifying for certain loss mitigation options.
The criteria that the Bureau is adopting in final Sec.
1024.41(c)(2)(vi)(A) do not constitute general requirements or
prohibitions applying to all loss mitigation options. Rather, they are
a narrowly tailored exception to the anti-evasion requirement to allow
servicers to offer certain loan modifications to borrowers
[[Page 34870]]
on the basis of an incomplete application. Section 1024.41(c)(2)(vi)
does not prevent a borrower from submitting a complete loss mitigation
application, and it does not relieve servicers of their obligations
under Sec. 1024.41 to evaluate a borrower for all available loss
mitigation options upon the receipt of a complete loss mitigation
application. Borrowers can therefore still be evaluated for all loss
mitigation options available to them, including options that increase
the term of the loan beyond 480 months from the effective date of the
loan modification and options that entail an increase to the required
monthly principal and interest payment amount, by submitting a complete
loss mitigation application.
In response to some commenters' requests for clarification
regarding whether a loan modification with an adjustable rate can
qualify for the exception, the Bureau is adopting revised language in
final Sec. 1024.41(c)(2)(vi)(A)(1) clarifying that, for the entire
modified term, the monthly required principal and interest payment
cannot increase beyond the monthly principal and interest payment
required prior to the loan modification. Other than this clarifying
language, the Bureau adopts Sec. 1024.41(c)(2)(vi)(A)(1) as proposed.
41(c)(2)(vi)(A)(2)
The Bureau's Proposal
Under proposed Sec. 1024.41(c)(2)(vi)(A)(2), to qualify for the
anti-evasion requirement exception, any 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. As proposed, Sec. 1024.41(c)(2)(vi)(A)(2) also would have
provided that, to qualify for the anti-evasion exception in Sec.
1024.41(c)(2)(vi), a servicer must not charge any fee in connection
with the loan modification option, and a servicer must waive all
existing late charges, penalties, stop payment fees, or similar charges
promptly upon the borrower's acceptance of the option. For ease of
readability, the Bureau is moving the language regarding fees to new
final Sec. 1024.41(c)(2)(vi)(A)(5). These criteria, as well as a
revision to them that the Bureau is adopting in this final rule, are
therefore discussed in additional detail in the section-by-section
analysis of Sec. 1024.41(c)(2)(vi)(A)(5).
Comments Received
The Bureau received a few comments on this proposed provision. One
consumer advocate commenter noted that the Bureau did not include FHA
mortgage insurance termination as a point after which amounts that a
borrower may delay paying must not accrue interest to meet the proposed
criterion, even though this language is included in the exception for
certain deferrals described in Sec. 1024.41(c)(2)(v). An industry
commenter and a consumer advocate commenter asked that the Bureau
clarify whether a loan modification that capitalizes some arrearages,
such as interest arrearages, escrow advances, and escrow shortages,
into the principal balance of a loan modification would satisfy the
criterion in proposed Sec. 1024.41(c)(2)(vi)(A)(2). Because the GSEs
also specify that, for flex modifications, amounts that the borrower
may delay paying until the mortgage loan is transferred or the unpaid
principal balance (UPB) is paid off must not accrue interest, the
Bureau sought comment on whether to specify in a final rule that
interest cannot be charged on amounts that a borrower may delay paying
until UPB pay off, transfer, or both. The Bureau did not receive any
comments regarding the potential addition of this language.
Final Rule
The Bureau is adopting the criterion in Sec.
1024.41(c)(2)(vi)(A)(2) largely as proposed with a revision to add
language addressing FHA mortgage insurance termination. This
eligibility criterion ensures that borrowers receiving one of the
covered loan modifications will have years to plan to address amounts
that are not due until the mortgage loan is refinanced, the mortgaged
property is sold, the loan modification matures, or, for a mortgage
loan insured by FHA, the mortgage insurance terminates, and that those
amounts will not increase due to interest accrual. This may be
particularly important during the COVID-19 emergency, as many borrowers
may be facing extended periods of economic uncertainty.
With respect to the addition in this final rule of language
addressing FHA mortgage insurance termination, the Bureau notes that
FHA's COVID-19 owner-occupant loan modification does not involve
allowing a borrower to delay paying certain amounts until FHA mortgage
insurance terminates. However, the Bureau understands that FHA also
offers a COVID-19 combination partial claim and loan modification,
which includes the potential extension of the loan's term, as well as
allowing a borrower to delay paying certain amounts until FHA mortgage
insurance terminates.\106\ If this type of loan modification option
meets all of the criteria listed in Sec. 1024.41(c)(2)(vi)(A),
servicers can offer it under that anti-evasion exception on the basis
of an incomplete application. The Bureau is therefore adopting Sec.
1024.41(c)(2)(vi)(A)(2) with the addition of language concerning FHA
mortgage insurance termination, to clarify that a loan modification
option can qualify for Sec. 1024.41(c)(2)(vi)'s exception if, in
addition to meeting Sec. 1024.41(c)(2)(vi)(A)'s other eligibility
requirements, amounts the borrower may delay paying until FHA mortgage
insurance terminates do not accrue interest.
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\106\ Id.
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In response to commenters' request for clarification regarding
capitalization of amounts into a new modified loan term, the Bureau
notes that loan modifications that charge interest on amounts that are
capitalized into a new modified term would qualify for the proposed new
exception, as long as they otherwise satisfy all of the criteria in
Sec. 1024.41(c)(2)(vi)(A). Capitalized amounts are amounts that the
borrower pays over the course of the new modified term, and a loan
modification can meet the criteria in Sec. 1024.41(c)(2)(vi)(A) even
if these amounts accrue interest. However, if the loan modification
permits the borrower to delay paying certain amounts until the mortgage
loan is refinanced, the mortgaged property is sold, the loan
modification matures, or, for a mortgage loan insured by FHA, the
mortgage insurance terminates, the criterion in final Sec.
1024.41(c)(2)(vi)(A)(2) are met only if those amounts do not accrue
interest. The Bureau is revising Sec. 1024.41(c)(2)(vi)(A)(2) to make
more clear that this criterion regarding interest accrual only applies
to loan modifications that involve payments that are delayed until the
mortgage loan is refinanced, the mortgaged property is sold, the loan
modification matures, or, for a mortgage loan insured by FHA, the
mortgage insurance terminates.
With respect to concerns regarding the potential capitalization of
amounts related to escrow, the Bureau has received questions about
whether the servicer is permitted under Regulation X to advance funds
to cover an escrow shortage (for example, if a borrower is in a
forbearance) and seek repayment of those advanced funds by capitalizing
them into a modified principal balance as part of a loan modification.
Section 1024.17 has specific rules and procedures for the
administration of escrow accounts associated with
[[Page 34871]]
federally related mortgage loans, but it does not address the specific
situation described in the question. Regulation X does not prohibit a
servicer from seeking repayment of funds advanced to cover the shortage
as described above. Section 1024.17 is intended to ensure that
servicers do not require borrowers deposit excessive amounts in an
escrow account (generally limiting monthly payments to 1/12th of the
amount of the total anticipated disbursements, plus a cushion not to
exceed 1/6th of those total anticipated disbursements, during the
upcoming year). Loss mitigation programs such as those permitted under
this final rule give the borrower more time to repay forborne or
delinquent amounts and do not specify how servicers must treat any
forborne or delinquent escrow amounts. Regulation X does not prohibit
the borrower and servicer from agreeing to a loss mitigation option
that allows for the repayment of funds that a servicer has advanced or
will advance to cover an escrow shortage.\107\
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\107\ Supra note 102.
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As described above, the Bureau is adopting Sec.
1024.41(c)(2)(vi)(A)(2) as proposed, with revisions to add language
concerning FHA mortgage termination and to clarify that permitting a
delay in the payment of amounts until the mortgage loan is refinanced,
the mortgaged property is sold, the loan modification matures, or, for
a mortgage loan insured by FHA, the mortgage insurance terminates is
not required for a loan modification to qualify for the anti-evasion
exception in Sec. 1024.41(c)(2)(vi)(A).
41(c)(2)(vi)(A)(3)
The Bureau's Proposal
Proposed Sec. 1024.41(c)(2)(vi)(A)(3) would have required that, to
qualify for the anti-evasion requirement exception, the loan
modification offered pursuant to the exception in Sec.
1024.41(c)(2)(vi)(A) must have been made available to borrowers
experiencing a COVID-19-related hardship. As discussed in the section-
by-section analysis of Sec. 1024.31, the Bureau proposed to 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 Bureau solicited comment on whether to instead
condition eligibility on loan modifications offered during a specified
time period, regardless of whether the option was made available to
borrowers with a COVID-19-related hardship. The Bureau sought comment
on whether that alternative would be easier for servicers to implement.
Comments Received
The Bureau received a few comments on this aspect of the proposal.
An individual commenter expressed concern that servicers may require
evidence of the onset of the hardship. A consumer advocate commenter
noted it would have no general objection to an approach limiting the
exception to a time period, indicating that that approach might be
easier for servicers to administer. For the reasons discussed below,
the Bureau is adopting Sec. 1024.41(c)(2)(vi)(A)(3) as proposed.
Final Rule
As noted in part II, the COVID-19 emergency presents a unique
period of economic uncertainty, during which borrowers may be facing
extended periods of financial hardship and servicers expect to face
extraordinary operational challenges to assist large numbers of
delinquent borrowers. The Bureau believes it would be difficult to
establish with certainty a date beyond which borrowers would no longer
be experiencing COVID-19-related hardships and servicers may stop
making loan modification options available to borrowers experiencing
such hardships. As further explained in the section-by-section analysis
of Sec. 1024.31, the Bureau is revising the proposed definition of the
term ``COVID-19-related hardship'' for purposes of subpart C to refer
in this final rule to the national emergency proclamation related to
COVID-19. No end date for this national emergency has been announced.
The Bureau therefore concludes that it is appropriate to limit
eligibility for the exception in Sec. 1024.41(c)(2)(vi) to loan
modification options that are generally made available to borrowers
experiencing a COVID-19-related hardship.
Regarding a commenter's concern that servicers would require
evidence of a COVID-19-related hardship, the Bureau notes that the
final rule does not require as a criterion for the anti-evasion
exception that the individual borrower offered the loan modification
has experienced a COVID-19-related hardship. Rather, the final rule
limits this exception to loan modifications made available to borrowers
experiencing a COVID-19-related hardship. The loan modification option
offered need not be made available exclusively to borrowers
experiencing a COVID-19-related hardship to qualify for the anti-
evasion exception. A loan modification option can qualify for the anti-
evasion exception if it is made available to borrowers experiencing a
COVID-19-related hardship as well as other borrowers. For example, the
Bureau understands that the GSEs' flex modifications are offered to a
broader population of borrowers than those experiencing COVID-19-
related hardships.\108\ Because these loan modifications are currently
also available to borrowers experiencing COVID-19-related hardships,
they meet the criterion that the Bureau is adopting as final in Sec.
1024.41(c)(2)(vi)(A)(3).
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\108\ See Fed. Home Loan Mortg. Corp., Freddie Mac Flex
Modification Reference Guide (Mar. 2021), <a href="https://sf.freddiemac.com/content/_assets/resources/pdf/other/flex_mod_ref_guide.pdf">https://sf.freddiemac.com/content/_assets/resources/pdf/other/flex_mod_ref_guide.pdf</a>; Fed.
Nat'l Mortg. Ass'n, Servicing Guide: D2-3.2-07: Fannie Mae Flex
Modification (Sept. 9, 2020), <a href="https://servicing-guide.fanniemae.com/THE-SERVICING-GUIDE/Part-D-Providing-Solutions-to-a-Borrower/Subpart-D2-Assisting-a-Borrower-Who-is-Facing-Default-or/Chapter-D2-3-Fannie-Mae-s-Home-Retention-and-Liquidation/Section-D2-3-2-Home-Retention-Workout-Options/D2-3-2-07-Fannie-Mae-Flex-Modification/1042575201/D2-3-2-07-Fannie-Mae-Flex-Modification-09-09-2020.htm">https://servicing-guide.fanniemae.com/THE-SERVICING-GUIDE/Part-D-Providing-Solutions-to-a-Borrower/Subpart-D2-Assisting-a-Borrower-Who-is-Facing-Default-or/Chapter-D2-3-Fannie-Mae-s-Home-Retention-and-Liquidation/Section-D2-3-2-Home-Retention-Workout-Options/D2-3-2-07-Fannie-Mae-Flex-Modification/1042575201/D2-3-2-07-Fannie-Mae-Flex-Modification-09-09-2020.htm</a>.
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41(c)(2)(vi)(A)(4)
The Bureau's Proposal
Proposed Sec. 1024.41(c)(2)(vi)(A)(4) would have required that
either the borrower's acceptance of a loan modification offer end any
preexisting delinquency on the mortgage loan, or that a loan
modification offered 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, for a loan modification to
qualify for the proposed anti-evasion requirement exception in Sec.
1024.41(c)(2)(vi).
Comments Received
The Bureau did not receive any comments specifically addressing
proposed Sec. 1024.41(c)(2)(vi)(A)(4). For the reasons discussed
below, the Bureau is adopting this requirement as proposed.
Final Rule
The Bureau believes that this provision will help ensure that
borrowers who accept a loan modification offered under Sec.
1024.41(c)(2)(vi) have ample time to complete an application and be
reviewed for all loss mitigation options before foreclosure can be
initiated. Servicers are generally prohibited from making the first
notice or filing until a mortgage loan obligation is more than 120 days
delinquent.\109\ If the borrower's acceptance of a loan
[[Page 34872]]
modification offer ends any preexisting delinquency on the mortgage
loan, Sec. 1024.41(f)(1)(i) would prohibit a servicer from making a
foreclosure referral until the loan becomes delinquent again, and until
that delinquency exceeds 120 days. Similarly, if the loan modification
offered is 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 and the loan modification is finalized, Sec.
1024.41(f)(1)(i) would prohibit a servicer from making a foreclosure
referral until the loan becomes delinquent again after the trial ends,
and until that delinquency exceeds 120 days. This would provide
borrowers who become delinquent
[…truncated; see source link]Indexed from Federal Register on June 30, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.