On September 13, 2013, the Consumer Financial Protection Bureau (“CFPB”) issued final amendments and clarifications to its mortgage servicing regulations, which go into affect January 10, 2014. These rules were initially issued in January 2013 and have been amended based on comments received during the implementation period. The rules relating to loss mitigation procedures are set out in Regulation X of the Real Estate Settlement Procedures Act. (12 CFR § 1024.41.) Among the important loss mitigation rules that go into effect on January 10, 2014:
I. Rules Affecting Foreclosures.
- Servicers may no longer begin a foreclosure until the borrower is more than 120 days delinquent. In some states it is not uncommon for foreclosures to begin when borrowers are delinquent by as a little as 60 days. It is therefore important that servicers take note of this new restriction. Servicers must delay first legal action until the borrower is at least 121 days delinquent, unless the foreclosure is based on a due-on-sale clause or the servicer is joining the foreclosure action of a subordinate lienholder.
- Servicers may not begin a foreclosure while considering a pending “Complete Loss Mitigation Application.” Foreclosures may not begin until the servicer has sent the borrower written notice denying the application, and either (1) any borrower appeal has been concluded; (2) the borrower has rejected all offered loss mitigation options; or (3) the borrower has failed to perform under a loss mitigation agreement. Facially complete applications must be treated as complete until the borrower has had a reasonable opportunity to respond after being notified that additional information is required.
- Where first legal action has already occurred, servicers may not conduct the sale or move for an order of sale if a Complete Loss Mitigation Application is received more than 37 days before the sale. In nonjudicial states where foreclosure sales are typically scheduled with less than 37 days notice, this rule may have little effect.
- Servicers need only comply with these requirements for a single Complete Loss Mitigation Application. However, if servicing is transferred to a new servicer, the transferee servicer must still comply regardless of whether the borrower received an evaluation of a complete loss mitigation application from the previous servicer.
- Small servicers, though exempt from many requirements, remain subject to certain rules. These include the prohibitions on starting a foreclosure where the borrowers is less than 121 days delinquent and where the borrower is performing under a loss mitigation agreement.
II. Rules Affecting the Processing of Loss Mitigation Applications.
- Loss Mitigation “Application” is broadly defined: Includes almost any circumstance in which the borrower expresses interest in loss mitigation and provides the servicer with information which would be evaluated in connection with a loss mitigation application.
- Servicers have an obligation to exercise diligence in obtaining documents and information needed to complete a loss mitigation application.
Where a loss mitigation application is received 45 days or more before a foreclosure sale (whether complete or not), a servicer must, among other things:
- Within 5 business days (1) review the application; (2) advise the borrower in writing whether the application is complete or incomplete (3)identify any additional information required; and (4) identify “a reasonable date” by which the borrower must submit the information. [Note this is a change from the original proposed rule].
According to CFPB guidance, to determine “a reasonable date,” servicers should select the deadline that preserves the most borrower rights, unless it would be impracticable for the borrower to comply. The milestones to be taken into consideration are:
- The date that is the 120th day of delinquency;
- The date that is 90 days before a foreclosure sale;
- The date that is 38 days before a foreclosure sale
- Where servicers receive a Complete Loss Mitigation Application more than 37 days before a foreclosure sale, the servicer must evaluate the application within 30 days.
- Where servicers receive a Complete Loss Mitigation application 90 days or more before a foreclosure sale – or where no sale has been scheduled – the borrower has the right to appeal any denial. (Borrowers get only one appeal).
- Where a Complete Loss Mitigation application is received by the servicer 37 days or less before the foreclosure sale, there is no CFPB regulation or guidance. (However, relevant HAMP guidelines would still apply).
Servicers must disclose the “actual reasons” for loan modification denials.
- Denials simply stating that a decision is based on an investor requirement, without additional information, are prohibited.
- Denials based on owner/assignee requirements must identify (1) the owner or assignee of the loan and (2) the requirement that is the basis of the denial.
- Decisions based on net present value must include the inputs used in making the calculation.
Time for Borrowers to Respond following a Loss Mitigation Decision.
- Borrowers must be given at least 14 days to accept/reject a loss mitigation offer, or to appeal, where the Complete Loss Mitigation Application was received during the pre-foreclosure referral period or 90 days or more before the foreclosure sale.
- Borrowers must be given at least 7 days to accept/reject a loss mitigation offer where the Complete Loss Mitigation Application was received 38 to 89 days before the sale.
- The CFPB is silent where the Complete Loss Mitigation application is received 37 days or less before the foreclosure sale.
- Appeals of loss mitigation denials must be decided within 30 days. The borrower must be given at least 14 days in which to accept or reject an offer following an appeal.
- Transferee servicers must continue evaluating loss mitigation options that are in process at the time of the servicing transfer, to the extent practicable.
A servicer may not evade the requirement to evaluate a Complete Loss Mitigation Application by reviewing an incomplete application:
- But, if the servicer has exercised diligence in obtaining missing information and the application nevertheless remains incomplete for a significant period of time, the servicer may, in its discretion, evaluate an incomplete application and offer a borrower a loss mitigation option.
- A servicer may also offer a short-term payment forbearance program based on an evaluation of an incomplete loss mitigation application, though it may not move forward with foreclosure while a borrower is performing under such a forbearance program.
- Even where an application is facially complete, a servicer may request additional information if it later determines that such information is required. However, if such information is provided, the application will still be treated as complete as of the date it was facially complete.