On June 28, the Consumer Financial Protection Bureau (CFPB) issued a final rule to amend Regulation Z’s mortgage servicing requirements in order to “establish temporary special safeguards to help ensure that borrowers have time before foreclosure to explore their options, including loan modifications and selling their homes.”
The rule, which applies to federally regulated mortgage loans secured by a principal residence, accomplishes four things:
- It creates “temporary special COVID-19 procedural safeguards,” which limit the situations where a servicer can “mak[e] the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until after December 31, 2021.”
- It allows servicers to offer borrowers experiencing COVID-19-related hardships streamlined loan modification options based on an incomplete application, so long as the modification options meet certain criteria.
- It amends Regulation Z’s “early intervention requirements” by requiring servicers until October 1, 2022 to discuss with certain delinquent borrowers COVID-19-related information at specific points of live contact.
- It clarifies “more precisely when the servicer must renew reasonable diligence efforts” when a borrower is in a short-term payment forbearance program for a COVID-19 hardship based on an incomplete application.
While the rule’s “procedural safeguards” are narrower than the original foreclosure prohibition discussed in the proposed rule issued in April, it will still limit servicers’ ability to initiate foreclosures. Further, servicers will need to exercise due diligence and recordkeeping to satisfy the rule when moving forward with the few types of foreclosures permitted prior to January 1, 2022. Servicers will also need to assess their current borrower outreach programs to ensure compliance with the rule’s early intervention requirements.
Although this rule does not go into effect until August 31, both Fannie Mae and Freddie Mac have issued policies that prohibit servicers between July 31 to August 31 from initiating any foreclosure activities that would violate the rule. Between the practical challenges to implement it and the focus the CFPB will undoubtably give it during its future supervision and enforcement activities, this rule will require significant compliance efforts from servicers in the days to come.