Bureau of Consumer Financial Protection Rule: Treatment of Certain COVID-19 Related Loss Mitigation Options Under Real Estate Settlement Procedures Act
The rule was issued by
DATES: This interim final rule is effective on
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The amendments temporarily permit mortgage servicers to offer certain loss mitigation options based on the 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
These amounts include, without limitation, all principal and interest payments forborne through payment forbearance programs made available to borrowers experiencing financial hardships due, directly or indirectly, to the COVID-19 emergency, including a payment forbearance program offered pursuant to section 4022 of the Coronavirus Aid, Relief, and Economic Security Act.
These amounts also include principal and interest payments that are due and unpaid by borrowers experiencing financial hardships due, directly or indirectly, to the COVID-19 emergency.
SUPPLEMENTARY INFORMATION:
I. Summary of the Interim Final Rule
Title 12 CFR part 1024 (Regulation X) generally requires servicers to obtain a complete loss-mitigation application before evaluating a mortgage borrower for a loss-mitigation option, such as a loan modification or short sale.[1] Regulation X provides an exception from this requirement for certain short-term loss mitigation options.[2] Due to the particular needs of mortgage servicers and borrowers during the novel coronavirus disease (COVID-19) pandemic emergency (COVID-19 emergency), the Bureau is amending Regulation X to temporarily permit mortgage servicers to offer certain loss mitigation options without obtaining a complete loss mitigation application. Servicers may offer eligible loss mitigation options to a borrower who has received a payment forbearance program made available to borrowers experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency, including one offered pursuant to section 4022 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act),[3] or who has had other principal and interest payments that are due and unpaid as a result of a financial hardship due, directly or indirectly, to the COVID-19 emergency.
The amendment conditions eligibility for the new exception on the loss mitigation option satisfying three criteria. First, the loss mitigation option must permit the borrower 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 FHA, the mortgage insurance terminates. These amounts include, without limitation, all principal and interest payments forborne under a payment forbearance program made available to borrowers experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency, including one made pursuant to the Coronavirus Economic Stabilization Act, section 4022 (15 U.S.C. 9056). These amounts also include, without limitation all other principal and interest payments that are due and unpaid by a borrower experiencing financial hardship due, directly or indirectly, to the COVID-19 emergency. For purposes of this criterion, the term of the mortgage loan means the term of the mortgage loan according to the obligation between the parties in effect when the borrower is offered the loss mitigation option. Second, any amounts that the borrower may delay paying through the loss mitigation option do not accrue interest; the servicer does not charge any fee in connection with the loss mitigation option; and the servicer waives all existing late charges, penalties, stop payment fees, or similar charges promptly upon the borrower's acceptance of the loss mitigation option. Third, the borrower's acceptance of the loss mitigation offer must resolve any prior delinquency. These criteria maintain important protections for borrowers and are intended to align with the COVID-19 payment deferral option announced by the
The interim final rule also excludes servicers from certain regulatory requirements if a borrower accepts an option offered pursuant to the new exception. Specifically, the interim final rule provides that the servicer is not required to continue the reasonable diligence efforts Section 1024.41(b)(1) otherwise requires or send the acknowledgement notice Section 1024.41(b)(2) otherwise requires.
II. Background
A. The Bureau's Regulation X Mortgage Servicing Rules
In
The Bureau's mortgage servicing rules addressed these concerns by establishing procedures that mortgage servicers generally must follow in evaluating loss mitigation applications submitted by mortgage borrowers.[11] Among other things, as relevant here, Regulation X generally requires servicers to obtain a complete loss-mitigation application from a borrower before offering the borrower a loss-mitigation option, such as a loan modification or short sale.[12] Servicers generally may not offer a loss-mitigation option based upon an evaluation of any information provided in connection with an incomplete application.[13] The loss mitigation provisions were motivated in part by concerns that some servicers were doing an inadequate job of communicating with borrowers regarding loss mitigation options,[14] and that some servicers were unwilling to work with borrowers to reach agreement on loss mitigation options.[15] The Bureau intended this restriction to help ensure that borrowers have a full and fair opportunity to be evaluated for loss mitigation options.[16]
However, in issuing these requirements, the Bureau recognized that more flexible requirements may be warranted when borrowers are facing certain hardships. For example, Regulation X provides flexibility for servicers when they offer short-term payment forbearance programs or short-term repayment plans, as defined in Regulation X, based upon an evaluation of an incomplete application.[17] In granting this flexibility, the Bureau explained that borrowers facing only temporary hardships might benefit from a more efficient application process that leads to a temporary solution without exhausting the protections under Section 1024.41 that are determined as of the date a complete application is received.[18]
B. The CARES Act and COVID-19 Forbearances
By late
On
On
By early
C. COVID-19 Emergency: Post-Forbearance Options and Post-Delinquency Options
The CARES Act does not specify how borrowers receiving CARES Act forbearances must repay the forborne payments. While there are good reasons for this, it creates uncertainty for stakeholders as to how borrowers must repay these amounts when CARES Act forbearances expire. As many initial forbearance periods were set at 90 days, many of them will expire in June or
The
After FHFA announced these deferral programs, industry stakeholders and consumer advocates raised concerns about whether servicers could offer an FHFA COVID-19 payment deferral using the streamlined application procedures described above without violating Regulation X's general prohibition of offering a loss mitigation option based on an evaluation of an incomplete application.[39] The Bureau has evaluated the interaction between the FHFA payment deferral procedures and Regulation X, and engaged in informal outreach with FHFA, mortgage servicers, trade associations, consumer advocacy groups, and others. Industry stakeholders and consumer advocates urged the Bureau to take steps to ensure that servicers would not be in violation of Regulation X if they were to use the streamlined procedures.
The Bureau supports the goal of the FHFA's COVID-19 payment deferral program and certain other similar programs designed to assist borrowers experiencing financial hardships due, directly or indirectly, to the COVID-19 emergency. Through these programs, eligible borrowers can eliminate the immediate potential risk of losing their homes, resume repaying the mortgage loan with no delinquency and no additional fees or interest, and better plan how eventually to repay the forborne amount that servicers have deferred. In addition, the streamlined application procedures offered by
For these and the reasons discussed below, the Bureau is amending Regulation X to specify that servicers may offer loss mitigation options that meet certain criteria based on the evaluation of an incomplete application, and that servicers need not comply with certain other Regulation X requirements once the borrower accepts that option. These criteria are intended to align with the criteria outlined in FHFA's COVID-19 payment deferral and other comparable programs, such as FHA's COVID-19 partial claim.
The Bureau believes that this flexibility is appropriate during the COVID-19 emergency, which presents extraordinary circumstances. The Bureau will evaluate comments received under the interim final rule to determine whether it is appropriate to revise the amendments. The Bureau will also continue to monitor the market to assess consumers' experiences under these programs and the interim rule.
As part of this rulemaking, the Bureau consulted with FHFA, the Board,
III. Legal Authority
The Bureau is issuing this interim final rule pursuant to its authority under RESPA and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),[40] including the authorities discussed below. This interim final rule amends a provision previously adopted by the Bureau in the 2016 Mortgage Servicing Final Rule.[41] In doing so, the Bureau relied on one or more of the authorities discussed below, as well as other authority. The Bureau is issuing this interim final rule in reliance on the same authority and for the same reasons relied on in adopting the relevant provisions of the 2013 Mortgage Servicing Final Rule,[42] as discussed in detail in the Legal Authority and Section-by-Section Analysis of the 2013 Mortgage Servicing Final Rule.
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 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 avoid unwarranted or unnecessary costs and fees and facilitating review for foreclosure avoidance options. The amendments to Regulation X in this interim final rule are intended to achieve some or all these purposes.
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.
Dated:
Federal Register Liaison,
[FR Doc. 2020-13853 Filed 6-29-20;
BILLING CODE 4810-AM-P
The document is published in the
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