CFPB’s COVID-19 Mortgage Servicing Final Rule: Foreclosure Safeguards
Happy Wednesday, compliance friends! We’re halfway through another week of summer. I hope you’ve been able to stay safe and enjoy it, so far!
The Consumer Financial Protection Bureau’s COVID-19 Mortgage Servicing Final Rule was published on June 30, 2021 and becomes effective on August 31,2021. However, credit unions may begin compliance before that date.
This final rule amends sections 1024.39 and 1024.41 of Regulation X in order to assist mortgage borrowers affected by the COVID-19 pandemic. The rule establishes temporary procedural safeguards to help ensure that borrowers have a meaningful opportunity to be reviewed for loss mitigation before the servicer can begin foreclosure proceedings on certain mortgages. However, the CFPB does recognize that some foreclosures are unavoidable, and that not every borrower will be able to remain in their home indefinitely.
Of note, the temporary protections provided in the rule can apply more broadly than the CARES Act, because the provisions in the final rule apply to “federally-related mortgage loans” subject to RESPA (whereas the CARES Act only applied to “federally backed mortgage loans”). This allows the temporary safeguards in the final rule to be applied to portfolio loans that were not expressly subject to the CARES Act or other protections. The final rule includes five key amendments to Regulation X, all of which are aimed at encouraging borrowers and servicers to work together to identify options to avoid foreclosure. This post will focus on the first amendment, related specifically to the loss mitigation procedures that must occur before the first notice or filing for foreclosure can be made.
The 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 foreclosure process because of a delinquency. This requirement is applicable only if the borrower’s mortgage became more than 120 days delinquent on or after March 1, 2020, and the statute of limitations applicable to the foreclosure action expires on or after January 1, 2022. This temporary provision expires on January 1, 2022, so the procedural safeguards are not applicable if a servicer makes the first notice or filing for foreclosure on or after that date. During the effective timeframe of the rule (August 31 – December 31, 2021), credit unions must ensure one of the following safeguards have been met before they are able to make the first notice or filing for foreclosure:
1. Loss Mitigation Review: The borrower has submitted a complete loss mitigation application, the mortgage loan has remained delinquent since the loss mitigation application was submitted, and the credit union has exhausted the loss mitigation evaluation process pursuant to §1024.41(f)(2): the credit union notified the borrower that he/she is not eligible for any loss mitigation option and the appeal timeline has passed, the borrower has rejected all options offered by the servicer, or the borrower failed to perform under an agreement on a loss mitigation option;
2. Abandoned Property: The property securing the mortgage is abandoned under state or municipal law; or
3. Unresponsive Borrower: The borrower remains unresponsive (i.e., the servicer has not received communication from the borrower for at least 90 days before making the first notice or filing for foreclosure). The servicer must have made good faith efforts to establish live contact pursuant to §1024.39(a); the servicer must have sent the written early intervention notice pursuant to §1024.39(b); the service must have sent all notices required by §1024.41; and, if applicable, the borrower’s forbearance program ended at least 30 days prior to the servicer making the first notice or filing for foreclosures.
So when can a credit union file for foreclosure? Based on the final rule, the temporary safeguards are not required in addition to existing foreclosure protections if the foreclosure is commenced on or after January 1, 2022; the borrower was more than 120 days delinquent before March 1, 2020; or the statute of limitations for the foreclosure action will expire prior to the expiration of the temporary procedural safeguards (January 1, 2022). Additionally, credit unions that qualify as “small servicers” are exempt from the final rule’s new requirements.
For more information on the full scope, check out the Final Rule or NAFCU’s Final Regulation summary (member only). Other changes include additional COVID-19 streamlined loan modification options, COVID-related early intervention live contact, reasonable diligence for borrowers in a COVID-19 forbearance, and additional commentary regarding recordkeeping requirements in connection with the foreclosure safeguards.
Use code SUMMER by July 23 at 11:59 p.m. ET to save $250 on NAFCU’s Online Compliance Training Subscription. Your entire credit union will receive year-round access to critical regulatory updates and training. Don’t miss out on this opportunity to save on invaluable compliance training.