Compliance Blog

Apr 24, 2020
Categories: Home-Secured Lending

Loss Mitigation Policies and Procedures

The NAFCU compliance team has blogged about short-term forbearance plans and what the Consumer Financial Protection Bureau’s (CFPB) Regulation X might require when providing a credit union’s members with that relief. Earlier this month, the CFPB issued frequently asked questions (FAQs) about the intersection of its mortgage servicing rules under Regulation X and Regulation Z with the COVID-19 national emergency. The NAFCU compliance team blogged about the mortgage servicing FAQs that related to the loss mitigation rules contained in section 1024.41 of Regulation X. The latter blog specifically addressed the CFPB’s position on whether a forbearance provided under section 4022 of the Coronavirus Aid Relief and Economic Security Act (CARES Act) constitutes a short-term loss mitigation option under section 1024.41. That blog also described the communications required by the rule. For more information about forbearance plans required by section 4022 of the CARES Act, please see this NAFCU compliance blog.

Today’s blog addresses the Regulation X requirements related to a credit union’s mortgage loan servicing policies and procedures and loss mitigation. As you may recall, section 1024.41 generally requires credit unions to exercise reasonable diligence in completing a loss mitigation application for review. Section 1024.41(c)(2)(iii) provides an exception to the general rule for short-term repayment plans and forbearance plans. The rule requires a particular notice be provided promptly after the forbearance or repayment plan is offered to the member. The earlier NAFCU compliance blog explains the content requirements for that specific notice.

This exception to the general rule does not eliminate the requirement from section 1024.41(b)(1) to use reasonable diligence in completing a loss mitigation application. As described in the mortgage servicing FAQ blog, Regulation X allows a credit union to comply with the reasonable diligence requirement – at least in the context of a short-term forbearance plan – by contacting the member before the end of the forbearance period to see if the member wants to complete a loss mitigation application and be evaluated for all available loss mitigation options. See, 12 CFR Part 1024, Supp. I, comment 41(b)(1)-4(iii). That said, the commentary and the mortgage servicing FAQ suggest that Regulation X requires moving forward with reasonable diligence to complete a loss mitigation application if a member requested additional assistance during the forbearance period. Therefore, Regulation X would appear to require a credit union to resume reasonably diligent efforts to complete a loss mitigation application even during the pendency of a forbearance plan if a member directly contacted a credit union for additional assistance.

To see what constitutes reasonable diligence, we have to look to the commentary. It provides the following examples of what might suffice as reasonable diligence depending on the applicable circumstances:

  • Promptly contacting a member after receipt of a loss mitigation application if the credit union requires additional information to complete the application;
  • Transferee servicers reviewing loss mitigation applications in the pipeline before the effective date of the servicing transfer to determine if those loss mitigation applications are complete; and
  • Contacting members on short-term loss mitigation plans as described above.

See, 12 CFR Part 1024, Supp. I. comments 41(b)(1)-4(i) through (iii).

For credit unions subject to these rules (i.e., credit unions that are not small servicers), they may wish to review their loss mitigation policies and procedures. For more information on what constitutes a small servicer, please see this NAFCU compliance blog. Section 1024.38(b)(2) requires a credit union that is not a small servicer have policies and procedures in place that are reasonably designed to ensure that the credit union can

  • Provide accurate information to members about any available loss mitigation options;
  • Make certain that a member’s single point of contact, which can be a specific person or a team of personnel, can access documents submitted by a member in connection with a loss mitigation application;
  • Identify documents and information that make up a complete loss mitigation application and comply with any applicable notice requirements (e.g., acknowledgment notice); and
  • Properly evaluate a member for all eligible loss mitigation options available to the member.

See, 12 CFR 1024.38(b)(2)(i) through (vi). To the extent a credit union is subject to sections 1024.38 and 1024.41 and provides a member with a short-term mortgage forbearance, Regulation X may require that a credit union exercise reasonable diligence in completing loss mitigation applications to review a member for all eligible options available to the member. Because of the anticipated volume of loss mitigation requests expected from the COVID-19 national emergency, credit unions may wish to review their loss mitigation policies and procedures to see whether they adequately address the requirements set forth in sections 1024.38(b)(2)(i) through (vi) or whether an update may be appropriate.