Special alert: CFPB proposes to stop foreclosures from August 31 until 2022 and create new loss mitigation requirements for service providers
The Consumer Financial Protection Bureau on Monday released a proposal that would globally stop foreclosure initiations on primary residences from August 31, 2021 to 2022 and change service rules to promote consumer awareness and address mitigation options. of Covid losses. While the proposal gives officers some flexibility to streamline the change process, most have already been offering many of these types of changes since the early days of the pandemic. The proposal would also create new and detailed obligations for communicating with borrowers to ensure that they are aware of their loss mitigation options in the event of difficulties related to the pandemic.
The CFPB has indicated that a final rule implementing the proposal will take effect on August 31 – a tight deadline to respond to public comments, which are due on May 10. The proposal comes as the housing market strengthens, loans under Covid-related forbearance decline, the unemployment rate is falling and the country’s vaccination program is gaining momentum.
Restrictions on the opening of foreclosure until December 31 for primary residences
The CFPB proposes to prohibit administrators from giving the first notice or from filing a seizure request from the date of entry into force of August 31, 2021 until December 31, 2021 on all main residences, that the default of payment is linked in any way to the covid19 pandemic. Regulation X currently requires a manager to generally refrain from making the first notice or filing a foreclosure request until the borrower reaches 120.e delinquency day. Although the CFPB has previously taken the position that a borrower is generally not required to make a lump sum payment upon the expiration of the forbearance period (See for example: Slides – Housing Counseling Webinar Forbearance Options and Resources – March 22, 2021 (hudexchange.info)), the proposal recognizes that borrowers who join forbearance programs and do not make payments during the forbearance period are becoming increasingly behind on their mortgage obligation. As a result, without further action, managers would likely have the right under Regulation X to initiate foreclosure in the event that a borrower exits a forbearance plan and does not remedy the default through reinstatement. , deferral or other loss mitigation alternative to foreclosure. . The proposal indicated that a temporary foreclosure ban would address this concern.
The CFPB has indicated that it is considering creating exemptions to this restriction that would allow foreclosure proceedings to be initiated if the borrower does not qualify for loss mitigation options without foreclosure or has failed to respond to foreclosure. sensitization of managers.
It is possible that loan investors who expected to order managers to foreclose on delinquent loans will raise a legal challenge to the proposed broad foreclosure restriction, which appears to be primarily based on the CFPB’s power to issue regulations creating mortgage manager obligations such as performing [the Real Estate Settlement Procedures Act’s] for consumer protection purposes. The question remains open as to whether a general ban on foreclosures – including those unrelated to the pandemic – and applicable to all mortgage managers falls within the statutory authority of the CFPB under the RESPA or the Dodd Act. -Frank.
Changes based on assessment of incomplete loss mitigation application
The proposal would also allow managers to offer borrowers facing Covid-19 difficulties a loan modification based on an incomplete application, provided the modification meets the following criteria:
- Duration and payment limits: The modification cannot result in an increase in the repayment of principal and interest of the borrower and cannot extend the term of the loan by more than 480 months from the date of the modification.
- Deferred amounts not bearing interest: Amounts that the borrower can delay paying until the loan is refinanced, the property sold, or the loan modification matures should not bear interest.
- Tariff restrictions: No fees can be charged for the loan modification and all existing late fees, penalties, stop payment fees and similar charges should be waived upon acceptance (CFPB said it was aware that some agencies , including the Federal Housing Administration, only required a waiver of costs incurred after the onset of the pandemic and that such changes would not fall within this safe harbor).
- Difficulties related to Covid: The loan modification is made available to borrowers facing difficulties related to Covid-19, which are defined very broadly in the regulation as “financial difficulties due, directly or indirectly, to the emergency of Covid-19 “.
- Treatment of delinquency: The amendment must be designed to end any pre-existing delinquency.
Interestingly, investors and agencies have largely eliminated documentation requirements in response to the pandemic, and managers have been successful in coming up with streamlined loan modifications in line with current Regulation X requirements. documentation requirements has apparently blurred the lines of what constitutes a comprehensive loss mitigation application.
Additional borrower awareness is required
The proposed rule would require managers, for one year after the effective date, to provide borrowers with Covid forbearance information regarding current Regulation X early intervention requirements, as follows:
- For borrowers who are not currently in an abstention situation, when direct contact is established with the borrower and the investor makes a Covid-related abstention program available to that borrower, the manager must request if the borrower is having trouble with Covid, then list and briefly describe the programs available and the actions the borrower needs to take to be assessed for them. The CFPB noted that this could include the list of federal, state and / or investor-specific options.
- If the borrower is in forbearance, during the last live contact established in accordance with the early intervention rules before the program expires, the manager must inform the borrower of the date on which the current forbearance period ends. and each type of post-forbearance option that is available to the borrower to resolve the post-forbearance default, as well as the steps that need to be taken to be assessed for such options. Importantly, this list would include all of the loss mitigation options available, and not just the Covid-specific options.
The proposed rule would also require a manager to contact the borrower no later than 30 days before the end of the forbearance period to determine whether the borrower wishes to complete the loss mitigation request and conduct a full assessment of loss mitigation. If the borrower requests additional assistance, the manager must do due diligence to complete the request before the end of the forbearance program period.
The compliance requirements envisioned by the proposal appear likely to present additional complexity and liability for mortgage managers as they prepare to face the next wave of delinquent borrowers emerging from Covid-related forbearances.