2021 RESPA Update: CFPB and Additional Mortgage Servicing Protections for Borrowers

My last blog discussed the protections for financial institutions that were sunsetting as we ease out of this pandemic. The newly proposed rules are around RESPA (Reg X) and reducing hardships for borrowers that are still struggling as a result of COVID-19. We can clearly see that the focus for the CFPB is consumer protection as their name would suggest. Comments are due by May 10, 2021 with a proposed effective date of August 31, 2021. Below is a summary of the changes but the devil is always in the details. Here are excerpts from initial text from the Fast Facts, and some commentary:

The Bureau issued a notice of proposed rulemaking (2021 Mortgage Servicing COVID-19 Proposed Rule) to propose amendments to the Bureau’s Mortgage Servicing Rule that would provide additional assistance for borrowers impacted by the COVID-19 emergency. The proposal, if finalized, would generally add to existing Regulation X provisions to help address COVID-19-related hardships. This includes adding:

• Information servicers would provide to certain borrowers during live contacts;
• Loan modification options servicers may offer based on an incomplete loss mitigation application in certain circumstances; and
• Establishing a temporary COVID-19 emergency-related pre-foreclosure review period, added to existing foreclosure protections.

2021 Mortgage Servicing COVID-19 Proposed Rule Analysis

My gut is telling me that these proposed rules will stay mainly intact after the comment period. Partly because the comment period is shorter than normal and partly because the new rules appear to be reasonable.

First, there is a simple definition for “COVID-19-related hardship” to generally mean a financial hardship related to the COVID-19 emergency, as defined in the CARES Act inserted into 1024.31.

In section 1024.39(e), there are requirements surrounding early intervention and live contact with delinquent borrowers. If a borrower is not yet in a forbearance plan at the time of contact, the servicer must ask the borrower if they are having a hardship related to COVID-19. A yes answer then requires the servicer to provide information about forbearance programs that are available.

If the borrower is already in a forbearance program, the focus is on the end of the period and how to address delinquency problems a borrower may face and what loss mitigation options are available. The servicer is required to explain those options and any actions the borrower must take to be evaluated for these options. Remember the continuity of contact rules in place – you should be engaging your delinquent borrowers regularly. The information provided above need only be disclosed in the last live contact before the forbearance ends.

This proposed provision is temporary. If finalized, it would only apply until August 31, 2022.

The next section (1024.41(b) is surrounding loss mitigation procedures and incomplete applications. Given certain criteria, the servicer may offer certain loan modifications based on an evaluation of an incomplete loss mitigation application. The criteria include:

• The term may not be extended by more than 480 months and would not result in increased payments (this will garner some comments);
• No interest accrual if the modification is a deferral until an action (refinance, sale of property) is completed. Fees would not be allowed in connection with the modification and other fees accumulated must be waived;
• The modification must be made available to borrowers experiencing a COVID-19 related hardship. A servicer does have flexibility to establish its own application requirements and to decide the type and amount of information it will require from borrowers applying for loss mitigation options (in conjunction with good faith efforts to provide relief; and
• The borrowers preexisting delinquency would be resolved by acceptance of the modification.

Under section 1024.41(f)(1) & (3), Prohibition on Foreclosure Referrals, a temporary COVID-19 pre-foreclosure review period where a servicer is not permitted to make the first notice or filing for foreclosure. The proposal adds a temporary blanket prohibition on making the first notice or filing for foreclosure because of a delinquency until after December 31, 2021.

I haven’t yet been through the entire text of the changes as these are proposed rules. As I get through the entire text, I will provide additional information and I will be back to discuss the final rules once approved.

On the horizon – The Financial Reporting Modernization Act (H.R. 2040) includes provision to update currency transaction reporting and Suspicious Activity Reporting thresholds to $30,000 and $10,000, respectively. These thresholds have not been changed since their inception.

To learn more about our Risk Advisory Services group, contact Bruce Rumbold at bruce.rumbold@freedmaxick.com and we would be happy to assist.