[Federal Register Volume 85, Number 126 (Tuesday, June 30, 2020)]
[Rules and Regulations]
[Pages 39055-39065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13853]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1024
[Docket No. CFPB-2020-0022]
Treatment of Certain COVID-19 Related Loss Mitigation Options
Under the Real Estate Settlement Procedures Act (RESPA) (Regulation X)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Interim final rule with request for public comment.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
issuing this interim final rule to amend Regulation X. 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 Federal Housing
Administration (FHA), the mortgage insurance terminates. 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.
DATES: This interim final rule is effective on July 1, 2020. Comments
must be received on or before August 14, 2020.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2020-
0022, by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: 2020-IFR-MortgageServicing@cfpb.gov. Include Docket
No. CFPB-2020-0022 in the subject line of the message.
Hand Delivery/Mail/Courier: Comment Intake, Bureau of
Consumer Financial Protection, 1700 G Street NW, Washington, DC 20552.
Please note that due to circumstances associated with the COVID-19
pandemic, the Bureau discourages the submission of comments by hand
delivery, mail, or courier.
Instructions: The Bureau encourages the early submission of
comments. All submissions should include the agency name and docket
number for this rulemaking. Because paper mail in the Washington, DC
area and at the Bureau is subject to delay, and in light of
difficulties associated with mail and hand deliveries during the COVID-
19 pandemic, commenters are encouraged to submit comments
electronically. In general, all comments received will be posted
without change to https://www.regulations.gov. In addition, once the
Bureau's headquarters reopens, comments will be available for public
inspection and copying at 1700 G Street NW, Washington, DC 20552, on
official business days between the hours of 10 a.m. and 5 p.m. Eastern
Time. At that time, you can make an appointment to inspect the
documents by telephoning 202-435-9169.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Proprietary information or sensitive personal information, such as
account numbers, Social Security numbers, or names of
[[Page 39056]]
other individuals, should not be included. Comments will not be edited
to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Joel Singerman, Counsel, or Terry J.
Randall, Senior Counsel, Office of Regulations, at 202-435-7700 or
https://reginquiries.consumerfinance.gov/. If you require this document
in an alternative electronic format, please contact
CFPB_Accessibility@cfpb.gov.
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.
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\1\ Section 1024.41(b)(1) (requiring servicer to exercise
reasonable diligence in obtaining documents and information to
complete a loss mitigation application); Sec. 1024.41(c)(1)(i)
(requiring evaluation of borrower for all loss mitigation options
available to the borrower if the servicer receives a complete loss
mitigation application more than 37 days before a scheduled
foreclosure sale); and Sec. 1024.41(c)(2)(i) (prohibiting servicer
from offering a loss mitigation option based on an evaluation of any
information provided by a borrower in connection with an incomplete
loss mitigation application). Small servicers, as defined in
Regulation Z, 12 CFR 1026.41, are not subject to these requirements.
12 CFR 1024.30(b)(1).
\2\ 12 CFR 1024.41(c)(2)(iii).
\3\ Public Law 116-136, 134 Stat. 281 (2020).
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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 Federal Housing Finance Agency
(FHFA), discussed in part II, and other similar programs.
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 Sec. 1024.41(b)(1) otherwise requires or send the
acknowledgement notice Sec. 1024.41(b)(2) otherwise requires.
II. Background
A. The Bureau's Regulation X Mortgage Servicing Rules
In February 2013, the Bureau issued the Mortgage Servicing Rules to
implement the Real Estate Settlement Procedures Act of 1974,\4\ and
included these rules in Regulation X.\5\ The Bureau later clarified and
revised Regulation X's servicing rules through several additional
notice-and-comment rulemakings.\6\ In part, these rulemakings were
intended to address deficiencies in servicers' handling of delinquent
borrowers and loss mitigation applications during and after the 2008
financial crisis.\7\ When the housing crisis began, servicers were
faced with historically high numbers of delinquent mortgages, loan
modification requests, and in-process foreclosures in their
portfolios.\8\ Many servicers lacked the infrastructure, trained staff,
controls, and procedures needed to manage effectively the flood of
delinquent mortgages they were obligated to handle.\9\ Inadequate
staffing and
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procedures led to a range of reported problems with servicing of
delinquent loans, including some servicers misleading borrowers,
failing to communicate with borrowers, losing or mishandling borrower-
provided documents supporting loan modification requests, and generally
providing inadequate service to delinquent borrowers.\10\
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\4\ Public Law 93-533, 88 Stat. 1724 (12 U.S.C. 2601 et seq.).
\5\ 78 FR 10695 (Feb. 14, 2013). In January 2013, the Bureau
also issued separate ``Mortgage Servicing Rules Under the Truth in
Lending Act (Regulation Z)'' (2013 TILA Servicing Final Rule). See
78 FR 10902 (Feb. 14, 2013). The Bureau conducted an assessment of
this rule in 2018-19 and released a report detailing its findings in
early 2019. 2013 RESPA Servicing Rule Assessment Report, https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rule-assessment_report.pdf.
\6\ Amendments to the 2013 Mortgage Rules under the Real Estate
Settlement Procedures Act (Regulation X) and the Truth in Lending
Act (Regulation Z), 78 FR 44686 (July 24, 2013); Amendments to the
2013 Mortgage Rules under the Equal Credit Opportunity Act
(Regulation B), Real Estate Settlement Procedures Act (Regulation
X), and the Truth in Lending Act (Regulation Z), 78 FR 60382 (Oct.
1, 2013); Amendments to the 2013 Mortgage Rules under the Real
Estate Settlement Procedures Act (Regulation X) and the Truth in
Lending Act (Regulation Z), 78 FR 62993 (Oct. 23, 2013); Amendments
to the 2013 Mortgage Rules Under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth in Lending Act
(Regulation Z), 81 FR 72160 (Oct. 19, 2016); Amendments to the 2013
Mortgage Rules Under RESPA (Regulation X) and TILA (Regulation Z),
82 FR 30947 (July 5, 2017); Mortgage Servicing Rules Under RESPA
(Regulation X), 82 FR 47953 (Oct. 16, 2017). The Bureau also issued
notices providing guidance on the Rule and soliciting comment on the
Rule. See, e.g., Applicability of Regulation Z's Ability-to-Repay
Rule to Certain Situations Involving Successors-in-interest, 79 FR
41631 (July 17, 2014); Safe Harbors from Liability Under the Fair
Debt Collections Practices Act for Certain Actions in Compliance
with Mortgage Servicing Rules Under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth in Lending Act
(Regulation Z), 81 FR 71977 (Oct. 19, 2016); Policy Guidance on
Supervisory and Enforcement Priorities Regarding Early Compliance
With the 2016 Amendments to the 2013 Mortgage Servicing Rules Under
RESPA (Regulation X) and TILA (Regulation Z), 82 FR 29713 (June 30,
2017).
\7\ See generally 78 FR 10699-701.
\8\ See discussion in Chapter 3 of the 2013 RESPA Servicing Rule
Assessment Report. 2013 RESPA Servicing Rule Assessment Report,
https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rule-assessment_report.pdf.
\9\ Mortgage Servicing Rules Under the Real Estate Settlement
Procedures Act (Regulation X), 78 FR 10696, 10700 (Feb. 14, 2013).
\10\ See U.S. Gov't Accountability Off., GAO-10-634, Troubled
Asset Relief Program: Further Actions Needed to Fully and Equitably
Implement Foreclosure Mitigation Actions, at 14-16 (2010), https://www.gao.gov/assets/310/305891.pdf; Hearing on Problems in Mortgage
Servicing from Modification to Foreclosure Before the S. Comm. on
Banking, Housing, and Urban Affairs, 111th Cong. 54 (2010)
(statement of Thomas J. Miller, Att'y Gen. State of Iowa).
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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\
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\11\ See generally 12 CFR 1024.41. Small servicers, as defined
in Regulation Z, 12 CFR 1026.41, are generally exempt from these
requirements. 12 CFR 1024.30(b)(1).
\12\ 12 CFR 1024.41(b)(1) (requiring servicer to exercise
reasonable diligence in obtaining documents and information to
complete a loss mitigation application); Sec. 1024.41(c)(1)(i)
(requiring evaluation of borrower for all loss mitigation options
available to the borrower if the servicer receives a complete loss
mitigation application more than 37 days before a scheduled
foreclosure sale); and Sec. 1024.41(c)(2)(i) (prohibiting servicer
from offering a loss mitigation option based on an evaluation of any
information provided by a borrower in connection with an incomplete
loss mitigation application). Small servicers, as defined in
Regulation Z, 12 CFR 1026.41, are not subject to these requirements.
12 CFR 1024.30(b)(1).
\13\ 12 CFR 1024.41(c)(2)(i).
\14\ 78 FR at 10807.
\15\ Id. at 10814.
\16\ Id. at 10815.
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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
Sec. 1024.41 that are determined as of the date a complete application
is received.\18\
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\17\ 12 CFR 1024.41(c)(2)(iii); see also comments 41(c)(2)(iii)-
1 and -4 (defining short-term payment forbearance program and short-
term repayment plan for purposes of the regulation).
\18\ 78 FR at 60400; 81 FR at 72246. Section 1024.41(i) limits
the circumstances when a servicer must comply with the procedures
described in Sec. 1024.41. Servicers do not need to comply with the
procedures described in Sec. 1024.41 if the servicer has previously
complied with the requirements of Sec. 1024.41 for a complete loss
mitigation application submitted by the borrower and the borrower
has been delinquent at all times since submitting the prior complete
application. Because a servicer who offers a borrower a short-term
option based on evaluation of an incomplete application pursuant to
Sec. 1024.41(c)(2)(iii) has not evaluated a complete application
submitted by the borrower, a servicer would have to comply with the
procedures described in Sec. 1024.41 if the borrower submits a
complete application after the servicer offers the borrower a short-
term payment forbearance program.
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B. The CARES Act and COVID-19 Forbearances
By late March 2020, the COVID-19 emergency was significantly
affecting the economy. Between March 15 and May 15, 2020, over 35
million people filed initial jobless claims, and the unemployment rate
climbed to over 14 percent in April--the highest monthly level since
1948 when the Bureau of Labor and Statistics started tracking this
series.\19\
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\19\ U.S. Bureau of Labor Statistics, Labor Force Statistics
from the Current Population Survey, https://www.bls.gov/ces (last
visited June 6, 2020).
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On March 27, 2020, the CARES Act was enacted. Among other things,
the CARES Act ensures that borrowers experiencing a financial hardship
due, directly or indirectly, to the COVID-19 emergency and who have
``Federally backed mortgage loans'' \20\ have access to payment
forbearance programs (CARES Act forbearance) if they submit a request
to their mortgage servicer and affirm that they are experiencing a
financial hardship during the COVID-19 emergency.\21\ By requiring
servicers to grant CARES Act forbearances to certain borrowers with
federally backed mortgages (which account for approximately 80 percent
of mortgage borrowers), the CARES Act established payment forbearance
as the primary tool that servicers of these loans would use initially
to assist struggling borrowers during the COVID-19 emergency. The
Bureau understands that servicers of other mortgages that are not
``Federally backed mortgage loans'' under the CARES Act may be offering
similar payment forbearance programs to their borrowers.\22\
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\20\ The CARES Act defines a ``Federally backed mortgage loan''
as any loan which is secured by a first or subordinate lien on
residential real property (including individual units of
condominiums and cooperatives) designed principally for the
occupancy of from one-to-four families that is insured by the
Federal Housing Administration under title II of the National
Housing Act (12 U.S.C. 1707 et seq.); insured under section 255 of
the National Housing Act (12 U.S.C. 1715z-20); guaranteed under
section 184 or 184A of the Housing and Community Development Act of
1992 (12 U.S.C. 1715z-13a, 1715z-13b); guaranteed or insured by the
Department of Veterans Affairs; guaranteed or insured by the
Department of Agriculture; made by the Department of Agriculture; or
purchased or securitized by the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association. CARES Act
section 4022(a)(2).
\21\ CARES Act section 4022(b). Upon receiving the borrower's
request for forbearance, the servicer must provide a forbearance for
up to 180 days with no additional documentation required other than
the borrower's attestation to a financial hardship caused by the
COVID-19 emergency and with no fees, penalties, or interest (beyond
the amounts scheduled or calculated as if the borrower made all
contractual payments on time and in full under the terms of the
mortgage contract) charged to the borrower in connection with the
forbearance. The servicer must extend the forbearance for up to an
additional 180 days at the request of the borrower, provided that
the request for an extension is made during the covered period. Note
that the borrower may request that either the initial or extended
forbearance period be less than 180 days. See CARES Act section
4022(b) and (c)(1).
\22\ Such programs may be based on servicers' own programs or
policy initiative or may be required by State or local laws.
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On April 3, 2020, the Bureau, the Board of Governors of the Federal
Reserve System (the Board), the Federal Deposit Insurance Corporation
(FDIC), the National Credit Union Administration (NCUA), the Office of
the Comptroller of the Currency (OCC), and the State Banking Regulators
issued a joint statement (Joint Statement) recognizing the serious
impact the COVID-19 emergency was having on consumers and on the
operations of mortgage servicers.\23\ The Joint
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Statement informed servicers of the agencies' flexible supervisory and
enforcement approach during the emergency regarding certain consumer
communications required by Regulation X, and provided guidance on
servicers' compliance with Regulation X when offering CARES Act
forbearances and other payment forbearance programs during the COVID-19
emergency.\24\ The Joint Statement explained that, when a borrower
requests a CARES Act forbearance and affirms that the borrower is
experiencing a financial hardship during the COVID-emergency, it
constitutes an incomplete loss mitigation application for purposes of
Regulation X.\25\ Although receipt of an incomplete application
generally triggers a servicer's obligations under Sec. 1024.41, the
Joint Statement also provided that a CARES Act forbearance qualifies as
a short-term payment forbearance program \26\ under Regulation X, so
certain loss mitigation requirements under Regulation X do not
apply.\27\
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\23\ Joint Statement on Supervisory and Enforcement Practices
Regarding the Mortgage Servicing Rules in Response to the COVID-19
Emergency and the CARES Act (Apr. 3, 2020), https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_mortgage-servicing-rules-covid-19.pdf. On the same day,
the Bureau issued additional compliance guidance to provide mortgage
servicers with enhanced clarity about existing flexibility in the
Bureau's mortgage servicing rules that they may use to help
consumers during the COVID-19 emergency. Bureau of Consumer Fin.
Prot., Bureau's Mortgage Servicing Rules FAQs related to the COVID-
19 Emergency, https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rules-covid-19_faqs.pdf.
\24\ Joint Statement, supra note 23.
\25\ Id. The Joint Statement also explained that servicers may
provide multiple sequential short-term payment forbearance programs
under the Regulation X mortgage servicing rules.
\26\ Comment 41(c)(2)(iii)-1 explains that a short-term payment
forbearance program is a loss mitigation option pursuant to which a
servicer allows a borrower to forgo making certain payments or
portions of payments for a period of time. A short-term payment
forbearance program for purposes of Sec. 1024.41(c)(2)(iii) allows
the forbearance of payments due over periods of no more than six
months. Such a program would be short-term regardless of the amount
of time a servicer allows the borrower to make up the missing
payments.
\27\ Joint Statement, supra note 23.
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By early June 2020, as a result of the CARES Act and other similar
forbearance programs made available by owners or investors of mortgage
loans, as many as 4.3 million mortgage borrowers (or 8.55 percent of
mortgage borrowers) nationwide were in forbearance programs.\28\ After
reaching a historic low in January of 2020 (just above 3 percent), the
mortgage delinquency rate (which includes loans in forbearance) had
more than doubled by early June and was at its highest level since
2013. The delinquency rate was 3.1 percentage points higher in April
than in March--a monthly increase three times the previous record set
in November of 2008 during the great recession.\29\
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\28\ Mortgage Bankers Ass'n, Share of Mortgage Loans in
Forbearance Increases to 8.55%, https://www.mba.org/2020-press-releases/june/share-of-mortgage-loans-in-forbearance-increases-to-855.
\29\ Black Knight Fin. Servs., Mortgage Monitor (Apr. 2020),
https://www.bls.gov/ces/.
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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 July 2020.
The Federal National Mortgage Association (Fannie Mae), Federal
Home Loan Mortgage Company (Freddie Mac), FHA, and other owners or
insurers of mortgage loans have announced programs to assist borrowers
in repayment of the forborne amounts.\30\ On May 13, 2020, FHFA
announced that Fannie Mae and Freddie Mac would make a payment deferral
program available to borrowers in a COVID-19 forbearance plan (FHFA
COVID-19 payment deferral) and to borrowers who have experienced a
financial hardship resulting from COVID-19 that has affected their
ability to make their full monthly payment.\31\ FHFA indicated that
these programs will be available to borrowers who are able to return to
making their normal monthly mortgage payment.\32\ According to FHFA,
these programs take the missed mortgage payments and make them a
payment due at the sale of the home, refinancing of the mortgage loan,
or the end of the loan.\33\ Fannie Mae and Freddie Mac have established
streamlined application procedures for these programs that permit
servicers to offer an FHFA COVID-19 payment deferral without collecting
Fannie Mae's and Freddie Mac's ``complete Borrower Response Package.''
\34\ Rather, Fannie Mae and Freddie Mac permit servicers to offer FHFA
COVID-19 payment deferrals to any borrowers who meet certain criteria
if the borrower indicates to the servicer that (1) the borrower can
afford to resume their normal monthly payments due before the
forbearance and (2) the borrower cannot afford full reinstatement or a
repayment plan to bring their mortgage loan current when they exit
forbearance.\35\ Fannie Mae and Freddie Mac prohibit servicers from
charging borrowers who accept an FHFA COVID-19 payment deferral
administrative fees, and direct servicers to waive all late charges,
penalties, stop payment fees, or similar charges upon completing a
COVID-19 payment deferral.\36\ This program takes effect on July 1,
2020.\37\ Other mortgage investors and insurers have also announced
similar loss mitigation options.\38\
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\30\ FHFA, FHFA Announces Payment Deferral as New Repayment
Option for Homeowners in COVID-19 Forbearance Plans (May 13, 2020),
https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Payment-Deferral-as-New-Repayment-Option-for-Homeowners-in-COVID-19-Forbearance-Plans.aspx; HUD Mortgagee Letter 2020-06, https://www.hud.gov/sites/dfiles/OCHCO/documents/20-06hsngml.pdf.
\31\ FHFA, supra note 30.
\32\ Id.
\33\ Id. While initial forbearance under the CARES Act and
similar programs probably constitute short-term payment forbearance
programs under Sec. 1024.41(c)(2)(iii), the anticipated repayments
arrangements may not constitute short-term repayment plans under
that section. See also Joint Statement, supra note 23.
\34\ See Fannie Mae Lender Letter 2020-07, https://singlefamily.fanniemae.com/media/22916/display; Freddie Mac Bulletin
2020-15, https://guide.freddiemac.com/app/guide/bulletin/2020-15?_ga=2.76149522.621170394.1590694543-1945440177.1590694543.
\35\ See id.
\36\ See id.
\37\ See id.
\38\ HUD Mortgagee Letter 2020-06, supra note 30.
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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.
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\39\ See, e.g., JDSupra, Can Mortgage Servicers Legally Offer
the GSEs' COVID deferral options? (May 14, 2020), https://www.jdsupra.com/legalnews/can-mortgage-servicers-legally-offer-42513/.
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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
[[Page 39059]]
forborne amount that servicers have deferred. In addition, the
streamlined application procedures offered by Fannie Mae, Freddie Mac,
and others may help ensure that servicers have sufficient resources to
address the unusually large number of borrowers who will be exiting
CARES Act or similar forbearances and may be seeking assistance in the
coming months. There are circumstances where Regulation X may require a
servicer to collect a complete application from a borrower before
offering this type of program. However, that result may not serve the
particular needs of borrowers and servicers during the COVID-19
emergency.
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, FDIC, NCUA, OCC, and the Department of Housing and Urban
Development.
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.
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\40\ Public Law 111-203, 124 Stat. 1376 (2010).
\41\ 81 FR 72160 (Oct. 19, 2016).
\42\ 78 FR 10695 (Feb. 14, 2013).
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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.
IV. Administrative Procedure Act
Under the Administrative Procedure Act,\43\ notice and opportunity
for public comment are not required if the Bureau for good cause finds
that notice and public comment are impracticable, unnecessary, or
contrary to the public interest.\44\ Similarly, publication of this
interim final rule at least 30 days before its effective date is not
required where the Bureau has identified good cause for a different
effective date.\45\
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\43\ 5 U.S.C. 551 et seq., 701 et seq.
\44\ 5 U.S.C. 553(b)(B).
\45\ 5 U.S.C. 553(d)(3).
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The Bureau finds that prior notice and public comment are
impracticable because there is insufficient time to solicit comment and
finalize amendments between the FHFA's announcement of its COVID-19
payment deferral program on May 13, 2020, and its effective date of
July 1, 2020. As discussed more fully in part II, the economic effects
of the COVID-19 emergency have resulted quickly in major challenges in
the mortgage market. Congress enacted the CARES Act in late March,
making forbearances available to many borrowers with federally backed
mortgages, which account for approximately 80 percent of the mortgage
market.
Because the CARES Act does not specify how borrowers provided CARES
Act forbearances will repay the forborne payments, Fannie Mae, Freddie
Mac, FHA, and other owners or insurers of mortgage loans worked quickly
after they placed borrowers in these forbearances to devise loss
mitigation options for borrowers who could not afford to repay the
forborne amounts in a lump sum at the conclusion of the forbearance
period. FHFA, Fannie Mae, and Freddie Mac announced a COVID-19 post-
forbearance program, the COVID-19 payment deferral, on May 13,
2020.\46\ These programs take effect on July 1, 2020, and, because
significant numbers of borrowers entered 90-day forbearances in late
March and early April, this coincides with when many borrowers'
forbearance periods will end. Thus, starting on July 1, 2020--absent
immediate action by the Bureau--servicers would have to reconcile
FHFA's COVID-19 payment deferral programs with the anti-evasion
requirement in the servicing rules. As a practical matter, servicers
would not be able to offer the payment deferral to some borrowers
without first having them complete their loss mitigation applications,
a step that would delay or obstruct relief to borrowers and frustrate
the purpose and immediate need for the program.\47\ It is critical that
the Bureau's temporary revision to Regulation X be in effect when these
forbearance programs take effect to ensure that borrowers and
[[Page 39060]]
mortgage servicers can take advantage of these programs.
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\46\ Borrowers who are not exiting forbearance may be also be
eligible for this program if their mortgage loan became delinquent
resulting from a financial hardship due, directly or indirectly, to
the COVID-19 emergency. Due to the rising delinquency rate discussed
in part I, significant numbers of borrowers who are not exiting
forbearance could be eligible.
\47\ As noted above, in the short period between the FHFA's
announcement of its program and the issuance of this rule, the
Bureau has consulted with stakeholders from industry, consumer
groups, and regulators regarding the interaction between the FHFA's
program and the servicing rules. As also noted above, 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.
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Thus, prior public comment is impractical because there is
insufficient time to solicit comment and finalize amendments before
FHFA's COVID-19 payment deferral programs take effect on July 1, 2020.
For similar reasons, the Bureau also finds that delaying this
rulemaking to allow for prior public comment would be contrary to the
public interest, because the amendments are necessary to avoid the harm
to borrowers and to the housing market that would result if the
amendments did not take effect on July 1, 2020. As discussed above in
part II, the Bureau believes that the FHFA COVID-19 payment deferral
program and other comparable programs, described more fully in part V,
will benefit both borrowers and servicers during the current COVID-19
emergency. These programs will help eligible borrowers avoid
foreclosure by quickly entering an agreement regarding repayment of
their forborne payments. Absent these streamlined procedures, servicers
likely would require borrowers to submit a complete loss mitigation
application before servicers would consider them for these programs.
This could result in significant delays before borrowers can be offered
the payment deferral program. In some cases, borrowers might not
complete a loss mitigation application, which could prolong their
delinquency, increase their costs, and put them at imminent risk of
foreclosure. Given the large number of mortgage borrowers currently in
forbearance or experiencing a delinquency related to the COVID-19
emergency, even a small fraction of those borrowers experiencing
foreclosure could translate to large aggregate consequences. For
instance, as noted above, approximately four million borrowers have
entered forbearance since March 2020. Even if only one-tenth of 1
percent of these borrowers would experience foreclosure absent a
deferral, that would translate to thousands of additional foreclosures.
Thus, avoiding foreclosures may help prevent significant consequences
for the housing market and imposing costs both on borrowers and
servicers.
In addition, the streamlined procedures permitted for FHFA's COVID-
19 payment deferral program would minimize the burden on servicers by
allowing them to offer the payment deferral program without obtaining
and processing a complete application from the borrower. This is
especially important during the COVID-19 emergency because servicers
will be transitioning many borrowers from forbearances to longer term
solutions at the same time, potentially overwhelming servicers' systems
and delaying providing relief to borrowers. Indeed, the Bureau
understands that servicers have already begun receiving abnormally high
call volumes, beginning in March 2020.\48\
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\48\ See, Mortgage Bankers Ass'n, MBA Survey Shows Spike in
Loans in Forbearance and Servicer Call Volume, https://www.mba.org/2020-press-releases/april/mba-survey-shows-spike-in-loans-in-forbearance-servicer-call-volume.
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For these same reasons, the Bureau also finds that there is good
cause for this interim final rule to be effective less than 30 days
after publication, to ensure that these amendments are in effect by the
July 1, 2020 effective date of the FHFA COVID-19 payment deferral, to
avoid harm to borrowers and to the housing market.
V. Section-by-Section Analysis
Section 1024.41 Loss Mitigation Procedures
41(c) Evaluation of loss mitigation applications
41(c)(2) Incomplete loss mitigation application evaluation
41(c)(2)(i) In general
Section 1024.41(c)(2)(i) states that, in general, servicers shall
not evade the requirement to evaluate a complete loss mitigation
application for all loss mitigation options available to the borrower
by making an offer based upon an incomplete application.\49\ Currently,
the provision points to two paragraphs providing exceptions to the
anti-evasion requirement, Sec. 1024.41(c)(2)(ii) and (iii). In this
interim final rule, the Bureau is adding a temporary exception under
new Sec. 1024.41(c)(2)(v). As described in the section-by-section
analysis of Sec. 1024.41(c)(2)(v), the new exception applies to
certain loss mitigation options that permit borrowers to delay
repayment of forborne or delinquent amounts accrued due to the COVID-19
emergency. The Bureau is amending Sec. 1024.41(c)(2)(i) to include a
reference to the new exception in paragraph (c)(2)(v).
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\49\ Small servicers, as defined in Regulation Z, 12 CFR
1026.41, are not subject to this requirement. 12 CFR 1024.30(b)(1).
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41(c)(2)(v) Certain COVID-19-Related Loss Mitigation Options
In general, Sec. 1024.41 requires servicers to evaluate a complete
loss mitigation application for all loss mitigation options available
to the borrower.\50\ In this interim final rule, the Bureau is adding a
temporary exception to this requirement under new Sec.
1024.41(c)(2)(v) for certain loss mitigation options that permit
borrowers to delay repayment of forborne or delinquent amounts accrued
during a COVID-19-related forbearance. As described in the respective
section-by-section analyses, new Sec. 1024.41(c)(2)(v)(A) sets forth
the minimum specific criteria that the loss mitigation option must meet
for the new exception to apply, and new Sec. 1024.41(c)(2)(v)(B)
offers servicers relief from certain regulatory requirements when a
borrower accepts a loss mitigation option under the new exception.
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\50\ Id.
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As discussed in part II, FHFA, FHA, and others have recently
announced loss mitigation options to assist borrowers experiencing
hardships related to the COVID-19 emergency in repaying amounts that
accrued through forbearance or delinquency.\51\ In general, these
programs permit borrowers who can resume their normal periodic payments
to move the forborne or delinquent payments to the end of the mortgage
loan and cure any preexisting delinquency. Under those programs, the
deferred amounts must not accrue interest, servicers may not charge any
fee in connection with the loss mitigation option and must waive
various preexisting fees, if applicable, and servicers are permitted to
offer the deferral programs to borrowers based on streamlined
application procedures.
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\51\ FHFA, supra note 30; HUD Mortgagee Letter 2020-06, supra
note 30.
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The Bureau believes that the FHFA COVID-19 payment deferral and
certain similar programs would provide benefits both to borrowers and
servicers during the COVID-19 emergency. Through these programs,
borrowers who can resume their normal periodic payments but who cannot
afford to repay the forborne or delinquent amounts in the short-term
should be able to eliminate the immediate potential risk of losing
their homes to foreclosure, resume repaying the mortgage loan with no
delinquency and no additional fees or interest, and better plan how
eventually to repay the forborne or delinquent amount that has been
deferred.
In addition, the streamlined application procedures authorized by
Fannie Mae and Freddie Mac should help ensure that servicers have
sufficient resources to address requests from the unusually large
number of borrowers who will be seeking assistance from them in the
coming months as many CARES Act forbearances end. And borrowers dealing
with the social and economic effects of COVID-19 may be less likely
[[Page 39061]]
than they would be under normal circumstances to take the steps
necessary to complete a loss mitigation application to receive a full
evaluation. This could prolong their delinquencies and put them at risk
for foreclosure. Moreover, by allowing servicers to assist borrowers
eligible for deferrals more efficiently, servicers will have more
resources to assist borrowers who are unable to resume making their
normal periodic payment, and are therefore ineligible for a FHFA COVID-
19 payment deferral, submit a complete loss mitigation application for
evaluation.
The Bureau acknowledges that borrowers accepting a loss mitigation
offer under new Sec. 1024.41(c)(2)(v)(A) will not receive protections
under Sec. 1024.41 that are critical in other circumstances. As the
Bureau explained in the 2013 Mortgage Servicing Final Rule, the general
prohibition against evaluating a borrower for all available loss
mitigation options based on a single, complete application ensures that
borrowers have a full understanding of their loss mitigation options
when deciding on a program.\52\ It also makes the loss mitigation
application process more efficient by eliminating multiple, sequential
evaluations that are sometimes based on similar application
information,\53\ with the resulting efficiency often saving borrowers
time and resources.
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\52\ 78 FR at 10828.
\53\ Id.
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Nonetheless, the Bureau believes that the protections set forth in
new Sec. 1024.41(c)(2)(v)(A) and (B), described below, provide
sufficient safeguards for borrowers in the narrow context of the COVID-
19 emergency. The Bureau solicits comment on all aspects of the new
exception.
41(c)(2)(v)(A)
New Sec. 1024.41(c)(2)(v)(A) permits servicers to offer a loss
mitigation option based upon an evaluation of an incomplete
application, as long as the loss mitigation option meets the criteria
set forth in Sec. 1024.41(c)(2)(v)(A)(1) through (3). Under new Sec.
1024.41(c)(2)(v)(A)(1), the loss mitigation option must permit the
borrower to delay paying covered 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. New Sec. 1024.41(c)(2)(v)(A)(1) defines ``covered
amounts'' for these purposes to 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,\54\ including a
payment forbearance program made pursuant to the CARES Act. ``Covered
amounts'' under Sec. 1024.41(c)(2)(v)(A)(1) also includes, without
limitation, all other principal and interest payments that are due and
unpaid by a borrower experiencing a similar financial hardship. And
``the term of the mortgage loan'' under Sec. 1024.41(c)(2)(v)(A)(1)
means the loan term according to the obligation between the parties in
effect when the borrower is offered the loss mitigation option under
the new exception.
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\54\ New Sec. 1024.41(c)(2)(v)(A) states that ``COVID-19
emergency'' has the same meaning as under CARES Act section
4022(a)(1).
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Under new Sec. 1024.41(c)(2)(v)(A)(2), any amounts that the
borrower may delay paying as described in paragraph (c)(v)(2)(A)(1)
must not accrue interest; the servicer must not charge any fee in
connection with the loss mitigation option; and the servicer must waive
all existing late charges, penalties, stop payment fees, or similar
charges promptly upon the borrower's acceptance of the loss mitigation
option. And, under Sec. 1024.41(c)(2)(v)(A)(3), the borrower's
acceptance of the offer must end any preexisting delinquency.
The criteria in Sec. 1024.41(c)(2)(v)(A)(1) through (3) provide
borrowers with safeguards to ensure that borrowers are sufficiently
protected when receiving a loss mitigation offer described in Sec.
1024.41(c)(2)(v)(A) without an evaluation of a complete loss mitigation
application. First, to qualify for the exception, new Sec.
1024.41(c)(2)(v)(A)(1) requires that any forborne or delinquent
principal or interest payments be moved to the end of the loan or, for
loans that FHA insures, until the mortgage insurance terminates. This
ensures that borrowers in forbearance programs will not face a balloon
payment immediately after the forbearance period ends, and it will ease
the financial strain of having to make additional periodic payments to
catch up on a mortgage loan for delinquent borrowers who are not in
forbearance. The alternatives could exacerbate borrowers' hardships and
lead to foreclosure. As a result of the eligibility criteria under new
Sec. 1024.41(c)(2)(v)(A)(1), many borrowers receiving a loss
mitigation option under Sec. 1024.41(c)(2)(v)(A) will have years to
plan to address the deferred payments. This may be particularly
important during the COVID-19 emergency, as many borrowers may be
facing extended periods of economic uncertainty.
The Bureau notes that new Sec. 1024.41(c)(2)(v)(A)(1) allows for
some flexibility among loss mitigation options that may qualify for the
exception. For example, although the loss mitigation options must defer
all forborne or delinquent principal and interest payments under new
Sec. 1024.41(c)(2)(v)(A)(1), the rule does not specify how servicers
must treat any forborne or delinquent escrow amounts. A loss mitigation
option would qualify for the new exception if it defers repayment of
escrow amounts, in addition to principal and interest payments, as long
as it otherwise satisfies new Sec. 1024.41(c)(2)(v)(A).
New Sec. 1024.41(c)(2)(v)(A)(1) is also flexible with respect to
repayment requirements--it does not specify how a servicer must
structure repayment of the deferred amounts. Requiring repayment either
in a lump sum or over a specified period at the end of the loan term
through additional periodic payments, among other possible approaches,
would satisfy new Sec. 1024.41(c)(2)(v)(A)(1). The Bureau notes that
the provision specifically defines the mortgage loan term for these
purposes to mean the loan term in effect when the borrower is offered
the loss mitigation option. As a result, the exception under new Sec.
1024.41(c)(2)(v)(A) is available for eligible loss mitigation options
that would technically extend the term of the loan in accommodating
repayment of forborne or delinquent amounts.
The Bureau also notes that new Sec. 1024.41(c)(2)(v)(A)(1)
provides a standard specific to loans insured by FHA. This is intended
to ensure that the new exception extends to certain loss mitigation
options available for FHA loans. The Bureau understands that FHA
permits servicers to offer loss mitigation options that would otherwise
satisfy the criteria of Sec. 1024.41(c)(2)(v)(A) based on an
evaluation of an incomplete loss mitigation application, and that these
options would generally provide similar benefits to borrowers and
servicers as other loss mitigation options offered under Sec.
1024.41(c)(2)(v)(A). In some circumstances, these loss mitigation
options would require repayment when the mortgage insurance terminates.
The FHA-specific standard in new Sec. 1024.41(c)(2)(v)(A)(1) ensures
that such repayment requirements do not exclude these loss mitigation
options from the new exception.
Second, for the exception to apply, new Sec.
1024.41(c)(2)(v)(A)(2) requires that (1) any amounts that the borrower
[[Page 39062]]
may delay paying as part of the loss mitigation agreement do not accrue
interest, (2) the servicer charges no fee in connection with the loss
mitigation option, and (3) the servicer waives a variety of other fees
promptly upon the borrower's acceptance. This requirement will prevent
the application of standards that impose additional economic hardship
on borrowers, better enabling the borrowers to address other financial
needs during the COVID-19 emergency.
Third, for the exception to apply, new Sec. 1024.41(c)(2)(v)(A)(3)
requires that the borrower's acceptance of the offer end any
preexisting delinquency.\55\ This ensures that borrowers who accept a
loss mitigation option under new Sec. 1024.41(c)(2)(v)(A) do not face
a risk of imminent foreclosure because, under existing Sec.
1024.41(f)(1)(i), servicers are generally prohibited from making the
first notice or filing required under applicable law to initiate the
foreclosure process until a mortgage loan obligation is more than 120
days delinquent.
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\55\ After the borrower accepts a loss mitigation option under
new Sec. 1024.41(c)(2)(v)(A), if a periodic payment sufficient to
cover principal, interest, and, if applicable, escrow becomes due
and unpaid, a new delinquency would begin. See generally 12 CFR
1024.31(definition of delinquency).
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The Bureau understands that the FHFA COVID-19 payment deferral and
FHA's COVID-19 partial claim, both of which are described in part II,
satisfy the criteria in new Sec. 1024.41(c)(2)(v)(A)(1) through (3).
These programs have included these criteria to assist borrowers in
addressing financial hardships caused by the COVID-19 emergency, in
part by helping to keep their mortgage loans current following the
hardship.\56\ The Bureau notes, however, that the exception is not
limited to those programs. Servicers may offer loss mitigation options
under other programs, as long as the loss mitigation options meet the
criteria described in Sec. 1024.41(c)(2)(v)(A).
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\56\ Press Release, Freddie Mac Announces COVID-19 Payment
Deferral (May 13, 2020), https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-announces-covid-19-payment-deferral?_ga=2.125995917.1203641316.1592241885-952089942.1591127071; see also Fannie Mae Lender Letter (LL-2020-07)
(as updated on June 10, 2020), https://singlefamily.fanniemae.com/media/22916/display; FHA Mortgagee Letter 2020-06 (Apr. 1, 2020),
https://www.hud.gov/sites/dfiles/OCHCO/documents/20-06hsngml.pdf.
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41(c)(2)(v)(B)
New Sec. 1024.41(c)(2)(v)(B) provides servicers relief from
certain regulatory requirements if a borrower accepts an offer made
pursuant to new Sec. 1024.41(c)(2)(v)(A). It states that, in that
scenario, the servicer is not required to comply with Sec.
1024.41(b)(1) or (2) with regard to any loss mitigation application the
borrower submitted prior to the servicer's offer of the loss mitigation
option described in new Sec. 1024.41(c)(2)(v)(A).
Section 1024.41(b)(1) and (2) generally sets forth servicers'
obligations upon first receiving a borrower's loss mitigation
application. Section 1024.41(b)(1) generally requires a servicer to
exercise reasonable diligence in obtaining documents and information to
complete the loss mitigation application. Section 1024.41(b)(2)
generally requires the servicer to review the application to assess
completeness and provide a written notice within five days (excluding
legal public holidays, Saturdays, and Sundays) stating, among other
things, that the servicer has determined that the loss mitigation
application is either complete or incomplete; the additional documents
and information the borrower must submit to make the application
complete, if applicable; a reasonable date by which the borrower should
submit the additional documents and information; and a statement that
the borrower should consider contacting servicers of any other mortgage
loans secured by the same property to discuss available loss mitigation
options.
These protections are part of a regulatory regime designed to
ensure that borrowers generally receive an evaluation for all available
loss mitigation options based upon a single application. As explained
in the section-by-section analysis of new Sec. 1024.41(c)(2)(v)(A),
this regulatory regime is intended to give borrowers information about
their loss mitigation options when deciding on a program and make the
application process more efficient, which can save borrowers time and
resources.
Notwithstanding these important benefits, however, the Bureau
believes that, in the context of a loss mitigation offer under new
Sec. 1024.41(c)(2)(v)(A), the protections under Sec. 1024.41(b)(1)
and (2) introduce undue burden for both servicers and borrowers
attempting to navigate the unusual challenges caused by the COVID-19
emergency. Servicers are currently dealing with an abnormally high
number of requests for loss mitigation assistance due to the pandemic.
According to the Mortgage Bankers Association (MBA), between early
March and early June 2020, approximately four million borrowers entered
into forbearance programs.\57\ Over that period, the percentage of all
mortgage loans in forbearance increased from 0.19 percent to 8.55
percent.\58\ If servicers were required to exercise reasonable
diligence to obtain a complete application for each of these borrowers
when they exit the forbearance programs, as required under Sec.
1024.41(b)(1), or to provide borrower-specific notifications of the
documents and information each individual applicant must submit to
complete the application, as required under Sec. 1024.41(b)(2), it
would likely interfere with their ability to provide effective and
efficient assistance. And borrowers dealing with the social and
economic effects of the COVID-19 emergency may be less likely than
normal to take the steps necessary to complete a loss mitigation
application to receive a full evaluation. The Bureau notes that, if a
borrower does wish to pursue a complete application and receive the
full protections of Sec. 1024.41, they may do so notwithstanding new
Sec. 1024.41(c)(2)(v).
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\57\ Mortgage Bankers Ass'n, supra note 28.
\58\ Id.
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The Bureau stresses that servicers are required to comply with
Sec. 1024.41, including Sec. 1024.41(b)(1) and (2), if the borrower
submits a new application after accepting a loss mitigation option
under new Sec. 1024.41(c)(2)(v)(A). In general, servicers are required
to comply with Sec. 1024.41 if a borrower submits a loss mitigation
application, unless the servicer has previously complied in connection
with a complete application submitted by the borrower and the borrower
has been delinquent at all times since submitting that complete
application.\59\ If a borrower has accepted a loss mitigation option
offered under new Sec. 1024.41(c)(2)(v)(A), neither of these elements
will be present the first time the borrower submits a later loss
mitigation application. The exception described under new Sec.
1024.41(c)(2)(v)(A) is available only if the loss mitigation
application is incomplete and, under new Sec. 1024.41(c)(2)(v)(A)(3),
the borrower's acceptance of the option ends any preexisting
delinquency of the borrower's mortgage loan account. As a result,
servicers must comply with the requirements of Sec. 1024.41 for the
first later application, which may occur during the same conversation
in which the borrower accepts the offer under Sec.
1024.41(c)(2)(v)(A).
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\59\ 12 CFR 1024.41(i).
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Additionally, servicers may be required to comply with early
intervention obligations if a borrower's mortgage loan account becomes
delinquent after a loss mitigation option takes effect under
[[Page 39063]]
Sec. 1024.41(c)(2)(v)(A).\60\ These include live contact and written
notification obligations that, in part, require servicers to inform
borrowers of the availability of additional loss mitigation options and
how the borrowers can apply.\61\
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\60\ Small servicers, as defined in Regulation Z, 12 CFR
1026.41, are not subject to these requirements. 12 CFR
1024.30(b)(1).
\61\ See 12 CFR 1024.39(a) and (b). Also, servicers are to have
policies and procedures in place to advise borrowers of all of their
loss mitigation options. 12 CFR 1024.38. During the COVID-19
emergency, one of the loss mitigation options to be presented to
borrowers with federally backed mortgages is their right to CARES
Act forbearance.
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Further, the Bureau believes that a borrower whose mortgage loan
account becomes delinquent following acceptance of a loss mitigation
option under Sec. 1024.41(c)(2)(v)(A) will have sufficient notice that
other options may be available should the borrower wish to submit
another application. In general, borrowers who previously received a
forbearance will have received at least two written notifications
earlier in the loss mitigation process, as required under Regulation X:
(1) The written notice required under Sec. 1024.41(b)(2) when the
borrower submits the initial application requesting forbearance, and
(2) written notification of the terms and conditions of the forbearance
program, required under Sec. 1024.41(c)(2)(iii), stating that the
servicer offered the program based on evaluation of an incomplete
application, that other loss mitigation options may be available, and
that the borrower still has the option to submit a complete application
to receive an evaluation for all available options.\62\ Additionally,
many borrowers receiving an offer under Sec. 1024.41(c)(2)(v)(A) are
likely to have received early intervention efforts by their servicers,
including the written notice required under Regulation X stating, among
other things, a brief description of examples of loss mitigation
options that may be available, as well as application instructions or a
statement informing the borrower how to obtain more information about
loss mitigation options from the servicer.\63\
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\62\ See 12 CFR 1024.41(c)(2)(iii).
\63\ The early intervention written notice is generally required
no later than the 45th day of a borrower's delinquency. 12 CFR
1024.39(b). If a borrower is delinquent during a forbearance
program, the servicer will likely be required to provide the written
notice to the borrower.
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In light of these protections, as well as the safeguards set forth
in new Sec. 1024.41(c)(2)(v)(A), the Bureau believes the requirements
of Sec. 1024.41(b)(1) and (2) would introduce burden for servicers and
borrowers that is unnecessary in this limited context.
VI. Request for Comment
The Bureau invites comment on this interim final rule. The Bureau
is particularly interested in whether the amendments appropriately
balance providing flexibility to servicers to offer relief quickly
during the COVID-19 emergency with providing important protections for
borrowers engaged in the loss mitigation application process, such as
protections from foreclosure. The Bureau also seeks comment on whether
to require written disclosures for this, or any similar exceptions that
the Bureau may authorize in the future. The Bureau also seeks comment
on whether the Bureau should extend the exception established in new
Sec. 1024.41(c)(3)(v) to other post-forbearance loss mitigation
options made available to borrowers affected by other types of
disasters and emergencies.
VII. Effective Date
This interim final rule is effective on July 1, 2020.
VIII. Dodd-Frank Act Section 1022(b) Analysis
In developing this interim final rule, the Bureau has considered
the potential benefits, costs, and impacts as required by section
1022(b)(2) of the Dodd-Frank Act.\64\ In developing this interim final
rule, the Bureau has consulted with appropriate Federal agencies
regarding the consistency of this final rule with prudential, market,
or systemic objectives administered by such agencies as required by
section 1022(b)(2)(B) of the Dodd-Frank Act.\65\
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\64\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
(12 U.S.C. 5512(b)(2)(A)) requires the Bureau to consider the
potential benefits and costs of the regulation to consumers and
covered persons, including the potential reduction of access by
consumers to consumer financial products or services; the impact of
the proposed rule on insured depository institutions and insured
credit unions with $10 billion or less in total assets as described
in section 1026 of the Dodd-Frank Act (12 U.S.C. 5516); and the
impact on consumers in rural areas.
\65\ Section 1022(b)(2)(B) of the Dodd-Frank Act (12 U.S.C.
5512(b)(2)(B)) requires that the Bureau consult with the appropriate
prudential regulators or other Federal agencies prior to proposing a
rule and during the comment process regarding consistency of the
proposed rule with prudential, market, or systemic objectives
administered by such agencies.
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The Bureau considered the benefits, costs, and impacts of this
interim final rule against a baseline in which the Bureau takes no
action. The baseline under this approach includes the CARES Act and the
forbearances that have already been granted under the CARES Act and
substantially similar programs.\66\
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\66\ The Bureau has discretion in any rulemaking to choose an
appropriate scope of analysis with respect to potential benefits,
costs, and impacts and an appropriate baseline.
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In considering the relevant potential benefits, costs, and impacts
of this interim final rule, the Bureau has used feedback received to
date and its knowledge of consumer financial markets. The discussion
below of these potential costs, benefits, and impacts is partly
qualitative, reflecting the specialized nature of the amendments. The
Bureau requests comment on this discussion generally, as well as the
submission of data or other information that could inform the Bureau's
consideration of the potential benefits, costs, and impacts of the
interim final rule.
The interim final rule's provisions generally would decrease burden
incurred by industry participants and benefit consumers by providing a
limited exception to the general requirement under Sec. 1024.41 for
borrowers to submit a complete loss mitigation application before
servicers may offer any loss mitigation option based on the evaluation
of an incomplete application. Under the interim final rule, this
limited exception would be available for loss mitigation options that
permit payments forborne under an eligible forbearance, as well as
payments that are due and unpaid, related to the COVID-19 emergency to
be deferred to the end of the mortgage loan. As is described in more
detail below, the Bureau does not believe that these changes would
restrict consumer access to consumer financial products and services
relative to what would occur under the baseline.
Exception to Regulation X anti-evasion provision allowing FHFA
COVID-19 payment deferrals without a complete loss mitigation
application. The interim final rule revises Sec. 1024.41(c)(2)(i) and
adds Sec. 1024.41(c)(2)(v) to allow servicers to offer a payment
deferral, or a similar loss mitigation option in certain circumstances
based on the evaluation of an incomplete loss mitigation application.
In general, for the exception to apply, borrowers must already have
received a forbearance or delinquency related to the COVID-19
emergency, the forborne or delinquent payments must be deferred to the
end of the mortgage loan without accruing interest and with a variety
of fees waived, and the borrower's acceptance must end any preexisting
delinquency. The Bureau understands that the FHFA COVID-19 payment
deferral and FHA's COVID-19 partial claim satisfy the criteria,
although the interim final rule is not limited to these programs.
[[Page 39064]]
As noted above, Sec. 1024.41(c)(2)(i), in part, prohibits evasion
of the requirement for servicers to evaluate borrowers for all
available loss mitigation options in a single application once they
have received a complete application. In the 2013 Mortgage Servicing
Final Rule, the Bureau explained its view that borrowers would benefit
from this requirement, in part because borrowers would generally be
better able to choose among available loss mitigation options if they
are presented simultaneously. This interim final rule is unlikely to
affect this benefit in most cases, given the narrow scope and
particular circumstances of the exception. Even if a borrower may be
interested in and eligible for another form of loss mitigation besides
a deferral, receiving a deferral would not generally remove the
borrower's right under Sec. 1024.41 to submit a complete loss
mitigation application and receive an evaluation for all available
options after the deferral is in place. Moreover, in the specific case
of the FHFA COVID-19 payment deferral program, in practice, the
incomplete applications that may result in deferrals will generally be
created as a result of servicer outreach specifically for the purposes
of granting a deferral: Fannie Mae and Freddie Mac have directed their
servicers to proactively reach out to borrowers currently under a CARES
Act forbearance and to grant deferrals to all eligible borrowers.\67\
Further, to be eligible for the exception under new Sec.
1024.41(c)(2)(v)(A), a loss mitigation option must bring the loan
current. In most cases, borrowers must be more than 120 days delinquent
before a servicer may make the first notice or filing required under
applicable law to initiate foreclosure proceedings.\68\ Thus, if a
borrower wishes to pursue another loss mitigation option after
accepting the deferral, the borrower will still have a considerable
amount of time to complete a loss mitigation application before they
would be at risk for foreclosure. In summary, in these specific
circumstances, the Bureau believes that allowing servicers to grant
deferrals without a complete loss mitigation application will not
materially affect borrowers' ability to choose among available loss
mitigation options.
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\67\ The Bureau notes as well that one of the eligibility
criteria for the Fannie Mae and Freddie Mac programs is that the
borrower states that they are able to resume payments under the
original terms of the mortgage. The Bureau expects that borrowers in
those circumstances generally will not require other types of loss
mitigation.
\68\ 12 CFR 1024.41(f)(1)(i).
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Borrowers will likely benefit from the new exception to the extent
that they are more able to receive a payment deferral without having to
submit a complete loss mitigation application. In most cases, this will
result in a reduction in the time necessary to gather required
documents and information. In some cases, if borrowers would not
otherwise complete a loss mitigation application and could not
otherwise obtain relief with respect to the forborne or delinquent
payments, the interim final rule will enable borrowers to obtain the
deferral in the first place. Without a deferral, borrowers may need to
repay the forborne or delinquent payments immediately. Borrowers who
can do so would use savings, sell assets, or incur additional debt.
Borrowers who cannot immediately repay the forborne or delinquency
balances could suffer foreclosure or other negative consequences. Thus,
for borrowers who obtain a deferral under the new exception, the
benefit of the provision is, at a minimum, the interest on savings or
asset appreciation that need not be foregone or the borrowing costs
that need not be incurred. For other borrowers, the benefit of the
provision is the value of preventing delinquency fees and foreclosure.
The Bureau does not have data available to predict what fraction of
borrowers currently under a forbearance or delinquency related to the
COVID-19 emergency would not be able to complete a loss mitigation
application if required to complete the application in order to receive
a deferral offer. However, the Bureau believes that in the present
circumstances that percentage could be substantial due to limitations
in servicer capacity. As discussed above, data from the MBA indicates
that as of June 7, 2020, roughly 8.55 percent of all mortgages were
currently in forbearance, a total of about 4.3 million loans, almost
all of which entered forbearance following the passage of the CARES Act
and thus could exit forbearance around the same time. Processing
complete loss mitigation applications for all these borrowers in a
short period of time would likely strain many servicers' resources.
This might lead to more borrowers who have incomplete applications that
never reach completion and who fail to get a deferral under the
baseline compared to what might occur under standard market conditions.
The Bureau also does not have data available to predict how many
borrowers currently in a forbearance or a delinquency related to the
COVID-19 emergency would experience foreclosure but for a payment
deferral offered under the exception in this interim final rule.
Covered persons will benefit from the reduction in burden from the
requirement to process complete loss mitigation applications for
deferrals described in Sec. 1024.41(c)(2)(v)(A) that are eligible for
the exception. Given the number of loans that are currently in a
forbearance due to the COVID-19 emergency, this benefit could be
substantial. This may be particularly true for loans serviced on behalf
of Fannie Mae and Freddie Mac. As part of the FHFA COVID-19 payment
deferral program, Fannie Mae and Freddie Mac are requiring servicers of
their loans to actively attempt to contact consumers currently in a
CARES Act forbearance in order to verify eligibility for a
deferral.\69\ Thus, with or without the interim final rule, servicers
of loans that are owned, insured, or guaranteed by Fannie Mae and
Freddie Mac are required to attempt to contact borrowers currently in a
CARES Act forbearance. Without the interim final rule, in each case,
the servicers would further need to collect documentation needed for a
complete loss mitigation application, and to process the complete
application before a deferral could be offered. Multiplied by millions
of such loans in forbearance, these costs could be substantial.
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\69\ Press Release, Freddie Mac Announces COVID019 Payment
Deferral (May 13, 2020), https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-announces-covid-19-payment-deferral?_ga=2.125995917.1203641316.1592241885-952089942.1591127071; see also Fannie Mae Lender Letter (LL-2020-07)
(as updated on June 10, 2020), https://singlefamily.fanniemae.com/media/22916/display; FHA Mortgagee Letter 2020-06 (Apr. 1, 2020),
https://www.hud.gov/sites/dfiles/OCHCO/documents/20-06hsngml.pdf.
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Potential specific impacts of the interim final rule. The Bureau
believes that a large fraction of depository institutions and credit
unions with $10 billion or less in total assets that are engaged in
servicing mortgage loans qualify as ``small servicers'' for purposes of
the mortgage servicing rules because they service 5,000 or fewer loans,
all of which they or an affiliate own or originated. Small servicers
are not subject to the relevant portions of Regulation X, Sec.
1024.41, and so are not affected by the amendments in this interim
final rule.
With respect to servicers that are not small servicers as defined
in Sec. 1026.41(e)(4), the Bureau believes that the consideration of
benefits and costs of covered persons presented above provides a
largely accurate analysis of the impacts of the final rule on
[[Page 39065]]
depository institutions and credit unions with $10 billion or less in
total assets that are engaged in servicing mortgage loans.
The Bureau has no reason to believe that the additional flexibility
offered to covered persons by this interim final rule would
differentially affect consumers in rural areas. The Bureau requests
comment regarding the impact of the amended provisions on consumers in
rural areas and how those impacts may differ from those experienced by
consumers generally.
IX. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) \70\ does not apply to a
rulemaking where general notice of proposed rulemaking is not
required.\71\ As noted previously, the Bureau has determined that it is
unnecessary to publish a general notice of proposed rulemaking for this
interim final rule. Accordingly, the RFA's requirements relating to an
initial and final regulatory flexibility analysis do not apply.
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\70\ 5 U.S.C. 601 et seq.
\71\ 5 U.S.C. 603(a), 604(a).
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X. Paperwork Reduction Act
The Bureau has determined that the interim final rule does not
impose any new or revise any existing recordkeeping, reporting, or
disclosure requirements on covered entities or members of the public
that would be collections of information requiring approval by the
Office of Management and Budget under the Paperwork Reduction Act.\72\
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\72\ 44 U.S.C. 3501 et seq.
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XI. Congressional Review Act
Pursuant to the Congressional Review Act,\73\ the Bureau will
submit a report containing this rule and other required information to
the U.S. Senate, the U.S. House of Representatives, and the Comptroller
General of the United States prior to the rule's published effective
date. The Office of Information and Regulatory Affairs has designated
this rule as a ``major rule'' as defined by 5 U.S.C. 804(2). As
discussed in part IV, the Bureau finds that there is good cause for the
rule to take effect without prior notice and comment. Accordingly, this
rule may take effect at such time as the Bureau determines. 5 U.S.C.
808(2).
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\73\ 5 U.S.C. 801 et seq.
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XII. Signing Authority
The Director of the Bureau, having reviewed and approved this
document, is delegating the authority to electronically sign this
document to Laura Galban, a Bureau Federal Register Liaison, for
purposes of publication in the Federal Register.
List of Subjects in 12 CFR Part 1024
Banking, Banks, Condominiums, Consumer protection, Credit unions,
Housing, Insurance, Mortgage servicing, Mortgagees, Mortgages, National
banks, Savings associations, State member banks.
Authority and Issuance
For the reasons set forth above, the Bureau amends Regulation X, 12
CFR part 1024, as set forth below:
PART 1024--REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)
0
1. The authority citation for part 1024 continues to read as follows:
Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5532,
5581.
Subpart C--Mortgage Servicing
0
2. Section 1024.41 is amended by revising paragraph (c)(2)(i) and
adding paragraph (c)(2)(v) to read as follows:
Sec. 1024.41 Loss mitigation procedures.
* * * * *
(c) * * *
(2) Incomplete loss mitigation application evaluation--(i) In
general. Except as set forth in paragraphs (c)(2)(ii), (iii), and (v)
of this section, a servicer shall not evade the requirement to evaluate
a complete loss mitigation application for all loss mitigation options
available to the borrower by offering a loss mitigation option based
upon an evaluation of any information provided by a borrower in
connection with an incomplete loss mitigation application.
* * * * *
(v) Certain COVID-19-related loss mitigation options. (A)
Notwithstanding paragraph (c)(2)(i) of this section, a servicer may
offer a borrower a loss mitigation option based upon evaluation of an
incomplete application, provided that all of the following criteria are
met:
(1) The loss mitigation option permits the borrower to delay paying
covered amounts until the mortgage loan is refinanced, the mortgaged
property is sold, the term of the mortgage loan ends, or, for a
mortgage loan insured by the Federal Housing Administration, the
mortgage insurance terminates. For purposes of this paragraph
(c)(2)(v)(A)(1), ``covered amounts'' includes, 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 a
payment forbearance program made pursuant to the Coronavirus Economic
Stabilization Act, section 4022 (15 U.S.C. 9056); it also includes,
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
paragraph (c)(2)(v)(A)(1), ``COVID-19 emergency'' has the same meaning
as under the Coronavirus Economic Stabilization Act, section 4022(a)(1)
(15 U.S.C. 9056(a)(1)). For purposes of this paragraph (c)(2)(v)(A)(1),
``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.
(2) Any amounts that the borrower may delay paying as described in
paragraph (c)(2)(v)(A)(1) of this section 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.
(3) The borrower's acceptance of an offer made pursuant to
paragraph (c)(2)(v)(A) of this section ends any pre-existing
delinquency on the mortgage loan.
(B) Once the borrower accepts an offer made pursuant to paragraph
(c)(2)(v)(A) of this section, the servicer is not required to comply
with paragraph (b)(1) or (2) of this section with regard to any loss
mitigation application the borrower submitted prior to the servicer's
offer of the loss mitigation option described in paragraph (c)(2)(v)(A)
of this section.
* * * * *
Dated: June 23, 2020.
Laura Galban,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2020-13853 Filed 6-29-20; 8:45 am]
BILLING CODE 4810-AM-P