New CFPB Rules Set Out Mortgage Servicer Requirements in Response to End of COVID-19 Foreclosure Moratorium

By Andrea M. Hicks and Tanya N. Lewis

The Consumer Financial Protection Bureau (“CFPB”) announced post-COVID-19 mortgage servicing rules that went into effect August 31, 2021 (“Rules”). The Rules are designed to protect borrowers from “avoidable foreclosures” and impose new “procedural safeguards” that loan servicers must follow now that the COVID-19 foreclosure moratorium has come to an end¹. The Rules remain in effect until December 31, 2021.  

The new temporary provisions generally prevent a servicer from initiating a new foreclosure, or completing a pending foreclosure before January 1, 2022. Unlike the prior COVID-19-related foreclosure moratoriums, the Rules are not limited to COVID-19-related borrower protections or the CARES Act and apply to “federally-related mortgage loans” (as defined under RESPA) that are secured by the borrower’s principal residence. Therefore, the new rules can apply to portfolio loans, rather than just federally backed mortgage loans (such as Fannie Mae, Freddie Mac, FHA, or VA loans), that were subject to the CARES Act

Early Intervention Live Contact.  When a servicer makes live contact with a borrower, as required under the existing Mortgage Servicing Rule, the servicer must provide the following information:

• For borrowers not in a forbearance plan at the time of contact, the servicer must:
  • Inform the borrower that forbearance programs are available for borrowers experiencing a COVID-19-related hardship;
  • Describe the available forbearance programs to the borrower and the actions the borrower must take to be evaluated for the programs, unless the borrower states that they are not interested in receiving that information; and
  • Provide the borrower at least one way they can find contact information for homeownership counseling services, such as referencing the borrower’s periodic statement.
• For borrowers in a forbearance plan at the time of live contact, the servicer must:
  • Inform the borrower of the date the borrower’s current forbearance plan is scheduled to end;
  • Describe any available forbearance extension, repayment options, and other loss mitigation options available to the borrower at the time of the live contact, and the actions the borrower must take to be evaluated for such loss mitigation options; and
  • Provide the borrower at least one way they can find contact information for homeownership counseling services, such as referencing the borrower’s periodic statement.

COVID-19 Streamlined Loan Modification Options.  Under the existing Mortgage Servicing Rules, servicers are prohibited from offering any loss mitigation option based on an incomplete application from the borrower. However, the Rules include new exceptions to that general prohibition. In addition to short-term forbearances or repayment plans, servicers may offer certain additional COVID-19-related loan modification options, based on an incomplete application, if the following criteria are met:

• The modification may not extend the loan term more than 40 years from the modification effective date;
• The modification may not increase the borrower’s monthly principal and interest payment beyond what was required prior to the modification;
• If the modification provides for a deferral of amounts owed (i.e., until the loan maturity date, until the property is sold, or the loan is refinanced), interest cannot accrue on the deferred amounts;
• The modification is available to borrowers experiencing COVID-19-related hardships;
• The modification must end any pre-existing delinquency upon acceptance, or upon final acceptance after completion of any applicable trial modification period; and
• The servicer may not charge fees in connection with the loan modification, and must promptly waive certain existing fees the borrower owes, that were incurred on or after March 1, 2020, such as late fees, penalties, or stop-payment fees.

However, if the borrower fails to perform under a trial modification plan per the new exception, or requests further loss mitigation assistance, the servicer must immediately resume reasonable diligence efforts to help complete the loss mitigation application, and provide the borrower with an updated notice, as needed, conveying the information required to complete the application.

Temporary COVID-19 Foreclosure Safeguards.  The Rules also require enhanced foreclosure protections through December 31, 2021. Until then, servicers may not intiate a new foreclosure due to missed payments unless one of three safeguards have been met:

• Complete Loss Mitigation Evaluation – The borrower has submitted a complete loss mitigation application; remained delinquent at all times since submitting the application; and that evaluation process has been exhausted (including any right to appeal);
• Abandoned Property – The property securing the loan is abandoned, pursuant to the laws of the state or municipality in which it is located; or
• Unresponsive Borrower – The servicer has not received any communications from the borrower for at least 90 days prior to initiating the foreclosure, and all of the following conditions are met:
  • The servicer made good faith efforts to establish live contact with the borrower after each payment due date during that 90-day period;
  • The servicer sent the written early intervention notice from 10 to 45 days before the servicer makes the first notice or filing for foreclosure;
  • The servicer sent all loss mitigation notices required by § 1024.41, as applicable, during the 90-day period before the servicer makes the first notice or filing for foreclosure; and
  • The borrower’s forbearance program, if applicable, ended at least 30 days before the servicer makes the first notice or filing for foreclosure.

Finally, the Rules add language to the commentary detailing recordkeeping and other requirements in connection with these foreclosure safeguards.