On June 23, the Consumer Financial Protection Bureau issued an interim final rule (“IFR”) intended to make it easier for consumers to transition out of COVID-19-related financial hardship and easier for mortgage services to assist those consumers. The IFR will become effective on July 1, 2020.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides forbearance relief for consumers with federally-backed mortgage loans. Depending on the servicer, borrowers have several options under the CARES Act to repay the payments that are not made. For example, Fannie Mae and Freddie Mac are permitting certain borrowers to defer repayment of the amounts owed until the end of the mortgage loan.
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. This week’s IFR clarifies that servicers do not violate Regulation X by offering loss mitigation options based on an evaluation of more limited information collected from the borrower, as long as the loss mitigation option meets certain criteria to qualify for an exception from the typical requirement to collect a complete application.
For example, the loss mitigation option must allow the borrower to delay paying principal and interest payments; servicers may not charge any fees to borrowers; and the borrower’s acceptance ends any preexisting delinquency. Moreover, once a borrower accepts an offer for an eligible program under the IFR, the servicer is not required to exercise reasonable diligence to obtain a complete application, nor does it need to provide the acknowledgment notice that is generally required under Regulation X.
Notably, servicers must still comply with Regulation X’s other requirements after a borrower accepts a loss mitigation offer. For example, if the borrower becomes delinquent again after accepting the offer, the servicer must satisfy Regulation X’s early intervention requirements. Similarly, if the servicer receives a new loss mitigation application from the borrower, the servicer must comply with Regulation X’s loss mitigation procedures, 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. This is not likely and thus, servicers must comply with the requirements of 12 CFR 1024.41 for the first and later application.