On April 5, the Consumer Financial Protection Bureau (CFPB) issued a notice of proposed rulemaking (NPR) to amend Regulation Z, specifically to "prevent avoidable foreclosures" due to the COVID-19 pandemic "as the emergency federal foreclosure protections expire."
The NPR mainly would do three things for loans secured by a borrower's principal residence:
- "[G]enerally prohibit servicers from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until after December 31, 2021." The CFPB is, however, considering whether to include exceptions to this broad foreclosure ban, which would permit a servicer in certain situations to initiate a foreclosure prior to December 31.
- Allow servicers to offer borrowers experiencing COVID-19-related hardships streamlined loan modification options based on an incomplete application. Any offered streamlined loan modification would need to satisfy specific criteria regarding the length of term, interest on deferred funds, preexisting delinquencies, and fees.
- Amend Regulation Z's "early intervention requirements" by requiring servicers to discuss with certain delinquent borrowers specific COVID-19-related information at two specific times. First, at an initial live contact if the borrower is not yet in a forbearance program and the owner or assignee of the loan offers a COVID-19 hardship forbearance program. Second, at the last live contact prior to the end of the forbearance period if the borrower is in a COVID-19-related hardship forbearance program. These live contact requirements would sunset on August 31, 2022.
In addition to the above, the NPR would clarify that when a borrower is in a short-term payment forbearance program for a COVID-19 hardship based on an incomplete application, a servicer's reasonable diligence obligations require it to contact the borrower "no later than 30 days before the end of the forbearance period to determine if the borrower wishes to complete the loss mitigation application and proceed with a full loss mitigation evaluation." If the borrower responds affirmatively, then the "servicer must exercise reasonable diligence to complete the application before the end of the forbearance program period." The NPR would also define a "financial hardship due, directly or indirectly, to the COVID-19 emergency" as a COVID-19-related emergency. The CFPB will accept comments on the NPR that are submitted prior to May 11.
The NPR came just days after the CFPB issued a bulletin on April 1, warning servicers that they must "take all necessary steps now to prevent a wave of avoidable foreclosures" and that being unprepared to address such foreclosures is "unacceptable." The bulletin identifies eight specific areas where the CFPB will "pay particular attention" to how well servicers engage in loss mitigation activities with consumers. The CFPB bluntly states that "companies that are unable to adequately manage loss mitigation can expect the [CFPB] to take enforcement or supervisory action to address violations under its Regulation X, CFPA, or other authorities."
The CFPB under the Biden administration is proving itself a proactive player in consumer financial industries. Consequently, servicers are urged to pay close attention to these developments and begin developing rigorous compliance strategies to address them.
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