The Consumer Financial Protection Bureau (“CFPB”) recently issued the 2021 Final Rule, effective August 31 through December 31, 2021, temporarily amending certain provisions of the Real Estate Settlement Procedures Act, Regulation X (12 C.F.R. Part 1024) in an attempt to provide relief for mortgage borrowers facing financial hardship due to the COVID-19 pandemic. Below is a brief overview of the 2021 Final Rule and a related Lender Letter that Fannie Mae issued in conjunction with the 2021 Final Rule.
If you have any questions, or would like more information, please contact Eaton Peabody’s Bankruptcy & Creditor’s Rights Practice Group Chair, Shawn Doil.
I. CFPB 2021 Final Rule Highlights.
The CFPB 2021 Final Rule amends the existing Mortgage Servicing Rules in Regulation X and Regulation Z (12 C.F.R. Part 1026) and includes temporary foreclosure restrictions in an attempt to assist borrowers affected by COVID-19. The full text of the 2021 Final Rule can be found HERE, and an Executive Summary of the rule can be found HERE.
1. General Provisions.
Between August 31 and December 31, 2021, loans that are covered by the 2021 Final Rule may not be referred for foreclosure until at least one Procedural Safeguard is met, unless an exception applies. Once the servicer has satisfied at least one Procedural Safeguard, or the safeguards do not apply, the servicer may proceed with the foreclosure referral, pursuant to other applicable law. Servicers should maintain records of compliance with Procedural Safeguards.
Effective Date: August 31, 2021 through December 31, 2021 (Fannie Mae servicers must abide by the rule beginning July 30, 2021).
Coverage: The 2021 Final Rule generally has the same coverage requirements as the Mortgage Servicing Rules (Regulations X and Z) and only applies to consumer loans secured by the borrower’s principal residence. It does not apply to investment properties, second homes, reverse mortgages, or legally abandoned homes (according to the laws of the locality).
Restrictions: Before referring a 120-day delinquent loan for foreclosure, the servicer must ensure at least one temporary procedural safeguard has been met, unless an exception applies. Procedural Safeguards include:
- Borrower submitted, and servicer evaluated, a complete loss mitigation application and borrower remained delinquent;
- Property is abandoned under applicable state or local law; or
- Borrower is unresponsive for 90 days prior to referral.
Exceptions: The above Procedural Safeguards are NOT required if:
- Referral occurs on or after January 1, 2022;
- Borrower was more than 120 days delinquent prior to March 1, 2020; or
- The applicable statute of limitations will expire before January 1, 2022.
While properties that are abandoned under the laws of the State or municipality are excluded from the Final Rule, the CFPB does not specifically exclude vacant properties, stating that such properties, along with properties occupied by squatters or trespassers, are “beyond the scope of this rulemaking” and that servicers should act consistent with existing requirements.
2. Streamlined Loan Modifications.
The 2021 Final Rule also adds additional exceptions to the general prohibition of servicers offering a loss mitigation option based on incomplete loss mitigation application contained in the CFPB’s Mortgage Servicing Rules. Under the 2021 Final Rule, servicers may offer COVID-19-related modification options based on incomplete applications so long as:
- the term is not extended more than 40 years from the modification effective date;
- the modification does not increase monthly P&I payments beyond the pre-modification amount;
- the modification does not allow interest to accrue on payments delayed pending sale, refinance, modification maturity, or FHA insurance termination;
- the modification must be available to borrowers experiencing COVID-19 hardships, though it need not be exclusive to such borrowers;
- the modification ends the pre-existing delinquency upon acceptance, or after any applicable trial period is completed;
- the servicer does not charge fees in connection with the modification and waives existing late fees, penalties, and stop-payment fees incurred on or after March 1, 2020.
3. COVID-19-Related Reasonable Diligence.
If the borrower becomes delinquent after accepting such a modification, the servicer must resume efforts to obtain a complete loss mitigation application, which does not count as a duplicative request under the Mortgage Servicing Rules.
4. Live Contact Requirement Change.
Generally, Regulation X requires that servicers establish or make good faith efforts to establish live contact (phone call or in-person meeting, not a voicemail) with a delinquent borrower no later than the 36th day of delinquency and again 36 days after each subsequent payment due date during the delinquency, and provide basic information regarding loss mitigation options. Between August 31 and October 1, 2022, servicers must provide additional information to some delinquent borrowers after establishing live contact. Specifically, the servicer must provide the following information promptly after making live contact:
- For borrowers not in forbearance program, servicers must provide (1) forbearance program availability; (2) list and description of the applicable program; and (3) homeownership counseling services contact information.
- For borrowers already in a forbearance program, servicers must provide (1) the program’s scheduled end date; (2) a list and description of applicable programs; (3) homeownership counseling services contact information.
II. Fannie Mae Lender Letter LL-2021-02.
According to Fannie Mae’s Lender Letter LL-2021-02, servicers must continue the suspension of the following activities through July 31, 2021, except with respect to vacant or abandoned property:
- Initiate judicial or non-judicial foreclosures,
- Move for a foreclosure judgment or order of sale, or
- Execute a foreclosure sale.
*Between July 31 and August 31, 2021, Fannie Mae servicers must abide by the 2021 Final Rule as if it were in effect.
Additionally, Fannie Mae is ending the suspension on filing motions for relief from stay upon certain milestones effective July 31, 2021. As of that date, servicers must file motions for relief in accordance with the below table:
| If in accordance with Section E-2.2, Managing Bankruptcies by Chapter a motion for relief from the automatic stay… | Then the servicer must file the motion for relief… |
|---|---|
| would have been required on or before Jul. 31, 2021 | no later than Nov. 1, 2021. |
| is required between Aug. 1, 2021 and Sep. 30, 2021 | within 90 days. |
| is required between Oct. 1, 2021 and Jan. 1, 2022 | within 60 days. |
| is required after Jan. 1, 2022 | in accordance with Section E-2.2, Managing Bankruptcies by Chapter |