Following the expiration of the federal foreclosure moratorium on July 31, 2021, the Consumer Financial Protection Bureau (CFPB) finalized its post-Covid-19 mortgage servicing rules which took effect on August 31, 2021 and will remain in place until December 31, 2021. Generally, the new temporary rules which have been referred to as “procedural safeguards” have been implemented to prevent a mortgage loan servicer from initiating a new foreclosure, or completing an existing foreclosure proceeding before January 1, 2022. In addition, the temporary provisions apply to all “federally-related mortgage loans” (as defined under RESPA) that are secured by the borrower’s primary residence. As a result, the new rules can also apply to portfolio loans, rather than just federally backed mortgage loans that were subject to the CARES Act.
The temporary rule changes require enhanced foreclosure protections through December 31, 2021. Until then, servicers are not permitted to commence a new foreclosure due to missed payments unless one of three safeguards have been met: (1) the borrower has submitted a complete loss mitigation application; (2) the property securing the loan is deemed abandoned; and (3) the servicer has not received any communications from the borrower for at least 90 days prior to initiating the foreclosure. The prior existing servicing rules generally prohibit a loan servicer from noticing or filing a foreclosure action until the borrower is more than 120 days delinquent. The rule changes essentially prohibit initial notices or first filings for any type of foreclosure until after December 31, 2021 with certain limited exceptions. The rule changes further permit servicers to offer additional streamlined loan modification options to borrowers with COVID-19 related hardships based on the submission of incomplete loss mitigation applications so long as certain criteria and modification terms are met.
The new rules have also amended prior early intervention requirements of the loan servicer and introduce “live contact” options for COVID-19 related hardships. These early intervention protocols require 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 the 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 rule changes make it abundantly clear that under the current administration, the CFPB is displaying a renewed focus on prioritizing consumer protection over industry concerns. Accordingly, the financial servicing industry is expected to remain current with these ever-changing regulatory developments and ensure compliance with fair lending statutes through continuous comprehensive internal review of fair lending policies and procedures.