Agencies Provide Regulatory Flexibility to Servicers on Mortgage Loss Mitigation and Servicing Rule Practices in Response to COVID-19 and the CARES Act

On April 3, 2020, the Consumer Financial Protection Bureau (CFPB), Board of Governors of the Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), Office of the Comptroller of the Currency (OCC), and the State Banking Regulators (collectively the “agencies”) issued a joint statement (“Statement”) providing regulatory flexibility and guidance on the agencies supervisory expectations of mortgage servicers’ compliance with the servicing rule in light of the Coronavirus (“COVID-19”) emergency and in accordance with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

CARES Act Forbearance

The CARES Act, which was enacted in response to the COVID-19 emergency, provides borrowers of “federally backed mortgage loans” the right to request forbearance that allows borrowers to defer their mortgage payments for up to 180 days, with additional extensions of up to 180 days (“CARES Act Forbearance”). “Federally backed mortgage loans” are loans insured or guaranteed by the Federal Government, e.g. FHA, VA, RHS loans, or made or securitized by Fannie Mae or Freddie Mac.

The Statement reminds servicers that under the CARES Act, servicers must provide a CARES Act forbearance if the borrower makes a request and affirms that he or she is experiencing a financial hardship during the COVID-19 emergency. This CARES Act’s requirement is different than Regulation X loss mitigation procedures, which do not require servicers to provide loss mitigation options to borrowers and do not set eligibility criteria.

The Statement also reminds, that servicers are not allowed to require any additional information from the borrower before granting the CARES Act forbearance. This means that servicers are required to grant a CARES Act forbearance without receiving a complete loss mitigation application.

The agencies acknowledge that servicers may provide multiple CARES Act forbearances up to the initial 180 days forbearance period and thereafter up to the additional 180 days period. This means that servicer are not required to provide a CARES Act forbearance only in terms of 180 days. Servicers can provide multiple CARES Act forbearances per loan, for example in increments of 30 or 60 or 90 day terms, as determined by the servicer. However, during the initial 180 day and additional 180 day periods, borrowers can continue to request the CARES Act forbearance and servicers must continue to provide it, so long as the borrower affirms financial hardship due to the COVID-19 emergency.

CARES Act Interaction with Loss Mitigation Rules

The agencies acknowledge that receiving a request for a CARES Act forbearance triggers servicers obligations under servicing rules’ loss mitigation procedures, to the extent servicers are subject to the loss mitigation procedures. The Statement also explains that the agencies view granting a CARES Act forbearance the same as providing a short term loss mitigation option based on an incomplete loss mitigation application.

The Statement recognizes the potential operational challenges for servicers in providing the notices required under the loss mitigation rules (i.e., early intervention rules, 12 CFR 1024.39 and loss mitigation procedures, 12 CFR 1024.41, of Regulation X) due to borrowers applying for loss mitigation due to the COVID-19 emergency.

Accordingly, as of April 3, 2020 and until further notice, the Statement affirms that the agencies will not take supervisory or enforcement actions against servicers for:

  • Delays in sending the loss mitigation-related notices and taking the actions described in sections 12 CFR 1024.41(b)-(d), (h)(4), and (k), which, among other things, include the five-day acknowledgement notice, the 30-day evaluation and notice, and the appeals notice, provided that servicers are making good faith efforts to provide these notices and take the related actions within a reasonable time;
  • With respect to the five-day acknowledgement notice of incomplete loss mitigation, under section 12 CFR § 1024.41(b)(2)(i)(B), the Statement requires servicers to send the acknowledgment notice before the end of the forbearance period, for a short-term payment forbearance program (or the end of the repayment period, for a short-term repayment plan);
  • Delays in establishing or making good faith efforts to establish live contact with delinquent borrowers as required by section, 12 CFR 1024.39(a), provided that servicers are making good faith efforts to establish live contact within a reasonable time; and
  • Delays in sending the written early intervention notice to delinquent borrowers, required by section 12 CFR 1024.39(b) (the 45-day letter), provided that servicers are making good faith efforts to provide this notice within a reasonable time.

 Annual Escrow Statements

With respect to annual escrow statements, and in recognizing that annual escrow statements typically generate a high volume of calls for servicers, the Statement provides that as of April 3, 2020 and until further notice, the agencies do not intend to take supervisory or enforcement action against servicers for:

  • Delays in sending the annual escrow statement, required by section 12 CFR 1024.17(i) (Regulation X), provided that servicers are making good faith efforts to provide these statements within a reasonable time.

The Statement also affirms that the regulatory flexibility discussed above applies to servicer regardless of whether the borrower is experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency.

CFPB’s Mortgage Servicing Rules FAQs related to the COVID-19 Emergency

Concurrently with the issuance of the Statement, the CFPB has issued The Bureaus’ Mortgage Servicing Rules FAQs related to the COVID-19 Emergency (“FAQs”). The FAQs, provide additional guidance and examples of the applicability of the Statement and the CARES Act to the servicing rules as well as information on additional existing flexibility in the servicing rules that servicers may utilize.

Small Servicers

The Statement and FAQs’ regulatory flexibility equally apply to small servicers to the extent that they are subject to requirements addressed. The Statement reminds small servicers, who are generally exempt from loss mitigation rules (with certain exceptions), that the CARES Act does not provide an exemption for small servicers. This means that small servicers that service federally backed mortgage loans must comply with the CARES Act requirements with respect to such loans.

Takeaways

Although the regulatory flexibility provided by the Statement is welcomed, it does not provide full relief from notice requirements. Also, the Statement does not provide explicit relief from borrowers’ right of action under the servicing rules if the servicer utilizes the regulatory flexibility.

In designing a CARES Act forbearance program, a servicer should consider the Statement, FAQs and the possible regulatory burdens that may result from creating too short of forbearance periods.

If you have any questions regarding the Statement or FAQs or need advice for developing a CARES Act forbearance program, please contact Solomon Maman.

Author

  • Solomon Maman

    Solomon has over a decade of experience representing financial institutions, real estate investors and privately owned business entities. Solomon concentrates his practice in the areas of banking, consumer financial services, real estate, business law and related litigation and appellate practice.

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