The proposed rule was issued by
DATES: Comments must be received on or before
FOR FURTHER INFORMATION CONTACT:
* * *
The Bureau is taking this action to help ensure that borrowers affected by the COVID-19 pandemic have an opportunity to be evaluated for loss mitigation before the initiation of foreclosure.
The proposed amendments would establish a temporary COVID-19 emergency pre-foreclosure review period until
In addition, the proposed amendments would temporarily permit mortgage servicers to offer certain loan modifications made available to borrowers experiencing a COVID-19-related hardship based on the evaluation of an incomplete application.
The Bureau also proposes certain amendments to the early intervention and reasonable diligence obligations that Regulation X imposes on mortgage servicers.
I. Summary of the Proposed Rule
The Bureau is proposing amendments to Regulation X to assist mortgage borrowers affected by the COVID-19 emergency. As described in more detail in part II, the pandemic has had a devastating economic impact in
The Bureau is concerned that a potentially unprecedented number of borrowers may exit forbearance at the same time this fall when they reach the maximum term of forbearance. As of
Both populations of delinquent borrowers are at heightened risk of referral to foreclosure soon after the foreclosure moratoria end if they cannot bring their loan current or reach a loss mitigation agreement with their servicer to resolve their delinquency and avoid foreclosure. The Bureau is also concerned that a potentially historically high number of borrowers will seek assistance from their servicers at the same time, which could lead to delays and errors as servicers work to process a high volume of loss mitigation inquiries and applications this fall. In addition, the Bureau is concerned that the circumstances facing borrowers due to the COVID-19 emergency, which may involve potential economic hardship, health conditions, and extended periods of forbearance or delinquency, may interfere with some borrowers’ ability to obtain and understand important information that the existing rule aims to provide borrowers regarding the foreclosure avoidance options available to them.
Overall, the proposed amendments aim to encourage borrowers and servicers to work together to facilitate review for foreclosure avoidance options, including to ensure that borrowers have the opportunity to be reviewed for loss mitigation options before a servicer makes the first notice or filing required for foreclosure. The proposed amendments would only apply to mortgage loans secured by the borrower’s principal residence. An abandoned property is less likely to be a borrower’s principal residence. None of the proposed amendments would apply to small servicers.
In this proposal, the Bureau is focused on both the population of borrowers who are currently delinquent and not in either an active forbearance or an alternative loss mitigation option, and on the large population of borrowers who will be exiting forbearance programs in the next several months. In issuing this proposal, the Bureau recognizes that both the weight of the COVID-19 pandemic and related economic effects have disproportionately fallen upon communities in which many individuals and families were struggling financially even before the pandemic including–Black, Hispanic, Native American, rural, and lower-income communities. For example, the Bureau’s analysis of a
The proposed amendments to Regulation X would establish a temporary COVID-19 emergency pre-foreclosure review period that would generally prohibit servicers from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until after
Second, the Bureau proposes to permit servicers to offer certain streamlined loan modification options made available to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application. Eligible loan modifications must satisfy certain criteria that aim to establish sufficient safeguards to ensure that a borrower is not harmed if the borrower chooses to accept an offer of an eligible loan modification instead of completing a loss mitigation application. First, to be eligible, the loan modification must be made available to a borrower experiencing a COVID-19-related hardship. Second, the loan modification may not cause the borrower’s monthly required principal and interest payment to increase and may not extend the term of the loan by more than 480 months from the date the loan modification is effective. Third, any amounts that the borrower may delay paying until the mortgage loan is refinanced, the mortgaged property is sold, or the loan modification matures, must not accrue interest. Fourth, the servicer may not charge any fee in connection with the loan modification and must waive all existing late charges, penalties, stop payment fees, or similar charges promptly upon the borrower’s acceptance of the loan modification. Finally, the borrower’s acceptance of an offer of the loan modification must end any preexisting delinquency on the mortgage loan or the loan modification must be designed to end any preexisting delinquency on the mortgage loan upon the borrower satisfying the servicer’s requirements for completing a trial loan modification plan and accepting a permanent loan modification. If the borrower accepts an offer made pursuant to this new exception, the proposal would exclude servicers from certain requirements with regard to any loss mitigation application submitted prior to the loan modification offer, including exercising reasonable diligence to complete the loss mitigation application and sending the acknowledgment notice required by Section 1024.41(b)(2). However, the proposal would require servicers to immediately resume reasonable diligence with regard to any loss mitigation application the borrower submitted prior to the servicer’s offer of the trial loan modification plan if the borrower fails to perform under a trial loan modification plan offered pursuant to the proposed new exception or requests further assistance.
Third, the Bureau proposes amendments to the early intervention and reasonable diligence obligations to ensure that servicers are communicating timely and accurate information to borrowers about their loss mitigation options during the current crisis. Specifically, the Bureau is proposing to amend the early intervention requirements to require servicers to discuss specific additional COVID-19-related information during live contact with borrowers established under existing Section 1024.39(a) in two specific circumstances. First, if the borrower is not in a forbearance program at the time the servicer establishes live contact with the borrower pursuant to Section 1024.39(a) and the owner or assignee of the borrower’s mortgage loan makes a forbearance program available to borrowers experiencing a COVID-19-related hardship, the servicer must ask the borrower whether the borrower is experiencing a COVID-19-related hardship. If the borrower indicates that the borrower is experiencing a COVID-19-related hardship, the servicer must list and briefly describe to the borrower any such payment forbearance programs made available and the actions the borrower must take to be evaluated for such forbearance programs. Second, if the borrower is in a forbearance program made available to borrowers experiencing a COVID-19-related hardship, during the last live contact made pursuant to Section 1024.39(a) that occurs prior to the end of the forbearance period, the servicer must provide certain information to the borrower. The servicer must inform the borrower of the date the borrower’s current forbearance program ends. In addition, the servicer must provide a list and brief description of each of the types of forbearance extension, repayment options, and other loss mitigation options made available by the owner or assignee of the borrower’s mortgage loan to resolve the borrower’s delinquency at the end of the forbearance program. Finally, the servicer must inform the borrower of the actions the borrower must take to be evaluated for such loss mitigation options. The Bureau proposes to include an
In addition, the Bureau proposes to clarify servicers’ reasonable diligence obligations when the borrower is in a short-term payment forbearance program made available to a borrower experiencing a COVID-19-related hardship based on the evaluation of an incomplete application. Specifically, the proposed amendment would specify that a servicer must 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 requests further assistance, the servicer must exercise reasonable diligence to complete the application before the end of the forbearance program period.
Finally, the Bureau is also proposing to define COVID-19-related emergency to mean a financial hardship due, directly or indirectly, to the COVID-19 emergency as defined in the Coronavirus Economic Stabilization Act, section 4022(a)(1) (15 U.S.C. 9056(a)(1)).
The Bureau solicits comment on all aspects of this proposed rule. The Bureau is particularly interested in whether the proposed amendments facilitate efficient and timely pre-foreclosure loss mitigation review without interfering with the housing market in a way that is not proportional to the level of potential borrower harm, including by permitting foreclosure for the disposition of abandoned properties and in other instances where loss mitigation is not possible. In this vein, the Bureau is interested in receiving comments on operational challenges mortgage servicers may experience in implementing the proposal or whether the proposal adequately addresses the risks to borrowers the Bureau has identified. In addition, the Bureau solicits comment generally on whether the proposal would successfully prevent avoidable foreclosures or might lead to other borrower harms. The Bureau also seeks comment on whether the Bureau has accurately identified the risks of borrower harm.
A. The Bureau’s Regulation X Mortgage Servicing Rules
The Bureau’s mortgage servicing rules address these concerns by establishing procedures that mortgage servicers generally must follow in evaluating loss mitigation applications submitted by mortgage borrowers and requiring certain communication efforts with delinquent borrowers. The mortgage servicing rules also provide certain protections against foreclosure based on the length of the borrower’s delinquency and the receipt of a complete loss mitigation application. For example, Regulation X generally prohibits a servicer from making the first notice or filing required for foreclosure until the borrower’s mortgage loan is more than 120 days delinquent. These requirements are discussed more fully in the section-by-section analysis in part IV.
The COVID-19 pandemic was declared a national emergency on
B. Forbearance Programs Offered Under CARES Act
The CARES Act was signed into law on
These forbearance programs offered under the CARES Act have assisted borrowers in a meaningful way by providing a lifeline during the economic crisis. Through its mortgage market monitoring, the Bureau understands that servicers of mortgage loans that are not federally backed may be offering similar forbearance programs to borrowers.
C. Borrowers With Loans in Forbearance Due to the COVID-19 Emergency
Since the CARES Act was enacted, 6.9 million borrowers have entered a forbearance program. As of
Of the 6.9 million borrowers who have entered forbearance programs, approximately 4.2 million borrowers have exited their forbearance program. More than 50 percent of all borrowers who initiated a forbearance program, since the pandemic started, have begun to make their mortgage payments and are reperforming under the original terms of their agreement or have paid their mortgage off in full by either refinancing or selling their home. Although market conditions have been favorable for refinancing or selling a borrower’s home, it remains uncertain how market conditions will affect a borrower’s ability to sell or refinance their home in the future.
The disposition or exit of loans in a COVID-19 forbearance has varied by investor. Of the millions of borrowers who have entered a forbearance program, more than half have since exited. Nearly two-thirds of GSE borrowers have exited their forbearance programs and roughly 60 percent are either now current on their mortgage or have paid off their mortgage in full by either refinancing or selling their home. Although FHA has the highest rate of borrowers in a forbearance program, they also have the lowest portion of borrowers who have exited a forbearance program. Of the FHA loans that entered a forbearance program, 49 percent have exited to date. In addition, 35 percent of FHA borrowers are reperforming and 7 percent have paid off their mortgage. Comparatively, of the loans in forbearance held in private securities or portfolio approximately 50 percent have exited.
Based on informal outreach the Bureau has conducted with servicers since the COVID-19 emergency began, the Bureau understands that payment behavior of borrowers in forbearance programs has changed over time. These changes suggest that borrowers who are in forbearance programs now are borrowers who are experiencing severe or permanent hardships, and it may be more challenging for these borrowers to resume their mortgage payments.
This data is consistent with information that servicers have shared with the Bureau informally. Servicers have indicated that early in the pandemic almost half of borrowers in forbearance programs continued to make their monthly mortgage payments. Some borrowers only missed one or two mortgage payments, which made it possible for those borrowers to make up the missed payments. Other borrowers requested forbearance just in case they became unable to make their mortgage payments, but ultimately continued to make their payments. The Bureau, through its market monitoring, understands that in general, the percent of borrowers making their mortgage payments while in a forbearance program has declined relative to the number of borrowers who remain in forbearance.
Considering that the number of borrowers making payments while in a forbearance program may continue to decline, combined with the large number of mortgages that entered forbearance since the COVID-19 emergency, the Bureau anticipates that most of the borrowers who remain in active forbearance will need to obtain a loss mitigation option, such as repayment plans, payment deferral programs, loan modifications, or short sales, to resolve their delinquency when their forbearance programs come to an end.
Furthermore, because the number of new forbearance requests also continues to decline (as of
Borrowers who requested forbearance early on in the pandemic have reached a critical milestone. At the end of
If borrowers who are currently in an eligible forbearance program request an extension to the maximum time offered by the government agencies, those loans that were placed in a forbearance program early in the pandemic (March and
Borrowers facing more permanent hardships may need to seek a loss mitigation option when their forbearance program ends to resolve their delinquency. Additionally, borrowers for whom homeownership is no longer sustainable may need additional time to sell their homes.
D. Borrowers With Loans Not in a Forbearance Program
Even though millions of borrowers have received assistance through forbearance programs, there are still thousands of borrowers who are delinquent or in danger of becoming delinquent and are not in a forbearance program or actively in loss mitigation. As of
The amendments included in this proposed rule are intended to encourage all borrowers and servicers to work together to facilitate review for foreclosure avoidance options. The Bureau recognizes that the large number of borrowers expected to exit forbearance over the coming months will place significant strain on servicer infrastructure. The proposed amendments allowing streamlined loan modifications based on the evaluation of an incomplete application should facilitate efficient post-forbearance resolutions for many borrowers for whom a payment deferral program does not meet the borrowers’ needs. Similarly, the proposals regarding early intervention and reasonable diligence aim to emphasize the importance of servicers conducting outreach to borrowers. The Bureau is proposing the special pre-foreclosure review period as a final backstop to ensure that borrowers affected by COVID-19 emergency have an opportunity to be evaluated for loss mitigation before foreclosure, including, where appropriate, time to sell their homes in an arms’ length transaction rather than at a foreclosure sale.
E. Post-Forbearance Options for Borrowers Affected by the COVID-19 Emergency
Since the beginning of the COVID-19 emergency, servicers have implemented several post-forbearance repayment options and other loss mitigation options to assist borrowers experiencing a COVID-19-related hardship. Many borrowers have been able to benefit from historically low-interest rates and have refinanced their mortgage resulting in a lower mortgage payment. However, access to low interest-rate refinances may be less available for some borrowers.
Borrowers exiting a forbearance program may have several options available depending on their specific financial situation, and the owner, investor, or insurer of their loan. For example, at any point during a forbearance program, a borrower has the option to reinstate their mortgage by paying all missed mortgage payments at once. After a borrower reinstates their mortgage, the borrower continues to pay their monthly mortgage payment under the original terms of their mortgage loan agreement. Reinstatement may be increasingly difficult for borrowers who did not make any payments during the lengthy forbearances offered to borrowers with COVID-19 related hardships.
Another option for borrowers exiting forbearance programs includes repayment plans. Repayment plans are best suited for borrowers with resolved hardships, who can afford to restart making their full contractual monthly mortgage payments plus an agreed-upon amount of the missed mortgage payments each month until the total missed payment amount is repaid in full. Regulation X generally permits a servicer to offer a short-term repayment plan, as defined in the rule, without evaluating a complete loss mitigation application from the borrower, if certain requirements are met. However, there may be repayment plans that do not meet this definition that may require the borrower to be reviewed based on a complete application.
Servicers have also made available options such as payment deferral programs or partial claims programs to assist in the repayment of delinquent mortgage amounts. The benefit of these programs for borrowers is that they allow the borrower, if financially able, to resume their pre-forbearance mortgage payment and defer any missed payment amounts until the end of the mortgage term without accruing any additional interest or late fees. These programs bring a borrower’s mortgage current but are typically only available when other options, such as reinstatement or a repayment plan, are not feasible. The
Servicers have also made available loan modification options for borrowers. With a loan modification, the borrower’s mortgage terms change, such as through extending the number of years to repay the loan, reducing the interest rate, or reducing the principal balance. Loan modifications often lower the borrower’s monthly payment to a more affordable amount. The GSEs and FHA permit streamlined application procedures for some loan modifications, such as the GSE Streamlined Flex Modification and FHA’s COVID-19 Modification.
If borrowers find themselves unable to stabilize their finances or do not wish to remain in their home, servicers also offer short sales or deed-in-lieu of foreclosure as an alternative to foreclosure.
F. Heightened Risk of Foreclosures
The Bureau’s mortgage servicing rules generally prohibit servicers from making the first notice or filing required for foreclosure until the borrower’s mortgage loan obligation is more than 120 days delinquent. Even where forbearance programs pause or defer payment obligations, they do not necessarily pause delinquency. A borrower’s delinquency may begin or continue during a forbearance period if a periodic payment sufficient to cover principal, interest, and, if applicable, escrow is due and unpaid during the forbearance. Because the forbearance programs offered during the current crisis generally do not pause delinquency and borrowers may be delinquent for longer than 120 days, it is possible that a servicer may refer the loan to foreclosure soon after a borrower’s forbearance program ends unless a foreclosure moratorium or other restriction is in place.
Since the CARES Act took effect in March of 2020, various Federal and State foreclosure moratoria have been established. The Federal foreclosure moratoria stopped new foreclosure actions (except those concerning abandoned properties) and suspended all foreclosure actions in process through a certain date. The moratoria generally do not apply to properties that are considered abandoned under applicable law. The proposed amendments, like the existing foreclosure restrictions in Regulation X, would only apply to mortgage loans secured by the borrower’s principal residence. An abandoned property is less likely to be a borrower’s principal residence.
The Bureau is focused on minority borrowers who might be at heightened risk of foreclosure resulting in the gaps in the homeownership rates continuing to grow. Homeownership rates vary significantly by race and ethnicity. In 2019, the homeownership rate among white non-Hispanic Americans was approximately 73 percent, compared to 42 percent among Black Americans. The homeownership rate was 47 percent among Hispanic or Latino Americans, 50 percent among
ATTOM Data Solutions’ 2021 first-quarter analysis found that approximately 175,000 homes secured by mortgages are in some stage of the process of foreclosure. However, with the Federal moratoria in place until
G. The Bureau’s COVID-19 Emergency Mortgage Servicing Efforts
In the wake of the COVID-19 pandemic, the Bureau has taken numerous steps to protect and assist mortgage borrowers. Although the below does not describe all the efforts the Bureau has undertaken, it does summarize a few of the Bureau’s initiatives since the beginning of the pandemic. The Bureau issued a mortgage servicing-related interagency policy statement and FAQs, various guidance materials, and an Interim Final Rule (IFR) amending Regulation X’s loss mitigation rules, as discussed above. The Bureau has engaged in targeted supervisory activity, and has created and disseminated consumer education resources in coordination with HUD, FHA, FHFA,
This proposed rule aims to complement these and the other strategic efforts the Bureau has initiated since the onset of the pandemic to assist struggling borrowers and to protect those most vulnerable.
[FR Doc. 2021-07236 Filed 4-7-21;
BILLING CODE 4810-AM-P
The document is published in the
TARGETED NEWS SERVICE (founded 2004) features non-partisan ‘edited journalism’ news briefs and information for news organizations, public policy groups and individuals; as well as ‘gathered’ public policy information, including news releases, reports, speeches. For more information contact