Federal Agencies and CSBS Provide Flexibility Guidance to Mortgage Servicers
On April 3, 2020, federal agencies and the Conference of State Bank Supervisors (CSBS) issued a joint statement (Joint Statement) providing guidance to residential mortgage loan servicers regarding forbearance measures under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Real Estate Settlement Procedures Act (RESPA) Regulation X servicing requirements.
The agencies are the Comptroller of the Currency, Consumer Financial Protection Bureau (CFPB), Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration, and state banking regulators, through the CSBS. In conjunction with the Joint Statement, the CFPB issued FAQs to provide more detailed guidance to servicers. The Joint Statement and FAQs address flexibility that the agencies will provide servicers regarding compliance with loss mitigation, early intervention and annual escrow statement requirements under Regulation X. The agencies state that “This Joint Statement is intended to clarify the application of the Regulation X mortgage servicing rules and the agencies’ approach to supervision and enforcement related to the rules during this emergency, including those applicable to [short-term payment forbearance options, like the CARES Act forbearance, or short-term repayment plans (collectively “short-term options”)].”
The agencies note that small servicers, as defined for Regulation X purposes, are not subject to the early intervention and loss mitigation requirements addressed in the Joint Statement. To the extent that consumers have private rights of action to enforce the Regulation X servicing requirements, the Joint Statement and FAQs do not alter those rights.
Addressing the residential mortgage forbearance provisions of the CARES Act, the agencies state that servicers (1) must provide a CARES Act forbearance if the borrower makes a forbearance request and affirms that he or she is experiencing a financial hardship during the COVID-19 emergency, and (2) may not require any additional information from the borrower before granting a CARES Act forbearance.
Incomplete Loss Mitigation Application. The agencies confirm that a borrower’s request for a CARES Act forbearance and affirmation of a financial hardship during the COVID-19 emergency constitutes an incomplete loss mitigation application under the Regulation X servicing requirements. While Regulation X permits a servicer to offer a short-term option based on an incomplete loss mitigation application, the receipt of the incomplete application triggers notice and other loss mitigation requirements under Regulation X. The Joint Statement addresses the flexibility that is being provided in connection with such requirements. The loss mitigation requirements under Regulation X apply to a RESPA-covered loan secured by the borrower’s principal residence.
In the FAQs, the CFPB notes that a servicer may offer loss-mitigation options to a borrower (1) who has not submitted an application at all, and (2) when the offer is not based on any evaluation of information submitted by the borrower in connection with a loss-mitigation application.
Five-Day Acknowledgment Notice Requirement. When a servicer receives an incomplete loss mitigation application, even if the borrower is offered, or in, a short-term option, the servicer still must provide an acknowledgment notice. The Joint Statement provides that, as of April 3, 2020, and until further notice, in evaluating compliance with Regulation X, if a mortgage servicer offers or provides a borrower a short-term option, including a CARES Act forbearance, the agencies do not intend to take supervisory or enforcement action against servicers for:
- “[F]ailing to provide the acknowledgment notice described in Regulation X, 12 CFR 1024.41(b) within five days of the receipt of an incomplete application (whether the servicer receives the incomplete application before or during the forbearance or repayment plan period), provided the servicer sends 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).”
Other Loss Mitigation Notice and Early Intervention Requirements. Regulation X requires that mortgage servicers follow certain procedures, including providing a borrower with notices, when the borrower applies for loss mitigation, and also requires servicers to provide live contact and written early intervention communications when a borrower is delinquent. The Joint 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:
- “[D]elays in sending the loss mitigation-related notices and taking the actions described in Regulation X, 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;
- [D]elays in establishing or making good faith efforts to establish live contact with delinquent borrowers as required by Regulation X, 12 CFR 1024.39(a), provided that servicers are making good faith efforts to establish live contact within a reasonable time; and
- [D]elays in sending the written early intervention notice to delinquent borrowers required by Regulation X, 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.”
The agencies advise that this approach applies regardless of whether a borrower is experiencing a financial hardship due to COVID-19. With regard to the first bullet point, the agencies clarify that for borrowers offered a short-term option, the agencies intend to take the approach discussed above regarding the five-day acknowledgment notice for evaluating compliance with the deadlines for sending such notice.
In the FAQs, the CFPB notes that:
- It permits servicers to include additional language in the loss mitigation notices to clarify why the servicers are offering the short-term option, and that servicers offering a CARES Act forbearance or other short-term options due to concerns about the COVID-19 emergency, for example, could include language explaining as much to avoid borrower confusion.
- Servicers do not have to tailor the loss mitigation notices to individual borrowers’ circumstances and that, for example, servicers could develop a form letter that they send to all borrowers enrolled in the same short-term forbearance programs as a result of hardships related to COVID-19.
In addition to the flexibility regarding the live contact requirements set forth in the Joint Statement, in the FAQs the CFPB notes that Regulation X includes some flexibility that may be useful to servicers during the COVID-19 emergency:
- The rule generally requires servicers to “establish or make good faith efforts to establish” live contact with delinquent borrowers within certain timeframes. “Good faith efforts” consist of reasonable steps, under the circumstances. The FAQ provides examples of what conduct may satisfy the good faith standard in different situations.
- Servicers are considered in compliance with the early intervention live contact requirements, and need not otherwise establish or make good faith efforts to establish live contact, if the servicer has established and is maintaining ongoing contact with a borrower under the loss mitigation procedures in Regulation X, 12 CFR 1024.41.
- The live contact requirements do not apply when a borrower is performing as agreed under a loss mitigation option designed to bring the borrower current on a previously missed payment. In this circumstance, the borrower is not considered delinquent for purposes of the live contact requirements. Regulation X, Comment 39(a)-1.ii.
In the FAQs, the CFPB also notes that, in addition to the flexibility in the Joint Statement regarding the early intervention written notice requirement, Regulation X provides flexibility:
- While the rule generally requires servicers to provide a written notice to delinquent borrowers within certain timeframes, a servicer is not required to provide the written notice more than once during any 180-day period. Regulation X, 12 CFR 1024.39(b)(1).
- The early intervention written notice requirements do not apply when a borrower is performing as agreed under a loss mitigation option that is designed to bring the borrower current on a previously missed payment. In this circumstance, the borrower is not considered delinquent for purposes of the early intervention written notice requirements. Regulation X, Comment 39(a)-1.ii.
The FAQS also note that borrowers can request a CARES Act forbearance regardless of their delinquency status. As a result, if a borrower who is not delinquent requests a CARES Act forbearance, the early intervention requirements do not apply.
Annual Escrow Notice. With regard to the Regulation X requirement for servicers to provide an annual escrow account notice, the Joint 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:
- [D]elays in sending the annual escrow statement required by Regulation X, 12 CFR 1024.17(i), provided that servicers are making good faith efforts to provide these statements within a reasonable time.”
The agencies advise that this approach applies regardless of whether a borrower is experiencing a financial hardship due to COVID-19. However, the agencies clarify that servicers still must comply with the Regulation X requirements concerning timely disbursements from escrow accounts. In the FAQs, the CFPB also advises that servicers still must conduct the annual escrow analysis. The CFPB also notes that while Regulation X requires that a servicer, in an annual escrow notice, provide an explanation of how the consumer will pay any shortage or deficiency, Regulation X does not require servicers to collect any shortage or delinquency. Servicers could, for example, inform borrowers in the notice, or in an explanatory letter, that they are forgoing collection for several months. Additionally, the annual notice requirement does not apply when a borrower is more than 30 days past due.
Reasonable Diligence. The FAQs include the following guidance on the Regulation X reasonable diligence requirement that applies when the servicer receives an incomplete loss mitigation application:
“Do servicers have to exercise reasonable diligence to complete an application submitted by a borrower to whom the servicer offered a short-term payment forbearance program or short-term repayment plan based on a consumer’s incomplete loss mitigation application?
Not immediately. In general, if a borrower submits an incomplete loss mitigation application 45 days or more before a foreclosure sale, servicers generally must exercise reasonable diligence to obtain documents and information to complete the borrower’s loss mitigation application. Regulation X, 12 CFR 1024.41. However, servicers may suspend reasonable diligence efforts to complete a borrower’s loss mitigation application while the borrower is performing under a short-term payment forbearance program until near the end of the program, unless the borrower requests additional assistance (e.g., longer term relief, such as a loan modification). Regulation X, Comment 41(b)(1)-4.iii. In the case of a 180-day CARES Act forbearance, for example, a servicer could suspend these efforts until near the end of the 180 days. If, for example a servicer extended the CARES Act forbearance an additional 180 days, the servicer could suspend these efforts until near the end of the second 180 days.”
Other FAQ Topics. The FAQs also address the Regulation X continuity of contact requirement and exemption for small servicers from various servicing requirements, the Regulation Z payoff statement requirements, and electronic communications with borrowers.
State Requirements. Various states also have loss mitigation requirements. The Joint Statement and CFPB FAQs do not alter the obligations of mortgage servicers under state law.
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