CFPB Amends Regulation X to Allow Servicers to Evaluate Borrowers for Certain COVID-19 Related Loss Mitigation Options Based On Incomplete Application

07.09.20

The Consumer Financial Protection Bureau (“CFPB”) has amended Regulation X to temporarily allow mortgage servicers to offer borrowers who are experiencing financial hardship as a result of the COVID-19 pandemic certain loss mitigation options without obtaining a complete loss mitigation application. The CFPB announced this amendment so that servicers may more easily assist borrowers who are experiencing financial hardship due to the COVID-19 pandemic.

In general, Regulation X restricts mortgage servicers from evaluating a borrower for a loss mitigation option before obtaining a complete loss mitigation application from the borrower and requires mortgage servicers to exercise reasonable diligence to gather all documents and information necessary to complete the loss mitigation application. However, the CFPB recognizes that in response to the CARES Act, which allows borrowers to request forbearance for federally-backed loans, several entities in the mortgage industry, such as Fannie Mae, Freddie Mac, and the Federal Housing Administration (“FHA”), have developed forbearance programs to delay the payment of forborne amounts until the end of the mortgage loan. These federal forbearance programs have application procedures that only require servicers to collect minimal information from the borrower before offering the loss mitigation option. Additionally, the CFPB acknowledges that private servicers have also adopted similar forbearance programs to assist borrowers who are struggling financially as a result of the COVID-19 pandemic. Therefore, the CFPB has created a temporary exception to complete application requirement in Regulation X that allows servicers to evaluate borrowers, based on an incomplete application, for loss mitigation option that will allow borrowers to delay repayment of forborne or delinquent amounts that accrued due to COVID-19. 

To evaluate a borrower based on an incomplete application and qualify for the exception to Regulation X, the loss mitigation option must satisfy the following three criteria:

1. The loss mitigation option must permit the borrower to delay paying any covered amounts until the mortgage loan is refinanced, the property is sold, the loan term ends, or, for the mortgages insured by FHA, the mortgage insurance terminates. Covered amounts must include all principal and interest payments forborne under a forbearance program made available to borrowers experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency, including a forbearance plan made available under the CARES Act. Covered amounts also include all other principal and interest payments that are due and unpaid by a borrower experiencing financial hardship due, directly or indirectly to the COVID-19 emergency. 
2. Any amounts that the borrower can delay paying as a part of the forbearance program must not accrue interest; the servicer cannot charge any fees in connection with the loss mitigation option; and the servicer must waive all existing late charges, penalties, stop payments fees, or similar charges promptly upon the borrower’s acceptance of the loss mitigation of option. and
3. The borrower’s acceptance of the offer must end any preexisting delinquency. 

If the borrower accepts the offer of a forbearance loss mitigation option that meets the above criteria, then the servicer is provided with relief from certain requirements in Regulation X that require the servicer to complete the loss mitigation application. If a borrower accepts an offer for a loss mitigation option, the servicer must still comply with all other requirements of Regulation X. Further, if the borrower submits a new loss mitigation application after accepting a forbearance loss mitigation option, then the servicer is required to comply with all requirements of Regulation X, including the complete application requirements.

Although the CFPB tailored the amendments to Regulation X to accommodate the forbearance programs developed Fannie Mae, Freddie Mac, and FHA as a result of the CARES Act, CFPB has explained that the exception is not limited to those programs. Instead, the exception applies to any loss mitigation option that meets the above-stated criteria. Servicers must comply with the complete application requirements in Regulation X for any loss mitigation option that does not satisfy the above criteria. 

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