The Consumer Financial Protection Bureau (CFPB) issued a public announcement of a proposed rulemaking at the beginning of April that it would be amending Regulation X to provide a special pre-foreclosure review period preventing mortgage servicers from initiating foreclosures until the end of the year.
Per the existing CFPB foreclosure regulations, a borrower has to be delinquent for a consecutive 120 days prior to the foreclosure process starting. The CFPB stated that around 2.1 million homeowners currently in forbearance are past the 90-day delinquent timeframe and voiced their concern that those individuals may be transferred immediately into foreclosure proceedings after their forbearance window runs out.
To prevent a potential cascade of looming foreclosures in the near future, the CFPB’s proposed edits would allow servicers to offer specifically-tailored loan modification solutions to borrowers that have experienced coronavirus-associated issues based on the evaluation of an incomplete application, as Dian Thompson, Senior Advisor to the acting CFPB Director, explained: “What we’re proposing would be that you wouldn’t have to evaluate someone for every possible available option, so long as the options that you offer them have certain safeguards.”
On a similar note, during the spring of 2020, the CFPB initiated a rulemaking process establishing new guidelines for mortgage providers. The new rules held that servicers did not have to evaluate each and every borrower for every loss mitigation option as long as they moved them into a deferral where the payments that they were delinquent on were tacked onto the end of the loan and they resumed making their regularly scheduled monthly payments.
Typically, barring certain unique exceptions, Regulation X mandates that servicers conduct a review of delinquent borrowers for all available repayment options immediately, which can mean borrowers need to submit more verification documentation before a servicer can make a final call on their situation regarding their outstanding loan balance.
Regulation X would additionally enable servicers to transfer borrowers directly from forbearance into a modification without having to review them for all options as long as the loan modifications made conforms with basic consumer protection standards—which according to Thompson is designed to help out struggling borrowers: “One common way to make payments more affordable is you just extend out the amortization time, how long people are making payments. So it would be under our proposal that period could be extended for another 40 years and the payment after capitalization and interest rate changes could be no more than their current payment.” These minimum standards are another topic the CFPB is seeking public input on during the proposed rulemaking window, which is scheduled to expire on May 11, 2021.
According to the CFPB, although several protections offered under the CARES Act are only applicable to federally backed mortgages, the agency is seeking to establish a blanket standard across the collective mortgage industry so that homeowners would have access to comparable protective measures regardless of who is servicing their loan. The CFPB also stated that the new rules will also incorporate the private mortgage sector that presently accounts for approximately 30% of all existing loans.
The Bureau announced that the proposed rule, if passed, would not impact coverage of the Mortgage Servicing Rule, meaning that small servicers, as defined in Regulation Z, would not be subject to these additional requirements. This is the third instance in less than a week that the CFPB has expressed its mounting concern regarding how to handle delinquent borrowers as the pandemic begins to recede. The CFPB has already provided notice to servicers that it is escalating its enforcement efforts and will be keeping tabs on how they manage borrowers existing their forbearance periods.