On June 28, 2021, the Consumer Financial Protection Bureau issued a new final rule amending Regulation X. While the amendment enables mortgage servicers to more easily modify certain COVID-19 related loans for borrowers, it also includes a number of new requirements that will impose additional liability on mortgage servicers. Three borrower favorable safeguards were emplaced to slow the initiation of foreclosure referrals during the period of August 31 to December 31, 2021. Additionally, servicers must provide delinquent borrowers with additional information after establishing live contact until October 1, 2022. The level of reasonable diligence that must be paid to incomplete loss mitigation applications has also increased. It is important that mortgage servicers understand the additional liability placed upon them and act accordingly.

Foreclosure Referrals

Typically, before a servicer may initiate a foreclosure referral on a mortgage loan secured by the borrower’s principal residence, the borrower must be at least 120 days delinquent. If the borrower submitted a complete loss mitigation application before foreclose referral, servicers must also take the time to evaluate their application and allow the borrower an opportunity to pursue the loss mitigation plan if accepted. Beginning August 31 and continuing through the end of 2021, one of the following three additional hurdles must also be met prior to referring a mortgage loan for foreclosure.

The Borrower must have been evaluated based on a complete loss mitigation application, had their application properly evaluated, stayed delinquent, and had a determinative outcome (i.e. servicer has determined the borrower is not eligible for any loss mitigation and notified borrower of such, the borrower has exhausted the appeal process, or if a loss mitigation offer is made, the borrower has rejected or failed to perform under the same).
The property securing the loan must be deemed abandoned. IC 32-30-10.6 provides for when a property can be considered “abandoned” in a mortgage foreclosure action.
The borrower has been unresponsive to servicer’s outreach. This means the servicer must have not received any communications from the borrower or the borrower’s agent for 90 days prior to the foreclosure referrals, confirmed it has complied with the existing live contact requirements, confirmed it has provided 45-day written notice, sent such 45-day notice at least ten but no more than 45 days before the referral, complied with all loss mitigation notice requirements, and ensure that if the borrower was in a forbearance program such ended at least 30 days prior. A servicer has not received a communication from the borrower or the borrower’s agent if the servicer has not received, in regards to the mortgage loan obligation, any written or electronic communication, any telephone calls, nor any payments while also failing to establish live contact.

Live Contact Information

Prior to the passing of the new 2021 Mortgage Servicing COVID-19 Rule, the existing Rules required servicers to try to establish “live” contact (meaning in person or on the phone) with the borrower no later than the 36^th day they are delinquent. Servicers have been required to promptly inform the borrower of loss mitigation options after making contact; it was up to the servicer’s discretion to determine how much information to provide because servicer’s personnel are also required to be capable of identifying all loss mitigation options available and the necessary actions that would have to be taken.

Now, during any live contact, servicers must provide specific, additional information until October 1, 2022. For borrowers who are not in a forbearance program at the time of live contact, servicers must:

Notify them that forbearance programs are available for borrowers having difficulty making their payments because of the COVID-19 emergency.
List and briefly describe to the borrower the applicable programs and the actions the borrower must take to be evaluated.
Tell the borrower at least one way they can find contact information for homeownership counseling services.

For borrowers who are in a forbearance program, servicers must provide additional information during the live contact that occurs 10 to 45 days before the scheduled end of their forbearance program. Specifically, servicers must:

Inform the borrower of their program’s scheduled end date.
List any loss mitigation programs available at the time of the live contact, including forbearance extensions and repayment options.
Describe how the borrower can apply.
Tell the borrower at least one way they can find contact information for homeownership counseling services.

Reasonable Diligence for Incomplete Applications

Servicers are required to exercise reasonable diligence in completing loss mitigation applications submitted by borrowers that are incomplete. However, these efforts can be suspended while the borrower is complying with a short-term payment forbearance program that was offered due to an incomplete application. When the borrower is near the end of their program, the servicer must resume their efforts to complete the application for the borrower. When a borrower remains delinquent in a short-term payment forbearance program, the servicer must ask within 30 days from the scheduled end of their forbearance period whether the borrower would like to finish their application. If the borrower says yes, the duty of reasonable diligence to complete their application is again placed on the servicer.

If you have any questions, please contact your Rothberg attorney.

Jared C. Helge, Partner｜[email protected]
Pat Tilden, Intern｜[email protected]

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Legal Alert: 2021 Mortgage Servicing COVID-19 Rule