New Foreclosure Rule from CFPB

On June 28, 2021, the Consumer Financial Protection Bureau (CFPB) issued a final rule amending Regulation X of the Real Estate Settlement Procedures Act (RESPA) which aims to assist mortgage borrowers with a COVID-19 related hardship in seeking loss mitigation options and delaying foreclosure proceedings to encourage resolution of delinquencies through loan modification.
This Rule is going to make it harder for lenders to foreclose and cause more homeowners to enter a modification thereby avoiding foreclosure.

The Rule has 5 key parts:

1. It imposes additional requirements before a mortgage servicer may make the first notice or filing required to commence a foreclosure proceeding due to default.
• However, this requirement is only applicable if:
• The borrower’s mortgage payment became more than 120 days delinquent on or after March 1, 2020; and
• The statute of limitations applicable to the potential foreclosure action expires on or after January 1, 2022.
• If the rule is applicable, mortgage servicers may commence a foreclosure only if:
• The borrower has submitted a completed loss mitigation application and either:
• The borrower is ineligible for any loss mitigation options and the borrowers’ appeal, if applicable, has been denied;
• The borrower rejects all available options; or
• The borrower fails to perform terms of an agreement on a loss mitigation option;
• The subject property is abandoned as defined, under state or municipal law; or
• The servicer has conducted specified outreach and the borrower is unresponsive to such outreach.
• This requirement expire on January 1, 2022, and thus, mortgage servicers shall be free to commence foreclosure proceedings after such date.
2. It provides specific limitations for loan modifications, including:
• A modification may not cause an increase in mortgage principal and interest payments, and may not extend the life of the loan by more than 480 months from the date of the loan modification;
• A loan modification may not charge or accrue interest on deferred payments, which are not due until the mortgage loan is refinanced, the property is sold, the loan modification matures, or the mortgage insurance is terminated (if the loan is insured by FHA);
• Modification MUST be made available to borrowers experiencing COVID-19 related hardships;
• Borrower’s acceptance of a permanent modification, after a trial modification plan, ends any preexisting delinquency on the mortgage; and
• No fees may be charged in connection with a modification and all existing late charges, penalties, stop payment fees, or similar charges incurred on or after March 1, 2020, shall be waived.
3. Imposes additional live contact early intervention obligations on servicers to discuss specific COVID-19 related relief:
• Applies to:
• A borrower who is not in a forbearance program; or
• A borrower who is near the end of a forbearance program based on a COVID-19 related hardship.
• These requirements expire on October 1, 2022.
4. Requires the servicer to contact the borrower, within 30 days before the end of the forbearance period, if the borrower remains delinquent, and inquire if the borrower wants to complete a loss mitigation application.
5. Defines COVID-19-related hardship to mean “a financial hardship due, directly or indirectly, to the national emergency for the COVID-19 pandemic declared in Proclamation 9994 on March 13, 2020 (beginning on March 1, 2020) and continued on February 24, 2021, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)).”

The Rule does not take effect until August 31, 2021. That being said, borrowers should be aware that the CFPB foreclosure moratorium expired on June 30, 2021 and the CDC foreclosure moratoriums for FHA, HUD, VA, Fannie Mae, and Freddie Mac loans ends on July 31, 2021 and to contact their mortgage servicers as soon as possible to inquire about available loss mitigation options.