Recently, the Consumer Financial Protection Bureau (CFPB), Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC) and the State Banking Regulators released a joint statement announcing increased flexibility in the agencies’ regulation and enforcement of certain mortgage servicing rules governing borrower communications in response to the COVID-19 emergency. The agencies also provided corresponding FAQs to further clarify the new approach and provide additional guidance to servicers in light of the short-term payment forbearance option included in the recently passed CARES Act.
The statement provides the following guidance and flexibility under the rules, effective as of April 3 and until further notice:
- Under existing Regulation X rules, servicers may offer borrowers short-term assistance without obtaining a complete loss mitigation application. A CARES Act short-term forbearance, which can be obtained solely by request and affirmation of hardship, falls within this category. The statement clarifies that requests for short-term options are considered incomplete loss mitigation applications under the rules and will require the standard acknowledgment notice, which is ordinarily required within five days of receipt of the application (12 CFR 1024.41(b)). The statement clarifies that if a servicer offers or provides a short-term option, agencies “do not intend to take supervisory or enforcement action” against servicers for providing the required notice after the five-day mark, provided the notice is sent before the end of the applicable short-term plan or program period.
Loss-Mitigation, Live Contact, and Early Intervention
- Outside of short-term options, the current rules require that when a borrower submits a standard loss mitigation application, servicers must provide a series of notices at specific intervals. Similarly, for delinquent borrowers, servicers must attempt both live and written contact on a standardized timeline. Concerning those requirements, and regardless of whether borrowers are experiencing hardship, the agencies will provide similar leniency and do not intend to take supervisory or enforcement action against servicers for:
- Delays in sending certain loss-mitigation notices under Regulation X, including the five-day acknowledgment notice, 30-day evaluation notice, and the appeals notice, as long as the servicer makes a good faith effort to provide the notices and take the corresponding actions required under the rules within a reasonable time (see 12 CFR 1024.41 (b)-(d), (h)(4), and (k));
- Delays in making or attempting to make live contact with delinquent borrowers as required, as long as servicers make good faith efforts to establish contact within a reasonable time (see 12 CFR 1024.39(a)); and
- Delays in sending the 45-day written early intervention letter to delinquent borrowers, as long as good faith efforts to provide the notice are made within a reasonable time (see 12 CFR 1024.39(b)).
Annual Escrow Statements
- In efforts to mitigate the typically high call volume associated with borrower questions surrounding receipt of annual escrow statements, the agencies do not intend to take supervisory or enforcement action against servicers for delays in sending annual escrow statements, as long as servicers make good faith efforts to send the statements within a reasonable time.
The agencies’ release is clearly good – though not necessarily earth-shattering and game-changing – news for mortgage servicers. Based on our review of the agencies’ release, servicers should be mindful of the following takeaways:
- Although the joint statement provides guidance concerning the CARES Act and notes additional flexibility, it does not impose any new regulatory requirements on servicers. For example, small servicers, as defined by Regulation X, are not subject to many of the requirements in the rules described in the statement. And a servicer does not need to comply with the early intervention requirements of Regulation X if a borrower is not considered delinquent for purposes of those requirements.
- The statement resolves any lingering questions surrounding the CFPB’s view of what constitutes an incomplete loss mitigation application. In the statement, the CFPB asserts conclusively that, as a part of a servicer’s CARES Act forbearance process, a conversation with a borrower, wherein the borrower expresses interest in a forbearance plan and attests to his or her hardship, constitutes an incomplete loss mitigation application under the rules, triggering additional CFPB notice and process requirements. We have previously encouraged servicers to be mindful in recognizing when verbal borrower assistance requests meet the definition of loss mitigation applications under Regulation X.
- While the flexibility provided by the agencies is helpful, the agencies do not provide clear guidance as to the manner in which a servicer can take advantage of the flexibility. Put another way, it simply isn’t clear how the CFPB will interpret whether a servicer has made “good efforts” to provide the requisite notice or conduct the requisite action “within a reasonable timeframe.”
- While the guidance provides relief to servicers concerning agency supervision and enforcement, servicers should be aware it does not address any applicable civil liability attached to violations of the above-mentioned rules. Unless and until the agencies release guidance providing, for example, a moratorium on civil liability provisions, servicers should be aware of the potential litigation risk attached to delaying compliance of certain CFPB notices and processes in accordance with the agencies’ release.