In order to assure servicers are better able to help borrowers impacted by COVID-19, the Consumer Financial Protection Bureau [1] (CFPB) released an interim final rule this week [2] related to mortgage forbearances.
The rule permits servicers to enter into “certain COVID-19 loss mitigation options” with borrowers without undergoing a full loss mitigation application process. In the current circumstances, servicers will not be in violation of Regulation X in such cases.
The loss mitigation actions covered under the interim rule include but are not limited to mortgage forbearances covered by the CARES Act.
For borrowers impacted “directly or indirectly” by COVID-19, servicers must agree to delay principal and interest payments, must not charge borrowers any fees related to the forbearance, and must consider preexisting delinquencies for these borrowers now ended, according to the CFPB.
In order to help these borrowers quickly, servicers are not required to collect a complete loss mitigation application. The servicer “need not exercise reasonable diligence to obtain a complete application and need not provide the acknowledgment notice that is generally required under Regulation X,” the CFPB explained in the announcement of the new rule.
However, servicers must still abide by other Regulation X guidelines once a borrower accepts the loss mitigation offer. If a borrower becomes delinquent again after entering an agreement, servicers must complete the normally required early intervention steps, and if a borrower submits another loss mitigation application, the servicer must abide by all Regulation X requirements pertaining to the new application.
The new guidelines from the CFPB are aligned with programs by the Federal Housing Finance Agency and the Federal Housing Administration that allow servicers to defer mortgage payments for borrowers impacted by the COVID-19 pandemic.
These programs are broadly available and do not require servicers to complete a full review of each borrower. In many cases, the missed payments can be added to the end of the mortgage loan.
As of this week, 6.9% of loans backed by the GSEs and 12.5% of FHA and Veterans Administration loans are in forbearance, according to Black Knight’s McDash Flash Forbearance Tracker [3].