Treatment of Certain COVID-19 Related Loss Mitigation Options Under the Real Estate Settlement Procedures Act (RESPA) (Regulation X)

• Published date: 30 June 2020
• Citation: 85 FR 39055
• Record Number: 2020-13853
• Section: Rules and Regulations
• Court: Consumer Financial Protection Bureau

39055

Federal Register / Vol. 85, No. 126 / Tuesday, June 30, 2020 / Rules and Regulations

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[FR Doc. 2020–13730 Filed 6–29–20; 8:45 am]

BILLING CODE 7590–01–P

BUREAU OF CONSUMER FINANCIAL

PROTECTION

12 CFR Part 1024

[Docket No. CFPB–2020–0022]

Treatment of Certain COVID–19

Related Loss Mitigation Options Under

the Real Estate Settlement Procedures

Act (RESPA) (Regulation X)

AGENCY

: Bureau of Consumer Financial

Protection.

ACTION

: Interim final rule with request

for public comment.

SUMMARY

: The Bureau of Consumer

Financial Protection (Bureau) is issuing

this interim final rule to amend

Regulation X. The amendments

temporarily permit mortgage servicers to

offer certain loss mitigation options

based on the evaluation of an

incomplete loss mitigation application.

Eligible loss mitigation options, among

other things, must permit borrowers to

delay paying certain amounts until the

mortgage loan is refinanced, the

mortgaged property is sold, the term of

the mortgage loan ends, or, for a

mortgage insured by the Federal

Housing Administration (FHA), the

mortgage insurance terminates. These

amounts include, without limitation, all

principal and interest payments

forborne through payment forbearance

programs made available to borrowers

experiencing financial hardships due,

directly or indirectly, to the COVID–19

emergency, including a payment

forbearance program offered pursuant to

section 4022 of the Coronavirus Aid,

Relief, and Economic Security Act.

These amounts also include principal

and interest payments that are due and

unpaid by borrowers experiencing

financial hardships due, directly or

indirectly, to the COVID–19 emergency.

DATES

: This interim final rule is

effective on July 1, 2020. Comments

must be received on or before August

14, 2020.

ADDRESSES

: You may submit comments,

identified by Docket No. CFPB–2020–

0022, by any of the following methods:

•Federal eRulemaking Portal: http://

www.regulations.gov. Follow the

instructions for submitting comments.

•Email: 2020-IFR-

MortgageServicing@cfpb.gov. Include

Docket No. CFPB–2020–0022 in the

subject line of the message.

•Hand Delivery/Mail/Courier:

Comment Intake, Bureau of Consumer

Financial Protection, 1700 G Street NW,

Washington, DC 20552. Please note that

due to circumstances associated with

the COVID–19 pandemic, the Bureau

discourages the submission of

comments by hand delivery, mail, or

courier.

Instructions: The Bureau encourages

the early submission of comments. All

submissions should include the agency

name and docket number for this

rulemaking. Because paper mail in the

Washington, DC area and at the Bureau

is subject to delay, and in light of

difficulties associated with mail and

hand deliveries during the COVID–19

pandemic, commenters are encouraged

to submit comments electronically. In

general, all comments received will be

posted without change to https://

www.regulations.gov. In addition, once

the Bureau’s headquarters reopens,

comments will be available for public

inspection and copying at 1700 G Street

NW, Washington, DC 20552, on official

business days between the hours of 10

a.m. and 5 p.m. Eastern Time. At that

time, you can make an appointment to

inspect the documents by telephoning

202–435–9169.

All comments, including attachments

and other supporting materials, will

become part of the public record and

subject to public disclosure. Proprietary

information or sensitive personal

information, such as account numbers,

Social Security numbers, or names of

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Federal Register / Vol. 85, No. 126 / Tuesday, June 30, 2020 / Rules and Regulations

1

Section 1024.41(b)(1) (requiring servicer to

exercise reasonable diligence in obtaining

documents and information to complete a loss

mitigation application); §1024.41(c)(1)(i) (requiring

evaluation of borrower for all loss mitigation

options available to the borrower if the servicer

receives a complete loss mitigation application

more than 37 days before a scheduled foreclosure

sale); and §1024.41(c)(2)(i) (prohibiting servicer

from offering a loss mitigation option based on an

evaluation of any information provided by a

borrower in connection with an incomplete loss

mitigation application). Small servicers, as defined

in Regulation Z, 12 CFR 1026.41, are not subject to

these requirements. 12 CFR 1024.30(b)(1).

2

12 CFR 1024.41(c)(2)(iii).

3

Public Law 116–136, 134 Stat. 281 (2020).

4

Public Law 93–533, 88 Stat. 1724 (12 U.S.C.

2601 et seq.).

5

78 FR 10695 (Feb. 14, 2013). In January 2013,

the Bureau also issued separate ‘‘Mortgage

Servicing Rules Under the Truth in Lending Act

(Regulation Z)’’ (2013 TILA Servicing Final Rule).

See 78 FR 10902 (Feb. 14, 2013). The Bureau

conducted an assessment of this rule in 2018–19

and released a report detailing its findings in early

2019. 2013 RESPA Servicing Rule Assessment

Report, https://files.consumerfinance.gov/f/

documents/cfpb_mortgage-servicing-rule-

assessment_report.pdf.

6

Amendments to the 2013 Mortgage Rules under

the Real Estate Settlement Procedures Act

(Regulation X) and the Truth in Lending Act

(Regulation Z), 78 FR 44686 (July 24, 2013);

Amendments to the 2013 Mortgage Rules under the

Equal Credit Opportunity Act (Regulation B), Real

Estate Settlement Procedures Act (Regulation X),

and the Truth in Lending Act (Regulation Z), 78 FR

60382 (Oct. 1, 2013); Amendments to the 2013

Mortgage Rules under the Real Estate Settlement

Procedures Act (Regulation X) and the Truth in

Lending Act (Regulation Z), 78 FR 62993 (Oct. 23,

2013); Amendments to the 2013 Mortgage Rules

Under the Real Estate Settlement Procedures Act

(Regulation X) and the Truth in Lending Act

(Regulation Z), 81 FR 72160 (Oct. 19, 2016);

Amendments to the 2013 Mortgage Rules Under

RESPA (Regulation X) and TILA (Regulation Z), 82

FR 30947 (July 5, 2017); Mortgage Servicing Rules

Under RESPA (Regulation X), 82 FR 47953 (Oct. 16,

2017). The Bureau also issued notices providing

guidance on the Rule and soliciting comment on the

Rule. See, e.g., Applicability of Regulation Z’s

Ability-to-Repay Rule to Certain Situations

Involving Successors-in-interest, 79 FR 41631 (July

17, 2014); Safe Harbors from Liability Under the

Fair Debt Collections Practices Act for Certain

Actions in Compliance with Mortgage Servicing

Rules Under the Real Estate Settlement Procedures

Act (Regulation X) and the Truth in Lending Act

(Regulation Z), 81 FR 71977 (Oct. 19, 2016); Policy

Guidance on Supervisory and Enforcement

Priorities Regarding Early Compliance With the

2016 Amendments to the 2013 Mortgage Servicing

Rules Under RESPA (Regulation X) and TILA

(Regulation Z), 82 FR 29713 (June 30, 2017).

7

See generally 78 FR 10699–701.

8

See discussion in Chapter 3 of the 2013 RESPA

Servicing Rule Assessment Report. 2013 RESPA

Servicing Rule Assessment Report, https://

files.consumerfinance.gov/f/documents/cfpb_

mortgage-servicing-rule-assessment_report.pdf.

9

Mortgage Servicing Rules Under the Real Estate

Settlement Procedures Act (Regulation X), 78 FR

10696, 10700 (Feb. 14, 2013).

other individuals, should not be

included. Comments will not be edited

to remove any identifying or contact

information.

FOR FURTHER INFORMATION CONTACT

: Joel

Singerman, Counsel, or Terry J. Randall,

Senior Counsel, Office of Regulations, at

202–435–7700 or https://

reginquiries.consumerfinance.gov/. If

you require this document in an

alternative electronic format, please

contact CFPB_Accessibility@cfpb.gov.

SUPPLEMENTARY INFORMATION

:

I. Summary of the Interim Final Rule

Title 12 CFR part 1024 (Regulation X)

generally requires servicers to obtain a

complete loss-mitigation application

before evaluating a mortgage borrower

for a loss-mitigation option, such as a

loan modification or short sale.

1

Regulation X provides an exception

from this requirement for certain short-

term loss mitigation options.

2

Due to the

particular needs of mortgage servicers

and borrowers during the novel

coronavirus disease (COVID–19)

pandemic emergency (COVID–19

emergency), the Bureau is amending

Regulation X to temporarily permit

mortgage servicers to offer certain loss

mitigation options without obtaining a

complete loss mitigation application.

Servicers may offer eligible loss

mitigation options to a borrower who

has received a payment forbearance

program made available to borrowers

experiencing a financial hardship due,

directly or indirectly, to the COVID–19

emergency, including one offered

pursuant to section 4022 of the

Coronavirus Aid, Relief, and Economic

Security Act (CARES Act),

3

or who has

had other principal and interest

payments that are due and unpaid as a

result of a financial hardship due,

directly or indirectly, to the COVID–19

emergency.

The amendment conditions eligibility

for the new exception on the loss

mitigation option satisfying three

criteria. First, the loss mitigation option

must permit the borrower to delay

paying certain amounts until the

mortgage loan is refinanced, the

mortgaged property is sold, the term of

the mortgage loan ends, or, for a

mortgage insured by FHA, the mortgage

insurance terminates. These amounts

include, without limitation, all

principal and interest payments

forborne under a payment forbearance

program made available to borrowers

experiencing a financial hardship due,

directly or indirectly, to the COVID–19

emergency, including one made

pursuant to the Coronavirus Economic

Stabilization Act, section 4022 (15

U.S.C. 9056). These amounts also

include, without limitation all other

principal and interest payments that are

due and unpaid by a borrower

experiencing financial hardship due,

directly or indirectly, to the COVID–19

emergency. For purposes of this

criterion, the term of the mortgage loan

means the term of the mortgage loan

according to the obligation between the

parties in effect when the borrower is

offered the loss mitigation option.

Second, any amounts that the borrower

may delay paying through the loss

mitigation option do not accrue interest;

the servicer does not charge any fee in

connection with the loss mitigation

option; and the servicer waives all

existing late charges, penalties, stop

payment fees, or similar charges

promptly upon the borrower’s

acceptance of the loss mitigation option.

Third, the borrower’s acceptance of the

loss mitigation offer must resolve any

prior delinquency. These criteria

maintain important protections for

borrowers and are intended to align

with the COVID–19 payment deferral

option announced by the Federal

Housing Finance Agency (FHFA),

discussed in part II, and other similar

programs.

The interim final rule also excludes

servicers from certain regulatory

requirements if a borrower accepts an

option offered pursuant to the new

exception. Specifically, the interim final

rule provides that the servicer is not

required to continue the reasonable

diligence efforts § 1024.41(b)(1)

otherwise requires or send the

acknowledgement notice § 1024.41(b)(2)

otherwise requires.

II. Background

A. The Bureau’s Regulation X Mortgage

Servicing Rules

In February 2013, the Bureau issued

the Mortgage Servicing Rules to

implement the Real Estate Settlement

Procedures Act of 1974,

4

and included

these rules in Regulation X.

5

The

Bureau later clarified and revised

Regulation X’s servicing rules through

several additional notice-and-comment

rulemakings.

6

In part, these rulemakings

were intended to address deficiencies in

servicers’ handling of delinquent

borrowers and loss mitigation

applications during and after the 2008

financial crisis.

7

When the housing

crisis began, servicers were faced with

historically high numbers of delinquent

mortgages, loan modification requests,

and in-process foreclosures in their

portfolios.

8

Many servicers lacked the

infrastructure, trained staff, controls,

and procedures needed to manage

effectively the flood of delinquent

mortgages they were obligated to

handle.

9

Inadequate staffing and

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10

See U.S. Gov’t Accountability Off., GAO–10–

634, Troubled Asset Relief Program: Further

Actions Needed to Fully and Equitably Implement

Foreclosure Mitigation Actions, at 14–16 (2010),

https://www.gao.gov/assets/310/305891.pdf;

Hearing on Problems in Mortgage Servicing from

Modification to Foreclosure Before the S. Comm. on

Banking, Housing, and Urban Affairs, 111th Cong.

54 (2010) (statement of Thomas J. Miller, Att’y Gen.

State of Iowa).

11

See generally 12 CFR 1024.41. Small servicers,

as defined in Regulation Z, 12 CFR 1026.41, are

generally exempt from these requirements. 12 CFR

1024.30(b)(1).

12

12 CFR 1024.41(b)(1) (requiring servicer to

exercise reasonable diligence in obtaining

documents and information to complete a loss

mitigation application); §1024.41(c)(1)(i) (requiring

evaluation of borrower for all loss mitigation

options available to the borrower if the servicer

receives a complete loss mitigation application

more than 37 days before a scheduled foreclosure

sale); and §1024.41(c)(2)(i) (prohibiting servicer

from offering a loss mitigation option based on an

evaluation of any information provided by a

borrower in connection with an incomplete loss

mitigation application). Small servicers, as defined

in Regulation Z, 12 CFR 1026.41, are not subject to

these requirements. 12 CFR 1024.30(b)(1).

13

12 CFR 1024.41(c)(2)(i).

14

78 FR at 10807.

15

Id. at 10814.

16

Id. at 10815.

17

12 CFR 1024.41(c)(2)(iii); see also comments

41(c)(2)(iii)–1 and –4 (defining short-term payment

forbearance program and short-term repayment plan

for purposes of the regulation).

18

78 FR at 60400; 81 FR at 72246. Section

1024.41(i) limits the circumstances when a servicer

must comply with the procedures described in

§1024.41. Servicers do not need to comply with the

procedures described in §1024.41 if the servicer

has previously complied with the requirements of

§1024.41 for a complete loss mitigation application

submitted by the borrower and the borrower has

been delinquent at all times since submitting the

prior complete application. Because a servicer who

offers a borrower a short-term option based on

evaluation of an incomplete application pursuant to

§1024.41(c)(2)(iii) has not evaluated a complete

application submitted by the borrower, a servicer

would have to comply with the procedures

described in §1024.41 if the borrower submits a

complete application after the servicer offers the

borrower a short-term payment forbearance

program.

19

U.S. Bureau of Labor Statistics, Labor Force

Statistics from the Current Population Survey,

https://www.bls.gov/ces (last visited June 6, 2020).

20

The CARES Act defines a ‘‘Federally backed

mortgage loan’’ as any loan which is secured by a

first or subordinate lien on residential real property

(including individual units of condominiums and

cooperatives) designed principally for the

occupancy of from one-to-four families that is

insured by the Federal Housing Administration

under title II of the National Housing Act (12 U.S.C.

1707 et seq.); insured under section 255 of the

National Housing Act (12 U.S.C. 1715z–20);

guaranteed under section 184 or 184A of the

Housing and Community Development Act of 1992

(12 U.S.C. 1715z–13a, 1715z–13b); guaranteed or

insured by the Department of Veterans Affairs;

guaranteed or insured by the Department of

Agriculture; made by the Department of

Agriculture; or purchased or securitized by the

Federal Home Loan Mortgage Corporation or the

Federal National Mortgage Association. CARES Act

section 4022(a)(2).

21

CARES Act section 4022(b). Upon receiving the

borrower’s request for forbearance, the servicer

must provide a forbearance for up to 180 days with

no additional documentation required other than

the borrower’s attestation to a financial hardship

caused by the COVID–19 emergency and with no

fees, penalties, or interest (beyond the amounts

scheduled or calculated as if the borrower made all

contractual payments on time and in full under the

terms of the mortgage contract) charged to the

borrower in connection with the forbearance. The

servicer must extend the forbearance for up to an

additional 180 days at the request of the borrower,

provided that the request for an extension is made

during the covered period. Note that the borrower

may request that either the initial or extended

forbearance period be less than 180 days. See

CARES Act section 4022(b) and (c)(1).

22

Such programs may be based on servicers’ own

programs or policy initiative or may be required by

State or local laws.

23

Joint Statement on Supervisory and

Enforcement Practices Regarding the Mortgage

Servicing Rules in Response to the COVID–19

Emergency and the CARES Act (Apr. 3, 2020),

https://files.consumerfinance.gov/f/documents/

cfpb_interagency-statement_mortgage-servicing-

rules-covid-19.pdf. On the same day, the Bureau

issued additional compliance guidance to provide

mortgage servicers with enhanced clarity about

existing flexibility in the Bureau’s mortgage

Continued

procedures led to a range of reported

problems with servicing of delinquent

loans, including some servicers

misleading borrowers, failing to

communicate with borrowers, losing or

mishandling borrower-provided

documents supporting loan

modification requests, and generally

providing inadequate service to

delinquent borrowers.

10

The Bureau’s mortgage servicing rules

addressed these concerns by

establishing procedures that mortgage

servicers generally must follow in

evaluating loss mitigation applications

submitted by mortgage borrowers.

11

Among other things, as relevant here,

Regulation X generally requires

servicers to obtain a complete loss-

mitigation application from a borrower

before offering the borrower a loss-

mitigation option, such as a loan

modification or short sale.

12

Servicers

generally may not offer a loss-mitigation

option based upon an evaluation of any

information provided in connection

with an incomplete application.

13

The

loss mitigation provisions were

motivated in part by concerns that some

servicers were doing an inadequate job

of communicating with borrowers

regarding loss mitigation options,

14

and

that some servicers were unwilling to

work with borrowers to reach agreement

on loss mitigation options.

15

The

Bureau intended this restriction to help

ensure that borrowers have a full and

fair opportunity to be evaluated for loss

mitigation options.

16

However, in issuing these

requirements, the Bureau recognized

that more flexible requirements may be

warranted when borrowers are facing

certain hardships. For example,

Regulation X provides flexibility for

servicers when they offer short-term

payment forbearance programs or short-

term repayment plans, as defined in

Regulation X, based upon an evaluation

of an incomplete application.

17

In

granting this flexibility, the Bureau

explained that borrowers facing only

temporary hardships might benefit from

a more efficient application process that

leads to a temporary solution without

exhausting the protections under

§ 1024.41 that are determined as of the

date a complete application is

received.

18

B. The CARES Act and COVID–19

Forbearances

By late March 2020, the COVID–19

emergency was significantly affecting

the economy. Between March 15 and

May 15, 2020, over 35 million people

filed initial jobless claims, and the

unemployment rate climbed to over 14

percent in April—the highest monthly

level since 1948 when the Bureau of

Labor and Statistics started tracking this

series.

19

On March 27, 2020, the CARES Act

was enacted. Among other things, the

CARES Act ensures that borrowers

experiencing a financial hardship due,

directly or indirectly, to the COVID–19

emergency and who have ‘‘Federally

backed mortgage loans’’

20

have access

to payment forbearance programs

(CARES Act forbearance) if they submit

a request to their mortgage servicer and

affirm that they are experiencing a

financial hardship during the COVID–19

emergency.

21

By requiring servicers to

grant CARES Act forbearances to certain

borrowers with federally backed

mortgages (which account for

approximately 80 percent of mortgage

borrowers), the CARES Act established

payment forbearance as the primary tool

that servicers of these loans would use

initially to assist struggling borrowers

during the COVID–19 emergency. The

Bureau understands that servicers of

other mortgages that are not ‘‘Federally

backed mortgage loans’’ under the

CARES Act may be offering similar

payment forbearance programs to their

borrowers.

22

On April 3, 2020, the Bureau, the

Board of Governors of the Federal

Reserve System (the Board), 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 issued

a joint statement (Joint Statement)

recognizing the serious impact the

COVID–19 emergency was having on

consumers and on the operations of

mortgage servicers.

23

The Joint

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servicing rules that they may use to help consumers

during the COVID–19 emergency. Bureau of

Consumer Fin. Prot., Bureau’s Mortgage Servicing

Rules FAQs related to the COVID–19 Emergency,

https://files.consumerfinance.gov/f/documents/

cfpb_mortgage-servicing-rules-covid-19_faqs.pdf.

24

Joint Statement, supra note 23.

25

Id. The Joint Statement also explained that

servicers may provide multiple sequential short-

term payment forbearance programs under the

Regulation X mortgage servicing rules.

26

Comment 41(c)(2)(iii)–1 explains that a short-

term payment forbearance program is a loss

mitigation option pursuant to which a servicer

allows a borrower to forgo making certain payments

or portions of payments for a period of time. A

short-term payment forbearance program for

purposes of §1024.41(c)(2)(iii) allows the

forbearance of payments due over periods of no

more than six months. Such a program would be

short-term regardless of the amount of time a

servicer allows the borrower to make up the missing

payments.

27

Joint Statement, supra note 23.

28

Mortgage Bankers Ass’n, Share of Mortgage

Loans in Forbearance Increases to 8.55%, https://

www.mba.org/2020-press-releases/june/share-of-

mortgage-loans-in-forbearance-increases-to-855.

29

Black Knight Fin. Servs., Mortgage Monitor

(Apr. 2020), https://www.bls.gov/ces/.

30

FHFA, FHFA Announces Payment Deferral as

New Repayment Option for Homeowners in COVID–

19 Forbearance Plans (May 13, 2020), https://

www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-

Announces-Payment-Deferral-as-New-Repayment-

Option-for-Homeowners-in-COVID-19-Forbearance-

Plans.aspx; HUD Mortgagee Letter 2020–06, https://

www.hud.gov/sites/dfiles/OCHCO/documents/20-

06hsngml.pdf.

31

FHFA, supra note 30.

32

Id.

33

Id. While initial forbearance under the CARES

Act and similar programs probably constitute short-

term payment forbearance programs under

§1024.41(c)(2)(iii), the anticipated repayments

arrangements may not constitute short-term

repayment plans under that section. See also Joint

Statement, supra note 23.

34

See Fannie Mae Lender Letter 2020–07, https://

singlefamily.fanniemae.com/media/22916/display;

Freddie Mac Bulletin 2020–15, https://

guide.freddiemac.com/app/guide/bulletin/2020-

15?_ga=2.76149522.621170394.1590694543-

1945440177.1590694543.

35

See id.

36

See id.

37

See id.

38

HUD Mortgagee Letter 2020–06, supra note 30.

39

See, e.g., JDSupra, Can Mortgage Servicers

Legally Offer the GSEs’ COVID deferral options?

(May 14, 2020), https://www.jdsupra.com/

legalnews/can-mortgage-servicers-legally-offer-

42513/.

Statement informed servicers of the

agencies’ flexible supervisory and

enforcement approach during the

emergency regarding certain consumer

communications required by Regulation

X, and provided guidance on servicers’

compliance with Regulation X when

offering CARES Act forbearances and

other payment forbearance programs

during the COVID–19 emergency.

24

The

Joint Statement explained that, when a

borrower requests a CARES Act

forbearance and affirms that the

borrower is experiencing a financial

hardship during the COVID-emergency,

it constitutes an incomplete loss

mitigation application for purposes of

Regulation X.

25

Although receipt of an

incomplete application generally

triggers a servicer’s obligations under

§ 1024.41, the Joint Statement also

provided that a CARES Act forbearance

qualifies as a short-term payment

forbearance program

26

under

Regulation X, so certain loss mitigation

requirements under Regulation X do not

apply.

27

By early June 2020, as a result of the

CARES Act and other similar

forbearance programs made available by

owners or investors of mortgage loans,

as many as 4.3 million mortgage

borrowers (or 8.55 percent of mortgage

borrowers) nationwide were in

forbearance programs.

28

After reaching a

historic low in January of 2020 (just

above 3 percent), the mortgage

delinquency rate (which includes loans

in forbearance) had more than doubled

by early June and was at its highest level

since 2013. The delinquency rate was

3.1 percentage points higher in April

than in March—a monthly increase

three times the previous record set in

November of 2008 during the great

recession.

29

C. COVID–19 Emergency: Post-

Forbearance Options and Post-

Delinquency Options

The CARES Act does not specify how

borrowers receiving CARES Act

forbearances must repay the forborne

payments. While there are good reasons

for this, it creates uncertainty for

stakeholders as to how borrowers must

repay these amounts when CARES Act

forbearances expire. As many initial

forbearance periods were set at 90 days,

many of them will expire in June or July

2020.

The Federal National Mortgage

Association (Fannie Mae), Federal

Home Loan Mortgage Company (Freddie

Mac), FHA, and other owners or

insurers of mortgage loans have

announced programs to assist borrowers

in repayment of the forborne amounts.

30

On May 13, 2020, FHFA announced that

Fannie Mae and Freddie Mac would

make a payment deferral program

available to borrowers in a COVID–19

forbearance plan (FHFA COVID–19

payment deferral) and to borrowers who

have experienced a financial hardship

resulting from COVID–19 that has

affected their ability to make their full

monthly payment.

31

FHFA indicated

that these programs will be available to

borrowers who are able to return to

making their normal monthly mortgage

payment.

32

According to FHFA, these

programs take the missed mortgage

payments and make them a payment

due at the sale of the home, refinancing

of the mortgage loan, or the end of the

loan.

33

Fannie Mae and Freddie Mac

have established streamlined

application procedures for these

programs that permit servicers to offer

an FHFA COVID–19 payment deferral

without collecting Fannie Mae’s and

Freddie Mac’s ‘‘complete Borrower

Response Package.’’

34

Rather, Fannie

Mae and Freddie Mac permit servicers

to offer FHFA COVID–19 payment

deferrals to any borrowers who meet

certain criteria if the borrower indicates

to the servicer that (1) the borrower can

afford to resume their normal monthly

payments due before the forbearance

and (2) the borrower cannot afford full

reinstatement or a repayment plan to

bring their mortgage loan current when

they exit forbearance.

35

Fannie Mae and

Freddie Mac prohibit servicers from

charging borrowers who accept an

FHFA COVID–19 payment deferral

administrative fees, and direct servicers

to waive all late charges, penalties, stop

payment fees, or similar charges upon

completing a COVID–19 payment

deferral.

36

This program takes effect on

July 1, 2020.

37

Other mortgage investors

and insurers have also announced

similar loss mitigation options.

38

After FHFA announced these deferral

programs, industry stakeholders and

consumer advocates raised concerns

about whether servicers could offer an

FHFA COVID–19 payment deferral

using the streamlined application

procedures described above without

violating Regulation X’s general

prohibition of offering a loss mitigation

option based on an evaluation of an

incomplete application.

39

The Bureau

has evaluated the interaction between

the FHFA payment deferral procedures

and Regulation X, and engaged in

informal outreach with FHFA, mortgage

servicers, trade associations, consumer

advocacy groups, and others. Industry

stakeholders and consumer advocates

urged the Bureau to take steps to ensure

that servicers would not be in violation

of Regulation X if they were to use the

streamlined procedures.

The Bureau supports the goal of the

FHFA’s COVID–19 payment deferral

program and certain other similar

programs designed to assist borrowers

experiencing financial hardships due,

directly or indirectly, to the COVID–19

emergency. Through these programs,

eligible borrowers can eliminate the

immediate potential risk of losing their

homes, resume repaying the mortgage

loan with no delinquency and no

additional fees or interest, and better

plan how eventually to repay the

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40

Public Law 111–203, 124 Stat. 1376 (2010).

41

81 FR 72160 (Oct. 19, 2016).

42

78 FR 10695 (Feb. 14, 2013).

43

5 U.S.C. 551 et seq., 701 et seq.

44

5 U.S.C. 553(b)(B).

45

5 U.S.C. 553(d)(3).

46

Borrowers who are not exiting forbearance may

be also be eligible for this program if their mortgage

loan became delinquent resulting from a financial

hardship due, directly or indirectly, to the COVID–

19 emergency. Due to the rising delinquency rate

discussed in part I, significant numbers of

borrowers who are not exiting forbearance could be

eligible.

47

As noted above, in the short period between the

FHFA’s announcement of its program and the

issuance of this rule, the Bureau has consulted with

stakeholders from industry, consumer groups, and

regulators regarding the interaction between the

FHFA’s program and the servicing rules. As also

noted above, industry stakeholders and consumer

advocates urged the Bureau to take steps to ensure

that servicers would not be in violation of

Regulation X if they were to use the streamlined

procedures.

forborne amount that servicers have

deferred. In addition, the streamlined

application procedures offered by

Fannie Mae, Freddie Mac, and others

may help ensure that servicers have

sufficient resources to address the

unusually large number of borrowers

who will be exiting CARES Act or

similar forbearances and may be seeking

assistance in the coming months. There

are circumstances where Regulation X

may require a servicer to collect a

complete application from a borrower

before offering this type of program.

However, that result may not serve the

particular needs of borrowers and

servicers during the COVID–19

emergency.

For these and the reasons discussed

below, the Bureau is amending

Regulation X to specify that servicers

may offer loss mitigation options that

meet certain criteria based on the

evaluation of an incomplete application,

and that servicers need not comply with

certain other Regulation X requirements

once the borrower accepts that option.

These criteria are intended to align with

the criteria outlined in FHFA’s COVID–

19 payment deferral and other

comparable programs, such as FHA’s

COVID–19 partial claim.

The Bureau believes that this

flexibility is appropriate during the

COVID–19 emergency, which presents

extraordinary circumstances. The

Bureau will evaluate comments received

under the interim final rule to

determine whether it is appropriate to

revise the amendments. The Bureau will

also continue to monitor the market to

assess consumers’ experiences under

these programs and the interim rule.

As part of this rulemaking, the Bureau

consulted with FHFA, the Board, FDIC,

NCUA, OCC, and the Department of

Housing and Urban Development.

III. Legal Authority

The Bureau is issuing this interim

final rule pursuant to its authority under

RESPA and the Dodd-Frank Wall Street

Reform and Consumer Protection Act

(Dodd-Frank Act),

40

including the

authorities discussed below. This

interim final rule amends a provision

previously adopted by the Bureau in the

2016 Mortgage Servicing Final Rule.

41

In doing so, the Bureau relied on one or

more of the authorities discussed below,

as well as other authority. The Bureau

is issuing this interim final rule in

reliance on the same authority and for

the same reasons relied on in adopting

the relevant provisions of the 2013

Mortgage Servicing Final Rule,

42

as

discussed in detail in the Legal

Authority and Section-by-Section

Analysis of the 2013 Mortgage Servicing

Final Rule.

A. Respa

Section 19(a) of RESPA, 12 U.S.C.

2617(a), authorizes the Bureau to

prescribe such rules and regulations, to

make such interpretations, and to grant

such reasonable exemptions for classes

of transactions, as may be necessary to

achieve the purposes of RESPA, which

include its consumer protection

purposes. In addition, section 6(j)(3) of

RESPA, 12 U.S.C. 2605(j)(3), authorizes

the Bureau to establish any

requirements necessary to carry out

section 6 of RESPA, section 6(k)(1)(E) of

RESPA, and 12 U.S.C. 2605(k)(1)(E), and

authorizes the Bureau to prescribe

regulations that are appropriate to carry

out RESPA’s consumer protection

purposes. The consumer protection

purposes of RESPA include ensuring

that servicers respond to borrower

requests and complaints in a timely

manner and maintain and provide

accurate information, helping borrowers

avoid unwarranted or unnecessary costs

and fees and facilitating review for

foreclosure avoidance options. The

amendments to Regulation X in this

interim final rule are intended to

achieve some or all these purposes.

B. Dodd-Frank Act

Section 1022(b)(1) of the Dodd-Frank

Act, 12 U.S.C. 5512(b)(1), authorizes the

Bureau to prescribe rules ‘‘as may be

necessary or appropriate to enable the

Bureau to administer and carry out the

purposes and objectives of the Federal

consumer financial laws, and to prevent

evasions thereof.’’ RESPA is a Federal

consumer financial law.

IV. Administrative Procedure Act

Under the Administrative Procedure

Act,

43

notice and opportunity for public

comment are not required if the Bureau

for good cause finds that notice and

public comment are impracticable,

unnecessary, or contrary to the public

interest.

44

Similarly, publication of this

interim final rule at least 30 days before

its effective date is not required where

the Bureau has identified good cause for

a different effective date.

45

The Bureau finds that prior notice and

public comment are impracticable

because there is insufficient time to

solicit comment and finalize

amendments between the FHFA’s

announcement of its COVID–19

payment deferral program on May 13,

2020, and its effective date of July 1,

2020. As discussed more fully in part II,

the economic effects of the COVID–19

emergency have resulted quickly in

major challenges in the mortgage

market. Congress enacted the CARES

Act in late March, making forbearances

available to many borrowers with

federally backed mortgages, which

account for approximately 80 percent of

the mortgage market.

Because the CARES Act does not

specify how borrowers provided CARES

Act forbearances will repay the forborne

payments, Fannie Mae, Freddie Mac,

FHA, and other owners or insurers of

mortgage loans worked quickly after

they placed borrowers in these

forbearances to devise loss mitigation

options for borrowers who could not

afford to repay the forborne amounts in

a lump sum at the conclusion of the

forbearance period. FHFA, Fannie Mae,

and Freddie Mac announced a COVID–

19 post-forbearance program, the

COVID–19 payment deferral, on May 13,

2020.

46

These programs take effect on

July 1, 2020, and, because significant

numbers of borrowers entered 90-day

forbearances in late March and early

April, this coincides with when many

borrowers’ forbearance periods will end.

Thus, starting on July 1, 2020—absent

immediate action by the Bureau—

servicers would have to reconcile

FHFA’s COVID–19 payment deferral

programs with the anti-evasion

requirement in the servicing rules. As a

practical matter, servicers would not be

able to offer the payment deferral to

some borrowers without first having

them complete their loss mitigation

applications, a step that would delay or

obstruct relief to borrowers and frustrate

the purpose and immediate need for the

program.

47

It is critical that the Bureau’s

temporary revision to Regulation X be in

effect when these forbearance programs

take effect to ensure that borrowers and

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See, Mortgage Bankers Ass’n, MBA Survey

Shows Spike in Loans in Forbearance and Servicer

Call Volume, https://www.mba.org/2020-press-

releases/april/mba-survey-shows-spike-in-loans-in-

forbearance-servicer-call-volume.

49

Small servicers, as defined in Regulation Z, 12

CFR 1026.41, are not subject to this requirement. 12

CFR 1024.30(b)(1).

50

Id.

51

FHFA, supra note 30; HUD Mortgagee Letter

2020–06, supra note 30.

mortgage servicers can take advantage of

these programs.

Thus, prior public comment is

impractical because there is insufficient

time to solicit comment and finalize

amendments before FHFA’s COVID–19

payment deferral programs take effect

on July 1, 2020.

For similar reasons, the Bureau also

finds that delaying this rulemaking to

allow for prior public comment would

be contrary to the public interest,

because the amendments are necessary

to avoid the harm to borrowers and to

the housing market that would result if

the amendments did not take effect on

July 1, 2020. As discussed above in part

II, the Bureau believes that the FHFA

COVID–19 payment deferral program

and other comparable programs,

described more fully in part V, will

benefit both borrowers and servicers

during the current COVID–19

emergency. These programs will help

eligible borrowers avoid foreclosure by

quickly entering an agreement regarding

repayment of their forborne payments.

Absent these streamlined procedures,

servicers likely would require borrowers

to submit a complete loss mitigation

application before servicers would

consider them for these programs. This

could result in significant delays before

borrowers can be offered the payment

deferral program. In some cases,

borrowers might not complete a loss

mitigation application, which could

prolong their delinquency, increase

their costs, and put them at imminent

risk of foreclosure. Given the large

number of mortgage borrowers currently

in forbearance or experiencing a

delinquency related to the COVID–19

emergency, even a small fraction of

those borrowers experiencing

foreclosure could translate to large

aggregate consequences. For instance, as

noted above, approximately four million

borrowers have entered forbearance

since March 2020. Even if only one-

tenth of 1 percent of these borrowers

would experience foreclosure absent a

deferral, that would translate to

thousands of additional foreclosures.

Thus, avoiding foreclosures may help

prevent significant consequences for the

housing market and imposing costs both

on borrowers and servicers.

In addition, the streamlined

procedures permitted for FHFA’s

COVID–19 payment deferral program

would minimize the burden on servicers

by allowing them to offer the payment

deferral program without obtaining and

processing a complete application from

the borrower. This is especially

important during the COVID–19

emergency because servicers will be

transitioning many borrowers from

forbearances to longer term solutions at

the same time, potentially

overwhelming servicers’ systems and

delaying providing relief to borrowers.

Indeed, the Bureau understands that

servicers have already begun receiving

abnormally high call volumes,

beginning in March 2020.

48

For these same reasons, the Bureau

also finds that there is good cause for

this interim final rule to be effective less

than 30 days after publication, to ensure

that these amendments are in effect by

the July 1, 2020 effective date of the

FHFA COVID–19 payment deferral, to

avoid harm to borrowers and to the

housing market.

V. Section-by-Section Analysis

Section 1024.41 Loss Mitigation

Procedures

41(c) Evaluation of loss mitigation

applications

41(c)(2) Incomplete loss mitigation

application evaluation

41(c)(2)(i) In general

Section 1024.41(c)(2)(i) states that, in

general, servicers shall not evade the

requirement to evaluate a complete loss

mitigation application for all loss

mitigation options available to the

borrower by making an offer based upon

an incomplete application.

49

Currently,

the provision points to two paragraphs

providing exceptions to the anti-evasion

requirement, § 1024.41(c)(2)(ii) and (iii).

In this interim final rule, the Bureau is

adding a temporary exception under

new § 1024.41(c)(2)(v). As described in

the section-by-section analysis of

§ 1024.41(c)(2)(v), the new exception

applies to certain loss mitigation

options that permit borrowers to delay

repayment of forborne or delinquent

amounts accrued due to the COVID–19

emergency. The Bureau is amending

§ 1024.41(c)(2)(i) to include a reference

to the new exception in paragraph

(c)(2)(v).

41(c)(2)(v) Certain COVID–19-Related

Loss Mitigation Options

In general, § 1024.41 requires

servicers to evaluate a complete loss

mitigation application for all loss

mitigation options available to the

borrower.

50

In this interim final rule, the

Bureau is adding a temporary exception

to this requirement under new

§ 1024.41(c)(2)(v) for certain loss

mitigation options that permit

borrowers to delay repayment of

forborne or delinquent amounts accrued

during a COVID–19-related forbearance.

As described in the respective section-

by-section analyses, new

§ 1024.41(c)(2)(v)(A) sets forth the

minimum specific criteria that the loss

mitigation option must meet for the new

exception to apply, and new

§ 1024.41(c)(2)(v)(B) offers servicers

relief from certain regulatory

requirements when a borrower accepts a

loss mitigation option under the new

exception.

As discussed in part II, FHFA, FHA,

and others have recently announced

loss mitigation options to assist

borrowers experiencing hardships

related to the COVID–19 emergency in

repaying amounts that accrued through

forbearance or delinquency.

51

In

general, these programs permit

borrowers who can resume their normal

periodic payments to move the forborne

or delinquent payments to the end of

the mortgage loan and cure any

preexisting delinquency. Under those

programs, the deferred amounts must

not accrue interest, servicers may not

charge any fee in connection with the

loss mitigation option and must waive

various preexisting fees, if applicable,

and servicers are permitted to offer the

deferral programs to borrowers based on

streamlined application procedures.

The Bureau believes that the FHFA

COVID–19 payment deferral and certain

similar programs would provide

benefits both to borrowers and servicers

during the COVID–19 emergency.

Through these programs, borrowers who

can resume their normal periodic

payments but who cannot afford to

repay the forborne or delinquent

amounts in the short-term should be

able to eliminate the immediate

potential risk of losing their homes to

foreclosure, resume repaying the

mortgage loan with no delinquency and

no additional fees or interest, and better

plan how eventually to repay the

forborne or delinquent amount that has

been deferred.

In addition, the streamlined

application procedures authorized by

Fannie Mae and Freddie Mac should

help ensure that servicers have

sufficient resources to address requests

from the unusually large number of

borrowers who will be seeking

assistance from them in the coming

months as many CARES Act

forbearances end. And borrowers

dealing with the social and economic

effects of COVID–19 may be less likely

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78 FR at 10828.

53

Id.

54

New §1024.41(c)(2)(v)(A) states that ‘‘COVID–

19 emergency’’ has the same meaning as under

CARES Act section 4022(a)(1).

than they would be under normal

circumstances to take the steps

necessary to complete a loss mitigation

application to receive a full evaluation.

This could prolong their delinquencies

and put them at risk for foreclosure.

Moreover, by allowing servicers to assist

borrowers eligible for deferrals more

efficiently, servicers will have more

resources to assist borrowers who are

unable to resume making their normal

periodic payment, and are therefore

ineligible for a FHFA COVID–19

payment deferral, submit a complete

loss mitigation application for

evaluation.

The Bureau acknowledges that

borrowers accepting a loss mitigation

offer under new § 1024.41(c)(2)(v)(A)

will not receive protections under

§ 1024.41 that are critical in other

circumstances. As the Bureau explained

in the 2013 Mortgage Servicing Final

Rule, the general prohibition against

evaluating a borrower for all available

loss mitigation options based on a

single, complete application ensures

that borrowers have a full

understanding of their loss mitigation

options when deciding on a program.

52

It also makes the loss mitigation

application process more efficient by

eliminating multiple, sequential

evaluations that are sometimes based on

similar application information,

53

with

the resulting efficiency often saving

borrowers time and resources.

Nonetheless, the Bureau believes that

the protections set forth in new

§ 1024.41(c)(2)(v)(A) and (B), described

below, provide sufficient safeguards for

borrowers in the narrow context of the

COVID–19 emergency. The Bureau

solicits comment on all aspects of the

new exception.

41(c)(2)(v)(A)

New § 1024.41(c)(2)(v)(A) permits

servicers to offer a loss mitigation

option based upon an evaluation of an

incomplete application, as long as the

loss mitigation option meets the criteria

set forth in § 1024.41(c)(2)(v)(A)(1)

through (3). Under new

§ 1024.41(c)(2)(v)(A)(1), the loss

mitigation option must permit the

borrower to delay paying covered

amounts until the mortgage loan is

refinanced, the mortgaged property is

sold, the term of the mortgage loan ends,

or, for a mortgage insured by FHA, the

mortgage insurance terminates. New

§ 1024.41(c)(2)(v)(A)(1) defines ‘‘covered

amounts’’ for these purposes to include,

without limitation, all principal and

interest payments forborne under a

payment forbearance program made

available to borrowers experiencing a

financial hardship due, directly or

indirectly, to the COVID–19

emergency,

54

including a payment

forbearance program made pursuant to

the CARES Act. ‘‘Covered amounts’’

under § 1024.41(c)(2)(v)(A)(1) also

includes, without limitation, all other

principal and interest payments that are

due and unpaid by a borrower

experiencing a similar financial

hardship. And ‘‘the term of the mortgage

loan’’ under § 1024.41(c)(2)(v)(A)(1)

means the loan term according to the

obligation between the parties in effect

when the borrower is offered the loss

mitigation option under the new

exception.

Under new § 1024.41(c)(2)(v)(A)(2),

any amounts that the borrower may

delay paying as described in paragraph

(c)(v)(2)(A)(1) must not accrue interest;

the servicer must not charge any fee in

connection with the loss mitigation

option; and the servicer must waive all

existing late charges, penalties, stop

payment fees, or similar charges

promptly upon the borrower’s

acceptance of the loss mitigation option.

And, under § 1024.41(c)(2)(v)(A)(3), the

borrower’s acceptance of the offer must

end any preexisting delinquency.

The criteria in § 1024.41(c)(2)(v)(A)(1)

through (3) provide borrowers with

safeguards to ensure that borrowers are

sufficiently protected when receiving a

loss mitigation offer described in

§ 1024.41(c)(2)(v)(A) without an

evaluation of a complete loss mitigation

application. First, to qualify for the

exception, new § 1024.41(c)(2)(v)(A)(1)

requires that any forborne or delinquent

principal or interest payments be moved

to the end of the loan or, for loans that

FHA insures, until the mortgage

insurance terminates. This ensures that

borrowers in forbearance programs will

not face a balloon payment immediately

after the forbearance period ends, and it

will ease the financial strain of having

to make additional periodic payments to

catch up on a mortgage loan for

delinquent borrowers who are not in

forbearance. The alternatives could

exacerbate borrowers’ hardships and

lead to foreclosure. As a result of the

eligibility criteria under new

§ 1024.41(c)(2)(v)(A)(1), many borrowers

receiving a loss mitigation option under

§ 1024.41(c)(2)(v)(A) will have years to

plan to address the deferred payments.

This may be particularly important

during the COVID–19 emergency, as

many borrowers may be facing extended

periods of economic uncertainty.

The Bureau notes that new

§ 1024.41(c)(2)(v)(A)(1) allows for some

flexibility among loss mitigation options

that may qualify for the exception. For

example, although the loss mitigation

options must defer all forborne or

delinquent principal and interest

payments under new

§ 1024.41(c)(2)(v)(A)(1), the rule does

not specify how servicers must treat any

forborne or delinquent escrow amounts.

A loss mitigation option would qualify

for the new exception if it defers

repayment of escrow amounts, in

addition to principal and interest

payments, as long as it otherwise

satisfies new § 1024.41(c)(2)(v)(A).

New § 1024.41(c)(2)(v)(A)(1) is also

flexible with respect to repayment

requirements—it does not specify how a

servicer must structure repayment of the

deferred amounts. Requiring repayment

either in a lump sum or over a specified

period at the end of the loan term

through additional periodic payments,

among other possible approaches,

would satisfy new

§ 1024.41(c)(2)(v)(A)(1). The Bureau

notes that the provision specifically

defines the mortgage loan term for these

purposes to mean the loan term in effect

when the borrower is offered the loss

mitigation option. As a result, the

exception under new

§ 1024.41(c)(2)(v)(A) is available for

eligible loss mitigation options that

would technically extend the term of

the loan in accommodating repayment

of forborne or delinquent amounts.

The Bureau also notes that new

§ 1024.41(c)(2)(v)(A)(1) provides a

standard specific to loans insured by

FHA. This is intended to ensure that the

new exception extends to certain loss

mitigation options available for FHA

loans. The Bureau understands that

FHA permits servicers to offer loss

mitigation options that would otherwise

satisfy the criteria of

§ 1024.41(c)(2)(v)(A) based on an

evaluation of an incomplete loss

mitigation application, and that these

options would generally provide similar

benefits to borrowers and servicers as

other loss mitigation options offered

under § 1024.41(c)(2)(v)(A). In some

circumstances, these loss mitigation

options would require repayment when

the mortgage insurance terminates. The

FHA-specific standard in new

§ 1024.41(c)(2)(v)(A)(1) ensures that

such repayment requirements do not

exclude these loss mitigation options

from the new exception.

Second, for the exception to apply,

new § 1024.41(c)(2)(v)(A)(2) requires

that (1) any amounts that the borrower

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After the borrower accepts a loss mitigation

option under new §1024.41(c)(2)(v)(A), if a periodic

payment sufficient to cover principal, interest, and,

if applicable, escrow becomes due and unpaid, a

new delinquency would begin. See generally 12

CFR 1024.31(definition of delinquency).

56

Press Release, Freddie Mac Announces COVID–

19 Payment Deferral (May 13, 2020), https://

freddiemac.gcs-web.com/news-releases/news-

release-details/freddie-mac-announces-covid-19-

payment-deferral?_ga=2.125995917.1203641316.

1592241885-952089942.1591127071; see also

Fannie Mae Lender Letter (LL–2020–07) (as

updated on June 10, 2020), https://

singlefamily.fanniemae.com/media/22916/display;

FHA Mortgagee Letter 2020–06 (Apr. 1, 2020),

https://www.hud.gov/sites/dfiles/OCHCO/

documents/20-06hsngml.pdf.

57

Mortgage Bankers Ass’n, supra note 28.

58

Id.

59

12 CFR 1024.41(i).

may delay paying as part of the loss

mitigation agreement do not accrue

interest, (2) the servicer charges no fee

in connection with the loss mitigation

option, and (3) the servicer waives a

variety of other fees promptly upon the

borrower’s acceptance. This

requirement will prevent the

application of standards that impose

additional economic hardship on

borrowers, better enabling the borrowers

to address other financial needs during

the COVID–19 emergency.

Third, for the exception to apply, new

§ 1024.41(c)(2)(v)(A)(3) requires that the

borrower’s acceptance of the offer end

any preexisting delinquency.

55

This

ensures that borrowers who accept a

loss mitigation option under new

§ 1024.41(c)(2)(v)(A) do not face a risk of

imminent foreclosure because, under

existing § 1024.41(f)(1)(i), servicers are

generally prohibited from making the

first notice or filing required under

applicable law to initiate the foreclosure

process until a mortgage loan obligation

is more than 120 days delinquent.

The Bureau understands that the

FHFA COVID–19 payment deferral and

FHA’s COVID–19 partial claim, both of

which are described in part II, satisfy

the criteria in new

§ 1024.41(c)(2)(v)(A)(1) through (3).

These programs have included these

criteria to assist borrowers in addressing

financial hardships caused by the

COVID–19 emergency, in part by

helping to keep their mortgage loans

current following the hardship.

56

The

Bureau notes, however, that the

exception is not limited to those

programs. Servicers may offer loss

mitigation options under other

programs, as long as the loss mitigation

options meet the criteria described in

§ 1024.41(c)(2)(v)(A).

41(c)(2)(v)(B)

New § 1024.41(c)(2)(v)(B) provides

servicers relief from certain regulatory

requirements if a borrower accepts an

offer made pursuant to new

§ 1024.41(c)(2)(v)(A). It states that, in

that scenario, the servicer is not

required to comply with § 1024.41(b)(1)

or (2) with regard to any loss mitigation

application the borrower submitted

prior to the servicer’s offer of the loss

mitigation option described in new

§ 1024.41(c)(2)(v)(A).

Section 1024.41(b)(1) and (2)

generally sets forth servicers’ obligations

upon first receiving a borrower’s loss

mitigation application. Section

1024.41(b)(1) generally requires a

servicer to exercise reasonable diligence

in obtaining documents and information

to complete the loss mitigation

application. Section 1024.41(b)(2)

generally requires the servicer to review

the application to assess completeness

and provide a written notice within five

days (excluding legal public holidays,

Saturdays, and Sundays) stating, among

other things, that the servicer has

determined that the loss mitigation

application is either complete or

incomplete; the additional documents

and information the borrower must

submit to make the application

complete, if applicable; a reasonable

date by which the borrower should

submit the additional documents and

information; and a statement that the

borrower should consider contacting

servicers of any other mortgage loans

secured by the same property to discuss

available loss mitigation options.

These protections are part of a

regulatory regime designed to ensure

that borrowers generally receive an

evaluation for all available loss

mitigation options based upon a single

application. As explained in the section-

by-section analysis of new

§ 1024.41(c)(2)(v)(A), this regulatory

regime is intended to give borrowers

information about their loss mitigation

options when deciding on a program

and make the application process more

efficient, which can save borrowers time

and resources.

Notwithstanding these important

benefits, however, the Bureau believes

that, in the context of a loss mitigation

offer under new § 1024.41(c)(2)(v)(A),

the protections under § 1024.41(b)(1)

and (2) introduce undue burden for both

servicers and borrowers attempting to

navigate the unusual challenges caused

by the COVID–19 emergency. Servicers

are currently dealing with an

abnormally high number of requests for

loss mitigation assistance due to the

pandemic. According to the Mortgage

Bankers Association (MBA), between

early March and early June 2020,

approximately four million borrowers

entered into forbearance programs.

57

Over that period, the percentage of all

mortgage loans in forbearance increased

from 0.19 percent to 8.55 percent.

58

If

servicers were required to exercise

reasonable diligence to obtain a

complete application for each of these

borrowers when they exit the

forbearance programs, as required under

§ 1024.41(b)(1), or to provide borrower-

specific notifications of the documents

and information each individual

applicant must submit to complete the

application, as required under

§ 1024.41(b)(2), it would likely interfere

with their ability to provide effective

and efficient assistance. And borrowers

dealing with the social and economic

effects of the COVID–19 emergency may

be less likely than normal to take the

steps necessary to complete a loss

mitigation application to receive a full

evaluation. The Bureau notes that, if a

borrower does wish to pursue a

complete application and receive the

full protections of § 1024.41, they may

do so notwithstanding new

§ 1024.41(c)(2)(v).

The Bureau stresses that servicers are

required to comply with § 1024.41,

including § 1024.41(b)(1) and (2), if the

borrower submits a new application

after accepting a loss mitigation option

under new § 1024.41(c)(2)(v)(A). In

general, servicers are required to comply

with § 1024.41 if a borrower submits a

loss mitigation application, unless the

servicer has previously complied in

connection with a complete application

submitted by the borrower and the

borrower has been delinquent at all

times since submitting that complete

application.

59

If a borrower has accepted

a loss mitigation option offered under

new § 1024.41(c)(2)(v)(A), neither of

these elements will be present the first

time the borrower submits a later loss

mitigation application. The exception

described under new

§ 1024.41(c)(2)(v)(A) is available only if

the loss mitigation application is

incomplete and, under new

§ 1024.41(c)(2)(v)(A)(3), the borrower’s

acceptance of the option ends any

preexisting delinquency of the

borrower’s mortgage loan account. As a

result, servicers must comply with the

requirements of § 1024.41 for the first

later application, which may occur

during the same conversation in which

the borrower accepts the offer under

§ 1024.41(c)(2)(v)(A).

Additionally, servicers may be

required to comply with early

intervention obligations if a borrower’s

mortgage loan account becomes

delinquent after a loss mitigation option

takes effect under

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Small servicers, as defined in Regulation Z, 12

CFR 1026.41, are not subject to these requirements.

12 CFR 1024.30(b)(1).

61

See 12 CFR 1024.39(a) and (b). Also, servicers

are to have policies and procedures in place to

advise borrowers of all of their loss mitigation

options. 12 CFR 1024.38. During the COVID–19

emergency, one of the loss mitigation options to be

presented to borrowers with federally backed

mortgages is their right to CARES Act forbearance.

62

See 12 CFR 1024.41(c)(2)(iii).

63

The early intervention written notice is

generally required no later than the 45th day of a

borrower’s delinquency. 12 CFR 1024.39(b). If a

borrower is delinquent during a forbearance

program, the servicer will likely be required to

provide the written notice to the borrower.

64

Specifically, section 1022(b)(2)(A) of the Dodd-

Frank Act (12 U.S.C. 5512(b)(2)(A)) requires the

Bureau to consider the potential benefits and costs

of the regulation to consumers and covered persons,

including the potential reduction of access by

consumers to consumer financial products or

services; the impact of the proposed rule on insured

depository institutions and insured credit unions

with $10 billion or less in total assets as described

in section 1026 of the Dodd-Frank Act (12 U.S.C.

5516); and the impact on consumers in rural areas.

65

Section 1022(b)(2)(B) of the Dodd-Frank Act (12

U.S.C. 5512(b)(2)(B)) requires that the Bureau

consult with the appropriate prudential regulators

or other Federal agencies prior to proposing a rule

and during the comment process regarding

consistency of the proposed rule with prudential,

market, or systemic objectives administered by such

agencies.

66

The Bureau has discretion in any rulemaking

to choose an appropriate scope of analysis with respect to potential benefits, costs, and impacts and

an appropriate baseline.

§ 1024.41(c)(2)(v)(A).

60

These include

live contact and written notification

obligations that, in part, require

servicers to inform borrowers of the

availability of additional loss mitigation

options and how the borrowers can

apply.

61

Further, the Bureau believes that a

borrower whose mortgage loan account

becomes delinquent following

acceptance of a loss mitigation option

under § 1024.41(c)(2)(v)(A) will have

sufficient notice that other options may

be available should the borrower wish

to submit another application. In

general, borrowers who previously

received a forbearance will have

received at least two written

notifications earlier in the loss

mitigation process, as required under

Regulation X: (1) The written notice

required under § 1024.41(b)(2) when the

borrower submits the initial application

requesting forbearance, and (2) written

notification of the terms and conditions

of the forbearance program, required

under § 1024.41(c)(2)(iii), stating that

the servicer offered the program based

on evaluation of an incomplete

application, that other loss mitigation

options may be available, and that the

borrower still has the option to submit

a complete application to receive an

evaluation for all available options.

62

Additionally, many borrowers receiving

an offer under § 1024.41(c)(2)(v)(A) are

likely to have received early

intervention efforts by their servicers,

including the written notice required

under Regulation X stating, among other

things, a brief description of examples

of loss mitigation options that may be

available, as well as application

instructions or a statement informing

the borrower how to obtain more

information about loss mitigation

options from the servicer.

63

In light of these protections, as well

as the safeguards set forth in new

§ 1024.41(c)(2)(v)(A), the Bureau

believes the requirements of

§ 1024.41(b)(1) and (2) would introduce

burden for servicers and borrowers that

is unnecessary in this limited context.

VI. Request for Comment

The Bureau invites comment on this

interim final rule. The Bureau is

particularly interested in whether the

amendments appropriately balance

providing flexibility to servicers to offer

relief quickly during the COVID–19

emergency with providing important

protections for borrowers engaged in the

loss mitigation application process,

such as protections from foreclosure.

The Bureau also seeks comment on

whether to require written disclosures

for this, or any similar exceptions that

the Bureau may authorize in the future.

The Bureau also seeks comment on

whether the Bureau should extend the

exception established in new

§ 1024.41(c)(3)(v) to other post-

forbearance loss mitigation options

made available to borrowers affected by

other types of disasters and

emergencies.

VII. Effective Date

This interim final rule is effective on

July 1, 2020.

VIII. Dodd-Frank Act Section 1022(b)

Analysis

In developing this interim final rule,

the Bureau has considered the potential

benefits, costs, and impacts as required

by section 1022(b)(2) of the Dodd-Frank

Act.

64

In developing this interim final

rule, the Bureau has consulted with

appropriate Federal agencies regarding

the consistency of this final rule with

prudential, market, or systemic

objectives administered by such

agencies as required by section

1022(b)(2)(B) of the Dodd-Frank Act.

65

The Bureau considered the benefits,

costs, and impacts of this interim final

rule against a baseline in which the

Bureau takes no action. The baseline

under this approach includes the

CARES Act and the forbearances that

have already been granted under the

CARES Act and substantially similar

programs.

66

In considering the relevant potential

benefits, costs, and impacts of this

interim final rule, the Bureau has used

feedback received to date and its

knowledge of consumer financial

markets. The discussion below of these

potential costs, benefits, and impacts is

partly qualitative, reflecting the

specialized nature of the amendments.

The Bureau requests comment on this

discussion generally, as well as the

submission of data or other information

that could inform the Bureau’s

consideration of the potential benefits,

costs, and impacts of the interim final

rule.

The interim final rule’s provisions

generally would decrease burden

incurred by industry participants and

benefit consumers by providing a

limited exception to the general

requirement under § 1024.41 for

borrowers to submit a complete loss

mitigation application before servicers

may offer any loss mitigation option

based on the evaluation of an

incomplete application. Under the

interim final rule, this limited exception

would be available for loss mitigation

options that permit payments forborne

under an eligible forbearance, as well as

payments that are due and unpaid,

related to the COVID–19 emergency to

be deferred to the end of the mortgage

loan. As is described in more detail

below, the Bureau does not believe that

these changes would restrict consumer

access to consumer financial products

and services relative to what would

occur under the baseline.

Exception to Regulation X anti-

evasion provision allowing FHFA

COVID–19 payment deferrals without a

complete loss mitigation application.

The interim final rule revises

§ 1024.41(c)(2)(i) and adds

§ 1024.41(c)(2)(v) to allow servicers to

offer a payment deferral, or a similar

loss mitigation option in certain

circumstances based on the evaluation

of an incomplete loss mitigation

application. In general, for the exception

to apply, borrowers must already have

received a forbearance or delinquency

related to the COVID–19 emergency, the

forborne or delinquent payments must

be deferred to the end of the mortgage

loan without accruing interest and with

a variety of fees waived, and the

borrower’s acceptance must end any

preexisting delinquency. The Bureau

understands that the FHFA COVID–19

payment deferral and FHA’s COVID–19

partial claim satisfy the criteria,

although the interim final rule is not

limited to these programs.

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The Bureau notes as well that one of the

eligibility criteria for the Fannie Mae and Freddie

Mac programs is that the borrower states that they

are able to resume payments under the original

terms of the mortgage. The Bureau expects that

borrowers in those circumstances generally will not

require other types of loss mitigation.

68

12 CFR 1024.41(f)(1)(i).

69

Press Release, Freddie Mac Announces

COVID019 Payment Deferral (May 13, 2020),

https://freddiemac.gcs-web.com/news-releases/

news-release-details/freddie-mac-announces-covid-

19-payment-deferral?_ga=2.125995917.1203641316.

1592241885-952089942.1591127071; see also

Fannie Mae Lender Letter (LL–2020–07) (as

updated on June 10, 2020), https://

singlefamily.fanniemae.com/media/22916/display;

FHA Mortgagee Letter 2020–06 (Apr. 1, 2020),

https://www.hud.gov/sites/dfiles/OCHCO/

documents/20-06hsngml.pdf.

As noted above, § 1024.41(c)(2)(i), in

part, prohibits evasion of the

requirement for servicers to evaluate

borrowers for all available loss

mitigation options in a single

application once they have received a

complete application. In the 2013

Mortgage Servicing Final Rule, the

Bureau explained its view that

borrowers would benefit from this

requirement, in part because borrowers

would generally be better able to choose

among available loss mitigation options

if they are presented simultaneously.

This interim final rule is unlikely to

affect this benefit in most cases, given

the narrow scope and particular

circumstances of the exception. Even if

a borrower may be interested in and

eligible for another form of loss

mitigation besides a deferral, receiving a

deferral would not generally remove the

borrower’s right under § 1024.41 to

submit a complete loss mitigation

application and receive an evaluation

for all available options after the

deferral is in place. Moreover, in the

specific case of the FHFA COVID–19

payment deferral program, in practice,

the incomplete applications that may

result in deferrals will generally be

created as a result of servicer outreach

specifically for the purposes of granting

a deferral: Fannie Mae and Freddie Mac

have directed their servicers to

proactively reach out to borrowers

currently under a CARES Act

forbearance and to grant deferrals to all

eligible borrowers.

67

Further, to be

eligible for the exception under new

§ 1024.41(c)(2)(v)(A), a loss mitigation

option must bring the loan current. In

most cases, borrowers must be more

than 120 days delinquent before a

servicer may make the first notice or

filing required under applicable law to

initiate foreclosure proceedings.

68

Thus,

if a borrower wishes to pursue another

loss mitigation option after accepting

the deferral, the borrower will still have

a considerable amount of time to

complete a loss mitigation application

before they would be at risk for

foreclosure. In summary, in these

specific circumstances, the Bureau

believes that allowing servicers to grant

deferrals without a complete loss

mitigation application will not

materially affect borrowers’ ability to

choose among available loss mitigation

options.

Borrowers will likely benefit from the

new exception to the extent that they

are more able to receive a payment

deferral without having to submit a

complete loss mitigation application. In

most cases, this will result in a

reduction in the time necessary to

gather required documents and

information. In some cases, if borrowers

would not otherwise complete a loss

mitigation application and could not

otherwise obtain relief with respect to

the forborne or delinquent payments,

the interim final rule will enable

borrowers to obtain the deferral in the

first place. Without a deferral, borrowers

may need to repay the forborne or

delinquent payments immediately.

Borrowers who can do so would use

savings, sell assets, or incur additional

debt. Borrowers who cannot

immediately repay the forborne or

delinquency balances could suffer

foreclosure or other negative

consequences. Thus, for borrowers who

obtain a deferral under the new

exception, the benefit of the provision

is, at a minimum, the interest on savings

or asset appreciation that need not be

foregone or the borrowing costs that

need not be incurred. For other

borrowers, the benefit of the provision

is the value of preventing delinquency

fees and foreclosure.

The Bureau does not have data

available to predict what fraction of

borrowers currently under a forbearance

or delinquency related to the COVID–19

emergency would not be able to

complete a loss mitigation application if

required to complete the application in

order to receive a deferral offer.

However, the Bureau believes that in the

present circumstances that percentage

could be substantial due to limitations

in servicer capacity. As discussed

above, data from the MBA indicates that

as of June 7, 2020, roughly 8.55 percent

of all mortgages were currently in

forbearance, a total of about 4.3 million

loans, almost all of which entered

forbearance following the passage of the

CARES Act and thus could exit

forbearance around the same time.

Processing complete loss mitigation

applications for all these borrowers in a

short period of time would likely strain

many servicers’ resources. This might

lead to more borrowers who have

incomplete applications that never

reach completion and who fail to get a

deferral under the baseline compared to

what might occur under standard

market conditions. The Bureau also

does not have data available to predict

how many borrowers currently in a

forbearance or a delinquency related to

the COVID–19 emergency would

experience foreclosure but for a

payment deferral offered under the

exception in this interim final rule.

Covered persons will benefit from the

reduction in burden from the

requirement to process complete loss

mitigation applications for deferrals

described in § 1024.41(c)(2)(v)(A) that

are eligible for the exception. Given the

number of loans that are currently in a

forbearance due to the COVID–19

emergency, this benefit could be

substantial. This may be particularly

true for loans serviced on behalf of

Fannie Mae and Freddie Mac. As part of

the FHFA COVID–19 payment deferral

program, Fannie Mae and Freddie Mac

are requiring servicers of their loans to

actively attempt to contact consumers

currently in a CARES Act forbearance in

order to verify eligibility for a deferral.

69

Thus, with or without the interim final

rule, servicers of loans that are owned,

insured, or guaranteed by Fannie Mae

and Freddie Mac are required to attempt

to contact borrowers currently in a

CARES Act forbearance. Without the

interim final rule, in each case, the

servicers would further need to collect

documentation needed for a complete

loss mitigation application, and to

process the complete application before

a deferral could be offered. Multiplied

by millions of such loans in forbearance,

these costs could be substantial.

Potential specific impacts of the

interim final rule. The Bureau believes

that a large fraction of depository

institutions and credit unions with $10

billion or less in total assets that are

engaged in servicing mortgage loans

qualify as ‘‘small servicers’’ for purposes

of the mortgage servicing rules because

they service 5,000 or fewer loans, all of

which they or an affiliate own or

originated. Small servicers are not

subject to the relevant portions of

Regulation X, § 1024.41, and so are not

affected by the amendments in this

interim final rule.

With respect to servicers that are not

small servicers as defined in

§ 1026.41(e)(4), the Bureau believes that

the consideration of benefits and costs

of covered persons presented above

provides a largely accurate analysis of

the impacts of the final rule on

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5 U.S.C. 601 et seq.

71

5 U.S.C. 603(a), 604(a).

72

44 U.S.C. 3501 et seq.

73

5 U.S.C. 801 et seq.

depository institutions and credit

unions with $10 billion or less in total

assets that are engaged in servicing

mortgage loans.

The Bureau has no reason to believe

that the additional flexibility offered to

covered persons by this interim final

rule would differentially affect

consumers in rural areas. The Bureau

requests comment regarding the impact

of the amended provisions on

consumers in rural areas and how those

impacts may differ from those

experienced by consumers generally.

IX. Regulatory Flexibility Act Analysis

The Regulatory Flexibility Act

(RFA)

70

does not apply to a rulemaking

where general notice of proposed

rulemaking is not required.

71

As noted

previously, the Bureau has determined

that it is unnecessary to publish a

general notice of proposed rulemaking

for this interim final rule. Accordingly,

the RFA’s requirements relating to an

initial and final regulatory flexibility

analysis do not apply.

X. Paperwork Reduction Act

The Bureau has determined that the

interim final rule does not impose any

new or revise any existing

recordkeeping, reporting, or disclosure

requirements on covered entities or

members of the public that would be

collections of information requiring

approval by the Office of Management

and Budget under the Paperwork

Reduction Act.

72

XI. Congressional Review Act

Pursuant to the Congressional Review

Act,

73

the Bureau will submit a report

containing this rule and other required

information to the U.S. Senate, the U.S.

House of Representatives, and the

Comptroller General of the United

States prior to the rule’s published

effective date. The Office of Information

and Regulatory Affairs has designated

this rule as a ‘‘major rule’’ as defined by

5 U.S.C. 804(2). As discussed in part IV,

the Bureau finds that there is good cause

for the rule to take effect without prior

notice and comment. Accordingly, this

rule may take effect at such time as the

Bureau determines. 5 U.S.C. 808(2).

XII. Signing Authority

The Director of the Bureau, having

reviewed and approved this document,

is delegating the authority to

electronically sign this document to

Laura Galban, a Bureau Federal Register

Liaison, for purposes of publication in

the Federal Register.

List of Subjects in 12 CFR Part 1024

Banking, Banks, Condominiums,

Consumer protection, Credit unions,

Housing, Insurance, Mortgage servicing,

Mortgagees, Mortgages, National banks,

Savings associations, State member

banks.

Authority and Issuance

For the reasons set forth above, the

Bureau amends Regulation X, 12 CFR

part 1024, as set forth below:

PART 1024—REAL ESTATE

SETTLEMENT PROCEDURES ACT

(REGULATION X)

■1. The authority citation for part 1024

continues to read as follows:

Authority: 12 U.S.C. 2603–2605, 2607,

2609, 2617, 5512, 5532, 5581.

Subpart C—Mortgage Servicing

■2. Section 1024.41 is amended by

revising paragraph (c)(2)(i) and adding

paragraph (c)(2)(v) to read as follows:

§ 1024.41 Loss mitigation procedures.

* * * * *

(c) * * *

(2) Incomplete loss mitigation

application evaluation—(i) In general.

Except as set forth in paragraphs

(c)(2)(ii), (iii), and (v) of this section, a

servicer shall not evade the requirement

to evaluate a complete loss mitigation

application for all loss mitigation

options available to the borrower by

offering a loss mitigation option based

upon an evaluation of any information

provided by a borrower in connection

with an incomplete loss mitigation

application.

* * * * *

(v) Certain COVID–19-related loss

mitigation options. (A) Notwithstanding

paragraph (c)(2)(i) of this section, a

servicer may offer a borrower a loss

mitigation option based upon evaluation

of an incomplete application, provided

that all of the following criteria are met:

(1) The loss mitigation option permits

the borrower to delay paying covered

amounts until the mortgage loan is

refinanced, the mortgaged property is

sold, the term of the mortgage loan ends,

or, for a mortgage loan insured by the

Federal Housing Administration, the

mortgage insurance terminates. For

purposes of this paragraph

(c)(2)(v)(A)(1), ‘‘covered amounts’’

includes, without limitation, all

principal and interest payments

forborne under a payment forbearance

program made available to borrowers

experiencing a financial hardship due,

directly or indirectly, to the COVID–19

emergency, including a payment

forbearance program made pursuant to

the Coronavirus Economic Stabilization

Act, section 4022 (15 U.S.C. 9056); it

also includes, without limitation, all

other principal and interest payments

that are due and unpaid by a borrower

experiencing financial hardship due,

directly or indirectly, to the COVID–19

emergency. For purposes of this

paragraph (c)(2)(v)(A)(1), ‘‘COVID–19

emergency’’ has the same meaning as

under the Coronavirus Economic

Stabilization Act, section 4022(a)(1) (15

U.S.C. 9056(a)(1)). For purposes of this

paragraph (c)(2)(v)(A)(1), ‘‘the term of

the mortgage loan’’ means the term of

the mortgage loan according to the

obligation between the parties in effect

when the borrower is offered the loss

mitigation option.

(2) Any amounts that the borrower

may delay paying as described in

paragraph (c)(2)(v)(A)(1) of this section

do not accrue interest; the servicer does

not charge any fee in connection with

the loss mitigation option; and the

servicer waives all existing late charges,

penalties, stop payment fees, or similar

charges promptly upon the borrower’s

acceptance of the loss mitigation option.

(3) The borrower’s acceptance of an

offer made pursuant to paragraph

(c)(2)(v)(A) of this section ends any pre-

existing delinquency on the mortgage

loan.

(B) Once the borrower accepts an offer

made pursuant to paragraph (c)(2)(v)(A)

of this section, the servicer is not

required to comply with paragraph

(b)(1) or (2) of this section with regard

to any loss mitigation application the

borrower submitted prior to the

servicer’s offer of the loss mitigation

option described in paragraph

(c)(2)(v)(A) of this section.

* * * * *

Dated: June 23, 2020.

Laura Galban,

Federal Register Liaison, Bureau of Consumer

Financial Protection.

[FR Doc. 2020–13853 Filed 6–29–20; 8:45 am]

BILLING CODE 4810–AM–P

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