The CARES Act along with many other legislative efforts provided much needed support and relief for mortgage borrowers during the coronavirus pandemic. Among the most impactful of these measures were the foreclosure moratorium and lenders’ ability to provide forbearance options to affected borrowers without classifying such loans as nonperforming in bank financial reporting records. However, as these relief provisions are now expiring, the CFPB recognized the impending wave of foreclosures lenders and borrowers are likely facing, unless further relief provisions are extended. On April 05, 2021, the CFPB issued a proposed rule that proposes temporarily expanding Regulation X (RESPA), to ease the transition for delinquent borrowers for whom relief provisions are expiring and allowing such borrowers to bring their loans current.
RESPA already provides safeguards that require lenders to offer assistance to delinquent borrowers. Particularly, § 1024.39, requires lenders to engage in “early intervention,” as well as provide loss mitigation options to borrowers experiencing hardship, regardless of reason. However, the proposed rule recognizes that the existing measures are inadequate to sufficiently protect lenders and borrowers in light of the unique circumstances caused by the pandemic. Accordingly, the rule proposes a temporary expansion of § 1024.39, to include specific COVID-19 related provision to both the early intervention and loss-mitigation provisions. The CFPB proposes to make these measures effective for one year from the effective date of the rule, if and when the proposed rule becomes final.
To effectively facilitate the transition between expiring forbearance provisions and borrowers resuming payments, the rule proposes the following expansion of § 1024.39: (1) prohibit lenders from initiating foreclosure efforts until after December 31, 2021; (2) define the term “COVID-19-related emergency” to have the same meaning as provided under the CARES Act, 15 U.S.C. 9056(a)(1); (3) permit services to offer streamlined loan modification options to borrowers who experienced a COVID-19-related hardship; (4) expand early intervention provisions to require lenders to make live contacts with delinquent borrowers and specifically inquire about COVID-19 related hardships as well as provide loss mitigation and forbearance options available for such borrowers; and (5) require lenders to make live contact with borrowers no later than 30 days before the end of the forbearance period to determine if the borrower wishes to complete a loss mitigation application.
As mentioned above, RESPA, already contains many of the safeguards the proposed rule addresses. For example, § 1024.41, already prohibits lenders from initiating foreclosure efforts, unless a borrower is more than 120 days delinquent. In issuing the proposal, the CFPB is mindful of safeguards necessary for lenders and borrowers. Accordingly, the rule seeks comment in consideration of allowing lenders to pursue foreclosure sooner than December 31, 2021, if the servicer or lender: (1) has completed a loss mitigation review of the borrower and the borrower is not eligible for any foreclosure options; and (2) has made efforts to contact the borrower and the borrower failed to respond. Notably, the proposal does not further define “borrower’s failure to respond.”
Similarly, the Bureau balanced the borrowers and lenders needs in proposing the streamlined loan modification options. As before, § 1024.39, already sets for loss mitigation provisions that require lenders to provide notice to borrowers setting forth mitigation options and requirements under the Fair Debt Collection Practices Act (FDCPA), as they apply to the lender. The Bureau proposes to exempt lenders from some of the loss mitigation provisions of § 1024.39, where a lender offers and the borrower accepts a streamlined loan modification option, instead of proceeding under the existing RESPA loss mitigation provisions.
Currently, § 1024.39, allows lenders to offer modification options under a request for loss mitigation only after consideration additional relief options. Under the proposal, a lender would not require considering such options or require a completed loss mitigation application. To be eligible for the streamlined modification under the proposal, the modification must meet the following six requirements: (1) the borrower is not harmed more by accepting the modification than if they proceeded under the available loss mitigation options; (2) the borrower must experience a COVID-19 related hardship (as defined earlier); (3) the modification cannot result in increasing the borrower’s monthly principal and interest payment and cannot extend the term of the loan by more than 480 months; (4) the lender must waive all delinquency-related fees upon a borrower accepting a modification; and (5) acceptance of a modification either results in ending all preexisting delinquency, or the modification is conditioned on ending such delinquency upon the borrower completing the modification requirements.
The proposed rule also provides extensive research on borrowers’ awareness of forbearance options and the effect of stress on borrowers. This research shows that despite the availability of information, the majority of borrowers do not pursue forbearance either due to being unaware of such options, lack of understanding, apprehension in proceeding under such options, or being impacted by the stress caused by the pandemic. The proposal addresses this shortfall by proposing expansion of the early intervention requirements.
The expansion of the early intervention program requirements is likely the most targeted RESPA section in the proposal. Particularly, under the proposed rule, lenders are required to specifically inquire whether a borrower was impacted by a COVID-19-related hardship, during a live contact. Additionally, the proposed rule requires lenders to inform borrowers of forbearance options, the methods of resolving delinquencies at the end of the forbearance period, and when the forbearance period ends. The Bureau proposes to set an end-date of August 31, 2022, for the proposed amendments to the early intervention requirements, related to COVID-19 provisions.
Despite the Bureau’s best efforts to balance the interests of borrowers and lenders, the provisions proposed above offer relief to borrowers while imposing requirements on lenders. However, the proposal is well-grounded in facts, such as minorities are currently already disproportionately represented in the home-ownership population. Currently, approximately 50 percent minorities are homeowners compared to approximately 70 percent of non-Hispanic White Americans, according to the Bureau’s research. Foreclosure and delinquency would further hinder the ability of these individuals to become homeowners in the future; thereby, widening the already existing inequality. Of course, a cascading wave of foreclosure would likely have a more devasting impact on lenders than possibly complying with the proposed provisions; should the rule become final.
In January, Acting Director Dave Uejio of the Consumer Financial Protection Bureau (CFPB) re-emphasized the agency’s role in protecting consumers. On April 1, the CFPB rescinded several policy statements and bulletins made in 2020 that were meant to provide banks with compliance flexibility regarding consumer financial regulation. These statements that have now been rescinded were initially put forth between March 26 to June 3, 2020 with an indication that they were meant to be temporary.
COVID-19 Response: The first statement rescinded dealt with the CFPB’s supervisory and enforcement response to the COVID-19 pandemic. It indicated that the CFPB would consider staffing and other operations-based challenges due to the pandemic when taking action. The CFPB has found that banks have taken the necessary steps to adjust to the pandemic without needing leniency when it comes to consumer compliance. Ultimately, the CFPB now intends to exercise its full authority regarding supervision and enforcement.
Credit Card and Prepaid Account Issuers: This policy statement previously allowed for flexibility regarding information reporting and collection. Credit card issuers should submit information concerning agreements between issuers and higher education institutions as required by Reg. Z from 2019 and 2020. This also covers the quarterly requirement of reporting credit card agreements.
Regulation V: The CFPB had issued out a policy statement setting forth flexibility when it came to enforcing compliance with the Fair Credit Reporting Act (FCRA) and Regulation V. While the rescission of this statement means the CFPB will now resume its full authority in enforcing compliance with these rules, the Bureau made it clear that the rescission does not apply to flexibilities regarding furnishing consumer information impacted by COVID-19, meaning those would still be in place. This generally covers banks’ efforts to provide payment relief and means the CFPB would not act against those who furnish information accurately reflecting those relief measures.
Billing Error Resolution: A previous policy statement said that the CFPB would not act against a bank that took longer than what was required by Regulation Z to resolve a billing error as long as the bank had made a good faith effort to get the necessary information and decide as soon as possible whether an error exists. The CFPB will now be resuming its full enforcement of the billing error resolution requirements in Regulation Z.
Electronic Credit Card Disclosures: This policy statement provided that the CFPB would not cite a violation if during a phone call a bank does not get E-SIGN consent prior to delivering electronic credit card disclosures if the bank gets the consumer’s oral consent while on the call. As of April 1, the CFPB will now be enforcing the requirement to get E-SIGN consent prior to delivering these disclosures electronically with oral consent during a call no longer being sufficient.
While we continue to navigate through the COVID-19 pandemic, it becomes even more important to ensure compliance in protecting consumers. Compliance Alliance continues to be here to assist you in your efforts to best do so.
On April 7, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued a notice of proposed rulemaking (NPRM) that would extend the effective date by 60 days of two final rules under the Fair Debt Collection Practices Act (FDCPA). The debt collection rules (Part I and II) are slated to take effect on November 30, 2021. However, considering the disruption of the COVID-19 pandemic, the CFPB has proposed delaying the effective date. If the proposal is finalized, the effective date for the rules would shift to January 29, 2022. This is to give all the parties time to comply with the new rules. “The proposed delay would give stakeholders more time to review and implement the rules,” the CFPB said. The proposal will be open for comment for 30 days following publication in the Federal Register. In addition to requesting comment on whether to extend the final rules’ effective date, the CFPB requested comment on whether they would facilitate implementation to retain the November 30 effective date for some or all the final rules’ safe harbors. Read about the proposed delay here.
The first debt collection rule, Part I, issued on October 30, 2020, clarifies the use of communications related to debt collection and prohibits harassment or abuse, false or misleading representations, and unfair practices by debt collectors. The first rule outlines certain disclosures and limitations for covered debt collectors. The rule also addresses the use of newer communication technologies such as emails and text messages for collecting debt and establishes record retention requirements. The FDCPA and the CFPB’s final rule will regulate the activities and conducts of third-party debt collectors and not institutions collecting their own debts.
The second debt collection rule, Part II, issued on December 18, 2020, clarifies disclosures debt collectors must provide to consumers at the beginning of the collection communication process. The second rule requires debt collectors to provide readily understandable disclosures about consumer’s debt and rights at the outset of collection communications and to provide a model validation notice to disclose the existence of a debt to consumers, orally, in writing, or electronically, before reporting such information about the debt to a consumer reporting agency. Additionally, the rule focuses on the prohibition of filing a suit to collect, or threatening suite to collect time-barred debt. For consumer disclosures, debt collectors must provide disclosures when they begin to communicate with the consumer to collect the debt. The disclosures must include details about the debt and the disclosures must include a statement that indicates the communication is from a debt collector. Prior to reporting a debt to a consumer reporting agency, the rule requires the debt collector to contact the consumer about the debt before they deliver information about a debt to a consumer reporting agency.
At Compliance Alliance, we will keep our members abreast of what is taking place and all the developments that will ensue. We will keep you updated of what will transpire and to develop the necessary summaries and tools to inform and make you better bankers.
The Consumer Financial Protection Bureau (CFPB) is sending clear signals it is thinking about the next stage of the post-Pandemic world: What to do with all of the mortgage loans in forbearance. Leading data firms suggest there could be an estimated 800,000 borrowers exiting their forbearance programs in September and October of 2021, after 18 months of forborne payments. Regulators are concerned the “potentially historically high volume of borrowers exiting forbearance within the same short period could strain servicer capacity, potentially resulting in delays or errors in processing loss mitigation requests.”
The CFPB proposed amendments to RESPA to assist borrowers affected by the COVID-19 emergency. The CFPB hopes these moves will help ensure that borrowers impacted by the COVID-19 pandemic have an opportunity to be evaluated for loss mitigation before lenders initiate foreclosure. The proposed amendments would establish a temporary COVID-19 emergency pre-foreclosure review period until December 31, 2021, for principal residences. Also, the proposed amendments would temporarily permit mortgage servicers to offer certain loan modifications made available to borrowers experiencing a COVID-19-related hardship based on the evaluation of an incomplete application. The CFPB also proposes amendments to the early intervention and reasonable diligence obligations that RESPA imposes on mortgage servicers. This includes providing borrowers with a list of available loss mitigation options during the live contact required in the regulation. You can read the full proposal at https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing_nprm_2021-04.pdf.
The CFPB wants lenders encouraging borrowers to seek loss mitigation assistance. The chief concern is that some servicers may not make contact early enough for borrowers affected by the unique circumstances of the COVID-emergency to complete a loss mitigation application before the end of the forbearance period. Contacting borrowers currently in forbearance and discussing the available options could help stem the tide and reduce the risk of avoidable foreclosure, including foreclosure caused by loss mitigation assistance delays and errors. As such, even in the absence of new rules, however they might finalize, banks should be preparing to discuss loss mitigation options with borrowers. Lenders should be partnering with investors and internal management to identify and develop these loss mitigation options. Compliance Alliance members can access our Loss Mitigation Letter template at https://compliancealliance.com/find-a-tool/tool/loss-mitigation-letter to help communicate with your customers.
Another recent development along these same lines is the CFPB’s decision that tenants can hold debt collectors accountable for illegal evictions. It also issued a new rule that requires debt collectors to provide written notice to tenants of their rights under the eviction moratorium and prohibits debt collectors from misrepresenting tenants’ eligibility for protection from eviction under the CDC eviction moratorium. The scope of this rule is “debt collectors,” as the Federal Fair Debt Collection Practices Act defines that term. While this rule does not apply to banks that collect their own debts in their own name, you’d need to familiarize yourself with this new rule if you collect debt on behalf of another. You can read it at https://files.consumerfinance.gov/f/documents/cfpb_debt_collection-practices-global-covid-19-pandemic_interim-final-rule_2021-04.pdf.
The importance of compliance risk management in the world of banking is ever-increasing. Banks and regulators recognize this importance and are now more concerned than ever before about compliance risk management to sound banking practice. Compliance risk monitoring has become one of the leading importance for banks. Since the 2008 financial crisis, the banking world has faced many challenges including new regulations and increasing adoption of digital banking footprints. A comprehensive risk training is imperative for success of the bank and training needs to be tailored to fit the approach of the Board, Executives, Senior Management, and personnel in maintaining the compliance program. A well-written program and risk assessment can explain your bank’s risk indicators and its measurements to regulators.
There has also been an increase in significance of personnel unit involved in the management of compliance risk. The integration of technology and enhancement of risks only added to the layers of complexity that is compliance risk. To comply with rules and regulations, financial institutions have turned to many sources of guidance. Compliance Alliance is such a resource. Compliance Alliance has the tools necessary to help banks alleviate the concerns of compliance risks they are encumbered with. Compliance Alliance has Risk Assessment, Risk Management, Risk Webinars, and a slew of other tools at disposal for banks looking to gain a competitive advantage. Governance, risk, and compliance, also known as GRC has also had many financial institutions turned to Compliance Alliance to assist with—whether with the ever-popular chat, phone calls, or emails.
Regulations, from Expedited Funds Availability to Home Mortgage Disclosure, to laws regarding privacy of information to internal controls, every facet of the bank is under scrutiny. How do you, as financial institutions, monitor these risks to stay in compliance? How do you go about monitoring them? Let us talk about monitoring of compliance risk. To adequately prepare for a compliance risk assessment, there are five principles: 1. The potential threats and vulnerabilities of the risk itself, 2. The probability of occurrence and the potential impact it can create, 3. The inherent risks that associated with the potential threats and vulnerabilities, 4. The mitigant or mitigating factors a bank can deploy to combat the risks, and 5. The residual risks that remain after apply mitigating controls. A bank must first identify the threat of the risks, then asks what are lacking in the terms of personnel, policy, and procedure.
Ultimately, compliance risk management is incumbent on the bank. To comply, banks have turned to firm such as Compliance Alliance to stay ahead of the game. Compliance Alliance is a name banks should be familiar with and we can augment the services that other vendor provides. Monitoring of compliance risk is one potential hazard financial institutions must employ to not only stay in compliance but elevate the protection of risks beyond what they are capable of. Understanding the risk appetite and culture of your firm. Performing regular risk assessment. And establish a well-maintained compliance programs are all part of a robust compliance risk monitoring.