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.