Federal regulators and US Congress continue to release new guidance and requirements to assist mortgage borrowers facing economic hardships due to the pandemic. But in light of the anticipated volume of requests and associated burden on servicers, they also are offering some regulatory relief. This Legal Update contains a summary of relevant mortgage servicing requirements, guidance, and relief published by federal regulators as of April 5, 2020.
I. CARES Act Requirements and Related Guidance
The CARES Act requires servicers of federally backed mortgages to provide an up to 180-day forbearance to borrowers experiencing a financial hardship due to the pandemic. Borrowers can ask for a shorter period, and also have a right to request a forbearance for up to another 180 days in addition to the initial forbearance. The CARES Act also requires servicers of federally backed mortgages to suspend foreclosures, including initiation of new foreclosures and continuation of existing foreclosure actions, for at least 60 days beginning on March 1, 2020. If a residential mortgage loan is not sold to Fannie Mae or Freddie Mac, or insured by the Federal Housing Administration ("FHA") or guaranteed by the US Department of Veterans Affairs or the US Department of Agriculture , the above requirements do not apply under the CARES Act. The US Consumer Financial Protection Bureau ("CFPB" or "Bureau") has released a video to educate borrowers on the CARES Act relief.
Furnishers of credit information must report consumers as "current" for the duration of the forbearance period, unless the borrower was already being reported as behind on payments; this requirement is not limited to federally backed mortgages.
II. Interagency Guidance on Mortgage Servicing Rules
On April 3, 2020, federal and state regulators1 issued a policy statement encouraging servicers to be flexible with borrowers during the pandemic and announcing regulatory relief under the mortgage servicing rules to help facilitate that process. The CFPB also released compliance FAQs to further explain the guidance. The relief is effective beginning April 3, 2020, but no end date has been announced. The documents published on April 3 contain information regarding implementation of the CARES Act forbearance as well as other guidance as follows:
a. CARES Act Forbearance
Documentation:
Under the CARES Act, borrowers must attest to a financial hardship caused by the COVID-19 emergency in order to obtain a CARES Act forbearance.2 The regulators emphasize, "Servicers may not require any additional information from the borrower before granting a CARES Act forbearance." (emphasis in the original) If borrowers request an additional 180-day forbearance, "the servicer must extend the forbearance." (emphasis in the original)
Treatment of the Request:
The CARES Act forbearance qualifies as a "short-term loss mitigation option" under Regulation X, which means the existing exceptions for this classification of relief will apply (including being able to offer the forbearance without first obtaining a complete loss mitigation application).3 The agencies note that the borrower's request and affirmation of financial hardship is considered an incomplete loss mitigation application. Accordingly, the forbearance should be treated as offering a loss mitigation option based on an evaluation of an incomplete loss mitigation application under Regulation X.4 However, pursuant to existing requirements for short-term loss mitigation options based on an evaluation of an incomplete or no application, servicers do not have to make reasonable efforts to obtain a complete application until closer to the end of the forbearance period.5
Five-Day Acknowledgement Notices:
The agencies will not take supervisory or enforcement actions against servicers who fail to provide an acknowledgement notice within five days of receipt of an incomplete loss mitigation application (regardless of when the application is received). However, the agencies do expect servicers to send the notice to the borrowers receiving CARES Act relief by the end of the forbearance period. Servicers can adjust the content of the notice to avoid consumer confusion.
Other Required Communications:
Servicers must send borrowers receiving CARES Act relief the required communications related to short-term loss mitigation options, including a written notice containing the terms of the program.6 If the borrower remains delinquent near the end of the program, the servicer must determine whether the borrower wants to complete a loss mitigation application and be evaluated for other options. The latter can be done via phone or through a note on the periodic mortgage statement.7
Note that certain requirements under Regulation X, including the early intervention rules, only apply to delinquent borrowers, but a borrower does not need to be delinquent to obtain the CARES Act forbearance.
b. Other Regulatory Relief
The agencies are also providing relief to servicers for certain regulatory requirements, regardless of whether borrowers are impacted by the pandemic:
Loss Mitigation Actions and Related Notices: The agencies do not intend to take supervisory or enforcement actions against servicers regarding the following notices and actions, provided the servicers make good faith efforts to provide the notices and take the required actions within a reasonable timeframe:
- Prompt review and five-day acknowledgement notice;
- 30-day evaluation of loss mitigation applications and associated notice;
- Denial notices;
- Appeal determination notice; and
- Servicing transfer requirements and associated notices.8
Early Intervention:
The agencies do not intend to take supervisory or enforcement actions for delays in establishing live contact with delinquent borrowers or sending early intervention notices, provided the servicer makes good faith efforts to meet these requirements within a reasonable time.9 The CFPB notes that existing exceptions to these requirements continue to apply, including where a borrower is performing as agreed under a loss mitigation option that is designed to bring the borrower current on a previously missed payment.
Annual Escrow Statements:
The agencies do not intend to take supervisory or enforcement actions for delays in sending annual escrow statements,10 provided the servicer makes good faith efforts to send them within a reasonable time.
Payoff Statements:
The CFPB has indicated that servicers can provide payoff statements in response to a consumer request within a "reasonable time" rather than the existing seven-day requirement, pursuant to the exception in the existing regulations for natural disasters and similar situations.11
III. CFPB Guidance on Credit Reporting and Other Regulatory Relief
On April 1, 2020, the CFPB issued a Policy Statement regarding obligations under the Fair Credit Reporting Act and Regulation V. The Bureau encourages companies to voluntarily furnish information to consumer reporting agencies ("CRAs") during the pandemic, noting, "Consumer report information is critical to consumers and industry in determining who obtains credit, insurance, and housing, and at what price, and who obtains employment in many cases." The CFPB also encourages furnishers to voluntarily provide payment relief and accurately report such relief to CRAs. As noted above, the CARES Act requires furnishers to report consumers as "current" for the duration of the forbearance period, unless the borrower was already being reported as behind on payments.
The Policy Statement indicates that the CFPB will be flexible about allowing furnishers and CRAs to take longer to investigate disputes than required by law, as long as they make "good faith efforts to investigate disputes as quickly as possible, even if dispute investigations take longer than the statutory timeframe."
On March 19, 2020, the CFPB issued a Policy Statement encouraging institutions to work with borrowers, and outlining the Bureau's intent to consider the impact of the pandemic when conducting exams/supervisory activities and in determining whether to take enforcement actions.
IV. HUD Guidance
On April 1, 2020, the US Department of Housing and Urban Development ("HUD") issued Mortgagee Letter 2020-06, outlining FHA's loss mitigation options for borrowers affected by the pandemic. Mayer Brown is preparing a separate analysis of the HUD guidance.
V. Fannie Mae and Freddie Mac Guidance
On March 18, 2020, the Federal Housing Finance Agency ("FHFA"), including Fannie Mae and Freddie Mac at FHFA's direction, each announced temporary relief measures that require mortgage loan servicers to offer relief to borrowers who suffer hardship as a result of COVID-19. Please view our analysis of that guidance here.
Regulators continue to release guidance at a rapid pace. Stay tuned to the Mayer Brown COVID-19 Portal and the Consumer Financial Services Review for updates.
If you wish to receive regular updates on the range of the complex issues confronting businesses in the face of the novel coronavirus, please subscribe to our COVID-19 "Special Interest" mailing list.
And for any legal questions related to this pandemic, please contact the authors of this article or Mayer Brown's COVID-19 Core Response Team at FW-SIG-COVID-19-Core-Response-Team@mayerbrown.com.
Footnotes
1. The guidance was released by the Consumer Financial Protection Bureau (Bureau), the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Conference of State Bank Supervisors (CSBS).
2. H.R. 748, Section 4022(c)(1).
3. 12 C.F.R. § 1024.41(c)(2)(iii).
4. 12 C.F.R. §§ 1024.41(c)(2)(i); (iii).
5. 12 C.F.R. § 1024.41(c)(2)(iii); comments 41(b)(1)-4.iii ("If the borrower remains in compliance with the short-term payment forbearance program or short-term repayment plan, and the borrower does not request further assistance, the servicer may suspend reasonable diligence efforts until near the end of the payment forbearance program or repayment plan. However, if the borrower fails to comply with the program or plan or requests further assistance, the servicer must immediately resume reasonable diligence efforts. Near the end of a short-term payment forbearance program offered based on an evaluation of an incomplete loss mitigation application pursuant to § 1024.41(c)(2)(iii), and prior to the end of the forbearance period, if the borrower remains delinquent, a servicer must contact the borrower to determine if the borrower wishes to complete the loss mitigation application and proceed with a full loss mitigation evaluation."); 41(c)(2)(i)-1; 41(c)(2)(iii)-1 through -6.
6. 12 C.F.R. § 1024.41(c)(2)(iii) (The communications should include: (1) the specific payment terms, (2) the duration of the program or plan, (3) that the servicer offered the program or plan based on an evaluation of an incomplete application, (4) that other loss mitigation options may be available, and (5) that the borrower has the option to submit a complete loss mitigation application to receive an evaluation for all available options regardless of whether the borrower accepts the short-term program or plan).
7. 12 C.F.R. § 1024.41(c)(2)(iii); Consumer Financial Protection Bureau, The Bureau's Mortgage Servicing Rules FAQs related to the COVID-19 Emergency, v1 (Apr. 3, 2020), available at https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rules-covid-19_faqs.pdf.
8. These requirements arise under 12 C.F.R. §§ 1024.41(b) – (d), (h)(4), and (k), respectively.
9. These requirements arise under 12 C.F.R. §§ 1024.39(a) and (b).
11. Consumer Financial Protection Bureau, The Bureau's Mortgage Servicing Rules FAQs related to the COVID-19 Emergency, v1 (Apr. 3, 2020), available at https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rules-covid-19_faqs.pdf.
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