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Operational Considerations Following the CFPB’s 2021 Mortgage Servicing COVID-19 Final Rule

Non-Qualified Mortgage LoansLate last month, the CFPB released its 2021 Mortgage Servicing COVID-19 Final Rule (“Final Rule”), which will take effect on August 31, 2021.  Residential mortgage loan servicers, including master servicers and subservicers, have likely begun reviewing the over 200-page rule, and the Bureau’s executive summary, to understand risks posed and obligations to consumers.

The Final Rule revises federal mortgage servicing rules which took effect in 2014 and covered a variety of areas including but not limited to payment processing, payoff statements, periodic statements, and assistance to borrowers who are delinquent on the mortgage payment.  The original 2014 rules have been amended multiple times over the past 5 years. The Final Rule changes primarily impact interactions with borrowers who are delinquent on the mortgage payment, most notably in the areas of collection calls and in loss mitigation assistance.

Temporary COVID-19 Related Live Contact ( 1024.39(e))

Currently, mortgage servicers must successfully, or at least make a reasonable effort to, reach the borrower via a phone call no later than the 36th day after a missed payment.

Under the Final Rule, the timing of the call, and required phone call content, will differ dependent on the borrower’s participation in a forbearance program, which allows the borrower to delay making 1 or more contractually required payments.  These new, temporary requirements will end on October 1, 2022, unless extended.

At a minimum, mortgage servicers should be prepared to review and re-assess their forbearance tracking, as guidance is rapidly changing between states and agencies.

Offer of COVID-19 Loan Modification Options Based on an Incomplete Application ( 1024.41(c)(2)(vi))

Currently, mortgage servicers are expected to provide a written notice to the borrower within 5 business days after the servicer receives an incomplete application for loss mitigation assistance, that is, a distressed borrower’s request for financial assistance on the residential mortgage loan obligation; an incomplete application could be triggered based on a phone call with the borrower alone.

Under the Final Rule, servicers will have some flexibility, situationally, to forego sending an incomplete application notice, in favor of offering permanent assistance.  Some servicers may recognize that this exception aligns with some Fannie Mae and Freddie Mac requirements for loan modification review.

At a minimum, mortgage servicers should be prepared to consider when an incomplete application notice should be sent under the Final Rule, especially for borrowers who either fail to successfully complete the loan modification or require additional assistance.

Mortgage lenders should be aware that these changes will likely impact interim servicing arrangements, whereby a lender accepts payments on a mortgage loan until it is transferred to another entity.

The CFPB’s flexibility and forgiveness to the mortgage industry, which was well documented under the previous administration early in the pandemic, is now gone.  With a focus on racial inequity, servicers should be prepared to implement this guidance through policy and procedures, training, audit, and quality control functions, especially for mortgage institutions overseeing a subservicer.  By way of example, the CFPB recently released a Spanish-version of the Early Intervention Written Notice, adding to the focus and spotlight on Limited English Proficiency borrowers.

 

ABOUT TODD KARAZIM

todd.karazim@offitkurman.com | 202.900.8599

Todd Karazim recently joined Offit Kurman’s Financial Institutions Regulatory practice group. He previously served as in-house counsel to mortgage lenders and servicers and has assisted in implementing a variety of mortgage servicing requirements coming from the CFPB, state regulators, agencies, investors, and insurers.

Mr. Karazim prides himself on being a valued strategic business partner as he routinely advises clients on multi-state compliance matters involving mortgage lending, servicing and debt collection, including technology and licensing matters. He works with business partners in reviewing policies, procedures, and practices to fit business needs and regulatory requirements, including TILA, RESPA, SCRA, GLBA, vendor selection/oversight/due diligence, remote online notarization/eClosings, and a variety of state requirements across all divisions – consumer direct/digital, correspondent, retail and wholesale.

Mr. Karazim has worked with a variety of trade groups, including the Mortgage Bankers Association, as well as state legislatures in submitting industry comment letters covering a variety of areas, including debt collection, Property Assessed Clean Energy (PACE), junior mortgage requirements, and loss mitigation programs.

 

 

 

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