If you are facing foreclosure post-COVID lockdown- it is important that you know about the new CFPB rule, so today we are going to cover it in a little more detail so that you know what it’s all about!
New CFPB Rule Means Protection For Homeowners Facing Foreclosure
First, let’s talk about what CFPB stands for.
CFPB is the Consumer Financial Protection Bureau. The purpose of the CFPB is to “make consumer financial markets work for consumers, responsible providers, and the economy as a whole.” They do this by protecting consumers from abusive, deceptive, and unfair practices and by taking decisive action against companies that seek to break the law.
So What is the New CFPB Rule?
The new rule is an amendment to RESPA Regulation X early intervention and loss mitigation requirements 12 C.F.R. §§ 1024.39 and 1024.41. This amendment will go into effect as of August 31, 2021.
The amendments are designed to provide homeowners with more rights when exiting a mortgage loan forbearance or experiencing a payment hardship related to the COVID-19 pandemic.
While the new text (and previous) are simply too much to repost (the entirety of the Unofficial Redline of the 2021 Mortgage Servicing COVID-19 Final Rule can be found here,) the main points to the amendment are as follows:
- Requires servicers to comply with additional procedural safeguards before initiating foreclosure;
- Permits a servicer to offer certain streamlined loan modifications without requiring the borrower to submit a complete loss mitigation application;
- Specifies how and when a servicer must resume reasonable diligence efforts at the end of forbearance; and
- Imposes new early intervention requirements for borrowers in default.
The new amendment applies to all “federally related” mortgage loans, as defined by RESPA, and not only FHA, VA, USDA, Fannie Mae, and Freddie Mac mortgages as has been the case with many pandemic related changes recently. But what exactly are “federally related” loans? Well, the term covers pretty much type of mortgage including private-label securitization trusts.
So, what does this mean for homeowners experiencing hardship due to COVID-19? The amendments not only require that homeowners be given better opportunities to resolve their past due mortgages, but it also incorporates a right for private citizens to pursue private action under RESPA for out of pocket and emotional distress damages, attorney fees, plus up to $2000 in statutory damages.
Why the Change?
There are currently approximately two million mortgage borrowers in loan forbearance who are still suffering the effects of the COVID-19 pandemic. With so many homeowners in distress, there is a good chance that many of them are going to be pushed into foreclosure before they are given a chance to get evaluated for loss mitigation.
Under the current CFPB rules, loan servicers are forbidden from initiating foreclosure procedures until the homeowner is 120 days+ delinquent on their mortgage payments. This “pre-foreclosure” period of 120 days is intended to give lenders time to reach out to delinquent borrowers to review loss mitigation. The problem is that borrowers who have fallen four months behind on payments and are unable to make those payments in the 120 day forbearance period, are more than likely going to come out of forbearance and go straight into foreclosure because they are 120 days late on their payment. The new CFPB regulation has put new safeguards in place that require mortgage servicers to follow added procedures before they may file for foreclosure. A servicer may only file for foreclosure during the protected period of time if at least one of the new criteria below is true –
- If the borrower has submitted a complete loss mitigation application and has remained delinquent at all times since that complete application.
- If the property securing the mortgage is abandoned according to the laws of the state or municipality where it is located.
If the servicer has not received any communication from the borrower for at least 90 days prior to making the first notice or filing and the following conditions are met:
• The servicer has satisfied its required early intervention live contact attempts during the 90-day period prior to the first notice or filing. The section-by-section analysis clarifies that this 90-day period of compliance may be satisfied based on activity that occurred prior to the effective date of the rule. See 86 Fed. Reg. at 34,885. However, for any stretch of the 90-day period that falls after the effective date of the overall rule, the servicer will have to comply with the enhanced early intervention efforts described elsewhere in this article, including the specific live contact attempt between 10 and 45 days prior to the end of forbearance, in which post-forbearance options must be described.
• The servicer sent the early intervention notice letter required by Reg. X § 1024.39(b) at least 10 and no more than 45 days prior to the first notice or filing. Recall that this early intervention notice letter (which exists already under RESPA and is generally required to be sent by the 45th day of delinquency) includes a statement encouraging the borrower to contact the servicer, a telephone number for the borrower’s point of contact assigned pursuant to section 1024.40, a brief description of available loss mitigation options and how to apply for them, and information about how to contact a HUD-certified housing counselor. The CFPB publishes a model early intervention notice in Appendix MS4 to § 1024. The CFPB recently translated the model notice provisions into Spanish. Servicers are not explicitly required to provide the notice in Spanish, but arguably should do so to satisfy fair lending obligations and ensure that their COVID-19 servicing outreach does not have a disparate impact on immigrant groups.
• The servicer has sent all notices required by Reg. X § 1024.41, as applicable, during the 90-day period before the servicer makes the first notice or filing. In theory this might include a section 1024.41(b)(2) notice (if the borrower has submitted an incomplete application during the 90-day period or has defaulted on a streamlined mod trial payment plan and the notice was not provided previously), and could also include the section 1024.41(c)(2)(iii) letter if a forbearance was offered or extended during the 90-day period; and
• The borrower’s forbearance, if applicable, ended at least 30 days before the servicer makes the first notice or filing.
This change is designed to keep borrowers from moving out of forbearance and straight into foreclosure by ensuring proper loss mitigation evaluation.
Looking For a Reputable Foreclosure Attorney in Tampa and the Surrounding Area?
If you are looking for a reputable foreclosure attorney in and around the Tampa area, Weidner Law can help. To find out how we can help you, give our office a call today at 727-954-8752!