Banking and financial regulators have issued a Joint Statement regarding the Coronavirus Aid, Relief, and Economic Security Act's (CARES Act's) provisions for mortgage forbearances. The regulators – including the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve (FRB), National Credit Union Administration (NCUA), and Conference of State Bank Supervisory (CSBS) – provide helpful guidance regarding the application of the CARES Act mortgage forbearance requirements under the mortgage servicing rules in Regulation X and Regulation Z. In addition to discussing the specific requirements of the CARES Act, the regulators explain how CARES Act forbearances intersect with the existing legal and regulatory structure of mortgage servicing, and provide insight into how the regulators themselves will approach compliance with the CARES Act and mortgage servicing rules through supervision and enforcement.
In addition to the interagency guidance, the CFPB has issued Mortgage Servicing Rules FAQs related to the COVID-19 Emergency to highlight "existing flexibility in the mortgage servicing rules" and explain how the CARES Act forbearance fits within existing regulatory structures. Importantly, the Bureau notes that "the CARES Act forbearance qualifies as a 'short-term repayment forbearance program' under Regulation X."
It is also significant that neither the Joint Statement nor the CFPB's FAQs address the mortgage servicing rule (§ 1024.41(a)) that provides borrowers with the right to enforce the provisions of the loss mitigation rules pursuant to Section 6(f) of the RESPA. The RESPA provides for actual damages, and additional damages upon proving a pattern or practice of violations, for individual borrowers and in class actions. Accordingly, servicers should review their compliance plans for the duration of the COVID-19 pandemic and evaluate the existing flexibility in the loss mitigation rules highlighted by the CFPB.
Moreover, the regulatory guidance does not discuss the potential for unfair, deceptive, or abusive acts or practices (UDAAP) claims that could arise from consumer confusion, misunderstandings, or servicer oversights during the public health crisis. Such risks must be accounted for as servicers adapt their business models to the current conditions.
The CARES Act mortgage forbearance requirements stand to have a significant impact on the mortgage servicing industry (and, by extension, the mortgage industry at large). A large number of borrowers seeking forbearances at the same time could greatly reduce revenue generation from such loans in the short term, which will likely have a ripple effect across the mortgage market.
CARES Act Forbearance Summary
The Joint Statement explains that the CARES Act provides a forbearance option for borrowers with "Federally backed mortgage loans" on 1-4 family residential properties. Any request for a forbearance in which a borrower affirms a COVID-19-related hardship under the CARES Act is an "incomplete loss mitigation application" under the mortgage servicing rules. Under the CARES Act and regulatory guidance:
- Servicers must provide a forbearance under the CARES Act upon the borrower's request and affirmation that he or she is experiencing a financial hardship during the COVID-19 emergency (regardless of delinquency status);
- Servicers must extend the forbearance for up to an additional 180 days at the request of the borrower, provided that the request for an extension is made during the covered period;
- Servicers may not require any additional information from the borrower before granting a CARES Act forbearance;
- Servicers may not (except with respect to a vacant or abandoned property) initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale during the 60-day period beginning on March 18, 2020.
The CARES Act forbearance must be provided with no fees, penalties, or interest (beyond the amounts scheduled or calculated as if the borrower had made all contractual payments on time and in full under the terms of the mortgage contract).1
CFPB's Mortgage Servicing Rules FAQs Related to the COVID-19 Emergency
The CFPB's FAQs answer initial questions related to compliance with Regulation X when offering and providing CARES Act forbearances, as well as during the public health crisis generally. Among other guidance provided by the Bureau, the FAQs state the following:
- Availability of Short-Term Loss Mitigation:
- Servicers may immediately offer or provide CARES Act forbearances, even before receipt of a complete loss mitigation application. The CFPB explains that Regulation X already permits short-term payment forbearance plans or short-term repayment plans based on an incomplete application.
- Servicers "may offer any loss mitigation options to a borrower who has not submitted an application at all." Generally, these offers are not based on any evaluation of information submitted by the borrower. Furthermore, servicers need not "exercise reasonable diligence" to obtain documents and information to complete a borrower's loss mitigation application until "near the end" of a CARES Act forbearance period, as long as the borrower is performing under the terms of the forbearance plan, unless the borrower affirmatively requests additional, longer-term loss mitigation
- Live Contact: Servicers must continue to "establish or make good faith efforts to establish" live contact with delinquent borrowers within certain time frames, subject to supervisory and enforcement flexibility.
- Early Intervention (45-Day Letter): Servicers must continue to comply with the early intervention written notice requirements and associated timelines, subject to supervisory ad enforcement flexibility. Also, if the borrower is not delinquent, the early intervention requirements do not apply (even if the borrower requests a CARES Act forbearance).
- Continuity of Contact: Servicers need not provide a single point of contact (SPOC) for borrowers in loss mitigation and can instead assign a team of personnel (although state servicing laws continue to apply, and may require a SPOC). The CFPB explains that, under the servicing rules, servicers must maintain policies and procedures reasonably designed to assign personnel to a delinquent borrower that can assist the borrower with loss mitigation options. However, servicers have discretion to determine whether to assign a single person or a team of personnel.
- Annual Escrow Statement: Servicers must still provide an annual escrow statement, subject to supervisory and enforcement flexibility.
- Payoff Statements: If a servicer is not able to provide a payoff statement within 7 business days of the borrower's request because of the COVID-19 pandemic ("natural disasters or other similar circumstance"), the servicer does not need to provide the statement within 7 business days but must provide it within a reasonable time.
Regulation X Supervisory and Enforcement Flexibility
The Joint Statement states that the banking agencies "intend to facilitate [COVID-19 relief efforts] by adopting a flexible supervisory and enforcement approach relating to Regulation X. The banking agencies explain that these CARES Act forbearances act as short-term forbearance plans or short-term repayment plans under Regulation X, so aspects of the forbearances already fit under the current rules. However, for areas where the requirements of the CARES Act forbearances, the COVID-19 pandemic, and the Regulation X servicing rules do not align, the CFPB and banking regulators have set out a "flexible" approach to supervision and enforcement.
As part of their flexible approach, the banking agencies state that, as of April 3, the agencies do not intend to take supervisory or enforcement action against servicers, including the following:
- Servicers offering or providing short-term options, including a CARES Act forbearance: No supervisory or enforcement action will be taken regarding such servicers for failing to provide an acknowledgment notice within 5 days of the receipt of an incomplete loss mitigation application, provided the servicer sends the acknowledgment notice before the end of the forbearance/repayment period (§ 1024.41(b)); and
- All servicers under the loss mitigation rules: No supervisory or enforcement action will be taken for such servicers for:
- delays in sending the loss mitigation-related steps and notices, including the 5-day acknowledgment notice, the 30-day evaluation and notice, and the appeals notice (§ 1024.41(b)-(d), (h)(4), and (k));
- delays in establishing or making good faith efforts to establish live contact with delinquent borrowers, provided that servicers are making good faith efforts to establish live contact within a reasonable time (§ 1024.39(a));
- delays in sending the written early intervention notice to delinquent borrowers (the 45-day letter), provided that servicers are making good faith efforts to provide this notice within a reasonable time (§ 1024.39(b)); and
- delays in sending the annual escrow statement, provided that servicers are making good faith efforts to provide these statements within a reasonable time (§ 1024.17(i)) (however, servicers must continue to comply with Regulation X's requirements concerning timely disbursements from escrow accounts).
Mortgage servicers, lenders, and others in the industry should review the CARES Act provisions regarding mortgage protections and the regulators' guidance, and refer back often to the CFPB's FAQs, which may be updated periodically, as regulatory guidance is likely subject to changes and updates. We will continue to follow this issue closely and will provide updates as additional guidance is released.