Servicing Compliance: New COVID-19 Guidelines

QUESTION
As a servicer, we are working hard to comply with the evolving servicing requirements during the pandemic. 

I am our company’s Chief Compliance Officer and General Counsel. Every time there is a regulatory change, we update procedures, and then a new round of training is done. 

As you probably know, the CFPB issued a final rule on mortgage servicing as it relates to COVID-19. 

I am looking for a brief list of the requirements in the areas of loss mitigation and early intervention. 

To assist us in training on the final rule, what should be on the list of loss mitigation and early intervention compliance with respect to COVID-19? 

ANSWER
The pandemic has caused a seismic shift in servicing guidelines regarding loss mitigation and early intervention. So, you should be focusing on these important compliance challenges. 

As I write, it appears the pandemic is entering a new and more lethal phase due to the Delta variant, a mutation that is reported to be a thousand times more transmissible than the initial COVID-19 virus. Therefore, although the Final Rule (“Rule”) was issued on June 28, 2021, there may yet be additional requirements in the future if the Delta variant wreaks havoc on the rules involving servicing compliance. 

Issued by the Consumer Financial Protection Bureau (CFPB) under the rubric 2021 Mortgage Servicing COVID-19 Final Rule, the Rule amends certain aspects of Regulation X’s mortgage servicing loss mitigation and early intervention requirements. 

The Rule also establishes procedural safeguards for mortgage servicers that help borrowers explore foreclosure alternatives, such as loan modifications or home sales. The rule is effective August 31, 2021. 

I would zero in on three aspects of loss mitigation: temporary COVID-19 safeguards; COVID-19-related loan modifications; and reasonable diligence related to COVID-19. 

As you’ve requested, I will suggest a list, but be sure to provide a deep understanding of implementation, process flow, monitoring, and testing. Construct your training in sections, as I’ve enunciated in my response. 

Loss Mitigation: Temporary Special COVID-19 Procedures Safeguards 

Currently, the mortgage servicing compliance prohibits servicers from making a foreclosure referral or completing specific foreclosure actions in certain circumstances. Generally, a servicer may not make a foreclosure referral until the borrower is more than 120 days delinquent. 

Additionally, if a borrower submits a complete loss mitigation application before the foreclosure referral, generally, the servicer must wait an additional period before initiating foreclosure to satisfy certain conditions to allow the borrower an opportunity to pursue loss mitigation. Indeed, the servicer must determine that the borrower (1) is not eligible for any loss mitigation options and notify the borrower of such; and (2) has exhausted the appeal process. 

If a loss mitigation offer is made, the borrower must reject all offered loss mitigation options or fail to perform under a loss mitigation option agreement. Similarly, if a borrower submits a complete application after foreclosure referral but at least 37 days before the foreclosure sale, the servicer must not complete certain foreclosure actions until these foreclosure protection conditions are met. 

The Rule temporarily adds to the foreclosure protection conditions in certain circumstances. 

From August 31, 2021, through December 31, 2021, unless an exception applies, before referring certain 120-day delinquent accounts for foreclosure, the servicer must ensure that at least one of the temporary procedural safeguards has been met. 

1. The borrower was evaluated based on a complete loss mitigation application, and existing foreclosure protection conditions are met. To meet this safeguard, the servicer must confirm that: 

·        The borrower submitted a complete loss mitigation application, and the servicer evaluated the application. 

·        The borrower remained delinquent since the submission of the loss mitigation application. 

·        The foreclosure protection conditions in existing servicing compliance are met, such that a servicer is permitted by the rules to make a foreclosure referral. 

2. The property is abandoned. To meet this safeguard, applicable state or local law must consider the property securing the mortgage abandoned when referred to foreclosure. 

3. The borrower is unresponsive to servicer outreach. To meet this safeguard, the servicer must not have received any communications from the borrower in the 90 days prior to the foreclosure referral, and the servicer must confirm that: 

·        It has complied with the early intervention live contact requirements in servicing compliance during that 90-day period. 

·        It has provided the early intervention 45-day written notice required by servicing compliance. The servicer must have sent the notice at least 10 but no more than 45 days before the foreclosure referral. 

·        It has complied with all loss mitigation notice requirements in servicing compliance during that 90-day period, such as the notice of an incomplete loss mitigation application. 

·        The borrower’s forbearance program, if applicable, ended at least 30 days before the foreclosure referral. 

Exceptions. 

Temporary procedural safeguards are not required if: 

·        The foreclosure referral occurs (as permitted by applicable law) on or after January 1, 2022. 

·        The borrower was more than 120 days delinquent prior to March 1, 2020. 

·        The applicable statute of limitations will expire before January 1, 2022. 

Loss Mitigation: COVID-19-Related Streamlined Loan Modifications 

Servicing compliance generally prohibits the servicer from evading the requirement to evaluate a complete loss mitigation application for all loss mitigation options available to the borrower by offering a loss mitigation option based on the evaluation of any information provided by a borrower in connection with an incomplete loss mitigation application. However, the rules do offer certain exceptions to this general prohibition, allowing some loss mitigation offers that are not based on evaluating a complete application, such as offers of specific short-term payment forbearance programs and certain COVID-19-related loss mitigation options. 

The Rule adds a new exception: it permits servicers to offer certain COVID-19-related loan modification options based on evaluating an incomplete application. To qualify for this exception, the loan modification program must: 

1. Limit loan term extensions. The loan modification must not extend the loan term more than 40 years from the date the modification is effective. 

2. Limit periodic payment increases. The loan modification must not increase the borrower’s monthly principal and interest payment beyond the amount that was required prior to the modification. 

3. Prohibit interest accrual on delayed amounts. If the loan modification allows the borrower to delay payment of any portion of the amount owed until the property is sold, the mortgage is refinanced, the modification matures, or, for Federal Housing Administration (FHA) insured loans, until the mortgage insurance terminates, then the loan modification must not allow interest to accrue on those amounts. Such amounts could include, for example, forborne periodic payments. 

4. Be available to borrowers with COVID-19-related hardships.

5. End (or be designed to end) preexisting delinquency. The loan modification must end any preexisting delinquency when the borrower accepts the modification offer. If a trial period applies, the loan modification must be designed to end any preexisting delinquency when the borrower satisfactorily completes any trial period requirements and accepts the permanent loan modification. 

6. Not include certain fees. The servicer must not charge fees in connection with the loan modification and must promptly waive certain existing fees the borrower owes, such as late fees, penalties, or stop-payment fees, that were incurred on or after March 1, 2020. 

Loss Mitigation: COVID-19-Related Reasonable Diligence 

Under the Rule, if a borrower is in a short-term payment forbearance program made available to borrowers with a COVID-19-related hardship and that program was offered based on an evaluation of an incomplete application, the rule specifies more precisely when the servicer must renew reasonable diligence efforts. For such borrowers, if the borrower remains delinquent, the servicer is required to contact the borrower no later than 30 days before the scheduled end of the forbearance period to determine if they wish to complete the loss mitigation application. If the borrower chooses to do so, the servicer must reinstate reasonable diligence efforts to complete the loss mitigation application before the end of the forbearance period. 

Early Intervention 

Turning now to early intervention, “live contact” comes under regulatory scrutiny. Be sure to monitor staff involved in “live contact information,” possibly using Call Calibration and overseeing any online interactions. Don’t mess up in this area, as dealing with the public can quickly spiral into regulatory, administrative action! 

Early Intervention: Additional Temporary COVID-19-Related Live Contact Information 

Currently, servicing compliance requires a servicer to make good faith efforts to establish live contact with delinquent borrowers no later than the borrower’s 36th day of delinquency and again no later than 36 days after each payment due date so long as the borrower remains delinquent. 

Promptly after establishing live contact, the servicer must inform the borrower about the availability of loss mitigation options, although it has discretion to determine if providing this information is appropriate and the level of specificity provided. 

Separately, servicers are also required to maintain policies and procedures that, among other things, ensure that the servicer’s personnel assigned to a delinquent borrower can identify all loss mitigation options available from the owner or assignee of the borrower’s mortgage as well as the actions the borrower must take to be evaluated for those options. The policies and procedures must ensure that the servicer has the ability to provide that information accurately. 

After establishing live contact under existing servicing compliance guidelines, the Rule temporarily requires a servicer to provide some delinquent borrowers with specific, additional information. The responsive action should be prompt. This requirement applies only until October 1, 2022. 

In particular, there are two categories relating to forbearance: borrowers who are not in forbearance and borrowers who are in forbearance. 

Borrowers not in forbearance 

For borrowers who are not in a forbearance program at the time live contact is established under the existing rules, if the owner or assignee of the mortgage provides forbearance programs for borrowers with a COVID-19-related hardship (as defined in the Rule), then promptly after establishing live contact, the servicer must inform the borrower of the following: 

·        Program availability statement 

·        List and description of applicable programs 

·        Homeownership counseling services 

Borrowers in forbearance 

For borrowers in a forbearance program made available to those experiencing a COVID-19-related hardship at the time live contact is established, the servicer must provide additional information during the live contact that occurs 10 to 45 days before the scheduled end of the borrower’s program. When live contact is established, the servicer must inform the borrower of the: 

·        Scheduled end date 

·        List and description of applicable programs 

·        Homeownership counseling services 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

Homeownership Counseling and Cessation of the “Temporary Disclosure”

QUESTION
We are a lender that recently received a notice from one of our investors, advising that there is a “new” Homeownership Counseling requirement with respect to applications dated on or after August 1, 2014, related to providing a complete list of HUD-approved housing counseling agencies to applicants. What new requirement is the investor referring to? What must we include in our disclosures to the applicant in order to be in compliance?  Additionally, are we required to have the applicant sign an acknowledgement of receipt of the disclosure? 

ANSWER 
The requirement referred to in the investor’s notice is not a “new” requirement. The requirement that a written list of homeownership counseling organizations be given to all applicants for federally related mortgages within three business days of receipt of the application has been in effect since January 10, 2014. [12 C.F.R. § 1024.20].  

A lender can fulfill this requirement in one of two ways:

• The first is to obtain lists through the CFPB website;

• The second method is for the lender to generate lists by independently using the same HUD data that CFPB uses. 

With respect to the second method, the CFPB recognized that most lenders would not be able to provide the lists by the January 10, 2014 effective date, because lenders had to undertake significant development of their systems to ensure that the lists are generated in compliance with the regulations. Thus, the CFPB provided “temporary disclosure” language which lenders used while incorporating the homeownership counseling instructions into their systems. 

As set forth in the e-mail you received from the investor, many investors are no longer allowing the “temporary disclosure”, but are requiring lenders to provide the required list of housing counselors directly to the applicants. In its bulletin, the CFPB noted that it understood the time necessary for the systems development to be six months.  As a result, many investors no longer allowed the “temporary disclosure” after July 10, 2014.  [CFPB Bulletin 2013-13].

The list of housing counseling agencies must meet the following requirements:

• Contain ten HUD-approved housing counseling agencies (viz., the CFPB maintains a tool on its website from which this list may be generated); 

• The ten agencies included on the list must be those that are closest to the centroid of the zip code of the applicant’s current address and must be listed in descending order of proximity to the centroid (viz., the lender can also give the applicant the option of inputting a different location from the applicant’s current zip code); 

• For each of the ten agencies, the following data must be provided:

·       Agency Name

·       Phone Number

·       Street Address

·       City

·       State

·       Website URL

·       Email Address

·       Zip Code

·       Types of Counseling Services Provided

·       Languages Spoken

• Contain the following text:

“The counseling agencies on this list are approved by the U.S. Department of Housing and Urban Development (HUD), and they can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost to you.  This list shows you several approved agencies in your area.  You can find other approved counseling agencies at the Consumer Financial Protection Bureau’s (CFPB) website: www.consumerfinance.gov/mortgagehelp or by calling 1-855-411-CFPB (2372). You can also access a list of nationwide HUD-approved counseling intermediaries at http://portal.hud.gov/hudportal/HUD?src=/ohc_nint. 

An acknowledgement of receipt of the list is not required under the regulations; however, it is required by many investors. As such, you should check with your investors as to their requirements in this regard.

Joyce Pollison

Director/Legal & Regulatory Compliance

Lenders Compliance Group

Homeownership Counseling and High Cost Mortgages

QUESTION: 

Are the homeownership counseling list requirements set forth in the High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act and RESPA (“HOEPA Final Rule) only applicable to high-cost loans? 

ANSWER: 

No. As of January 10, 2014 all lenders are required to provide consumers who apply for a federally-related mortgage with a list of HUD-approved housing counseling agencies.  This list must be in writing. The CFPB has provided two ways for a lender to fulfill its obligations as set forth in the HOEPA Final Rule. 

1) A lender may obtain the lists of HUD-approved housing counseling agencies through the CFPB’s website;[1] or

2) A lender may generate the lists of the HUD-approved housing counseling agencies by independently using the same HUD data that the CFPB uses on HUD-approved counseling agencies in accordance with the CFPB’s list instructions.[2] The CFPB published the list instructions and clarified how lenders can provide their own lists on November 8, 2014.[3]

In addition, in Bulletin 2013-13 (the “Bulletin”) the CFPB acknowledged that the second option referenced above will require lenders to “undertake significant development of their compliance systems” to ensure that lists of the HUD-approved housing counseling agencies are compliant. The CFPB also advised that lenders will not be able to provide approved agency lists under the second option for up to six month’s following the January 10, 2014 effective date.

As such, the Bulletin provides that lenders may direct borrowers to the CFPB’s housing counseling website to obtain a list of housing counselors.[4] The CFPB suggests the following text to be provided by lenders.  If followed, the CFPB suggests that the goals of the regulation would be achieved and would not raise supervisory or enforcement concerns. 

“Housing counseling agencies approved by the U.S. Department of Housing and Urban Development (HUD) can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost.

If you are interested in contacting a HUD-approved housing counseling agency in your area, you can visit the Consumer Financial Protection Bureau’s (CFPB) website, www.consumerfinance.gov/find-a-housing-counselor  and enter your zip code.

You can also access HUD’s housing counseling agency website via www.consumerfinance.gov/mortgagehelp.

For additional assistance with locating a housing counseling agency, call the CFPB at 1-855-411-CFPB (2372).”

Michael Barone
Director / Legal and Regulatory Compliance
Lenders Compliance Group

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[1] See: www.consumerfinance.gov/find-a-housing-counselor
[2] See: Section 1024.20(a)
[3] See: http://files.consumerfinance.gov/f/201311_cfpb_interpretive-rule_homeownership-counseling-organizations-lists.pdf
[4] See: www.consumerfinance.gov/find-a-housing-counselor