CFPB amends Reg X with temporary foreclosure safeguards

On Monday, the CFPB finalized amendments to the federal mortgage servicing regulations (Regulation X) to reinforce the ongoing economic recovery as the federal foreclosure moratoria are phased out and which will help protect mortgage borrowers from unwelcome surprises as they exit forbearance. The amendments will support the housing market’s smooth and orderly transition to post-pandemic operation.

The final rule issued yesterday will establish temporary special safeguards to help ensure that borrowers have time before foreclosure to explore their options, including loan modifications and selling their homes. The rules cover loans on principal residences, generally exclude small servicers, and will take effect on August 31, 2021. The rules will:

• Give borrowers a meaningful opportunity to pursue loss mitigation options. As borrowers exit forbearance, to ensure they can pursue foreclosure avoidance options, servicers must meet temporary special procedural safeguards before initiating foreclosures for certain mortgages through the end of the year.
• Allow mortgage servicers to help borrowers faster. Under the new temporary rule, servicers can offer streamlined loan modifications to borrowers with COVID-19-related hardships without making borrowers submit all the paperwork for every possible option. These streamlined loan modifications cannot increase borrowers’ payments and have other protections built into them. With this flexibility, servicers can get borrowers into affordable mortgage payment plans faster, with less paperwork for both the servicer and the borrower.
• Ensure borrowers are advised of their options. Servicers will be required to increase their outreach to borrowers before initiating foreclosure and tell borrowers key information about their repayment or other options when they communicate with borrowers who are exiting forbearance or struggling to make mortgage payments.

Under the CFPB’s rule, foreclosures will be able to start if the borrower:

• Has abandoned the property;
• Was more than 120 days behind on their mortgage before March 1, 2020;
• Is more than 120 days behind on their mortgage payments and has not responded to specific required outreach from the mortgage servicer for 90 days; or
• Has been evaluated for all options other than foreclosure and there are no available options to avoid foreclosure.

The Bureau has released an Executive Summary of the final rule. The BankersOnline Regulations pages for Regulation X have been updated with the amendments.