CFPB Finalizes Rule to Assist Borrowers Affected by COVID-19

As expected, the Consumer Financial Protection Bureau today finalized a rule to facilitate streamlined loan modification efforts and establish a temporary COVID-19 emergency pre-foreclosure period under Regulation X that would prohibit servicers from making the first notice or filing required to initiate foreclosure until Dec. 31. This “pre-foreclosure” period would apply to mortgage loans secured by the borrower’s principal residence. The pre-foreclosure period has three specific exclusions that the American Bankers Association advocated for in its comment letter.

The final rule—which takes effect Aug. 31—builds on existing rules, which prohibit a servicer from making the first notice or filing required by law until a borrower’s mortgage loan obligation is more than 120 days delinquent. The CFPB issued the rule in response to concerns that a large number of borrowers may exit forbearance at the same time this fall when they reach the maximum term of forbearance and could strain servicer capacity.

In addition, final rule will temporarily allow mortgage servicers to offer certain loan modifications made available to borrowers experiencing a COVID-19-related hardship based on the evaluation of an incomplete application. It also requires servicers to discuss specific additional COVID-19-related information as part of their early intervention obligations; clarifies servicers’ reasonable diligences when the borrower is in a short-term payment forbearance program made available to a borrower experiencing a COVID-19-related hardship based on the evaluation of an incomplete application; and offers a definition of “COVID-19-related hardship.”

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