Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X, 18840-18881 [2021-07236]

Agencies

• BUREAU OF CONSUMER FINANCIAL PROTECTION

[Federal Register Volume 86, Number 67 (Friday, April 9, 2021)]
[Proposed Rules]
[Pages 18840-18881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07236]



[[Page 18839]]

Vol. 86

Friday,

No. 67

April 9, 2021

Part III





 Bureau of Consumer Financial Protection





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12 CFR Part 1024





Protections for Borrowers Affected by the COVID-19 Emergency Under the 
Real Estate Settlement Procedures Act (RESPA), Regulation X; Proposed 
Rule

Federal Register / Vol. 86, No. 67 / Friday, April 9, 2021 / Proposed 
Rules

[[Page 18840]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1024

[Docket No. CFPB-2021-0006]
RIN 3170-AB07


Protections for Borrowers Affected by the COVID-19 Emergency 
Under the Real Estate Settlement Procedures Act (RESPA), Regulation X

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule; request for public comment.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) seeks 
comment on proposed amendments to Regulation X to assist borrowers 
affected by the COVID-19 emergency. The Bureau is taking this action to 
help ensure that borrowers affected by the COVID-19 pandemic have an 
opportunity to be evaluated for loss mitigation before the initiation 
of foreclosure. The proposed amendments would establish a temporary 
COVID-19 emergency pre-foreclosure review period until December 31, 
2021, for principal residences. In addition, the proposed amendments 
would temporarily permit 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. 
The Bureau also proposes certain amendments to the early intervention 
and reasonable diligence obligations that Regulation X imposes on 
mortgage servicers.

DATES: Comments must be received on or before May 10, 2021.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2021-
0006, by any of the following methods:
     Federal eRulemaking Portal: Go to https://www.regulations.gov. Follow the instructions for submitting comments.
     Email: [email protected]. 
Include Docket No. CFPB-2021-0006 in the subject line of the message.
     Hand Delivery/Mail/Courier: Comment Intake, Bureau of 
Consumer Financial Protection, 1700 G Street NW, Washington, DC 20552. 
Please note that due to circumstances associated with the COVID-19 
pandemic, the Bureau discourages the submission of comments by hand 
delivery, mail, or courier.
    Instructions: The Bureau encourages the early submission of 
comments. All submissions should include the agency name and docket 
number for this rulemaking. Because paper mail in the Washington, DC 
area and at the Bureau is subject to delay, and in light of 
difficulties associated with mail and hand deliveries during the COVID-
19 pandemic, commenters are encouraged to submit comments 
electronically. In general, all comments received will be posted 
without change to https://www.regulations.gov. In addition, once the 
Bureau's headquarters reopens, comments will be available for public 
inspection and copying at 1700 G Street NW, Washington, DC 20552, on 
official business days between the hours of 10 a.m. and 5 p.m. Eastern 
Time. At that time, you can make an appointment to inspect the 
documents by telephoning 202-435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Proprietary information or sensitive personal information, such as 
account numbers, Social Security numbers, or names of other 
individuals, should not be included. Comments will not be edited to 
remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Angela Fox, Shaakira Gold-Ramirez, or 
Ruth Van Veldhuizen, Counsels; or Brandy Hood or Terry J. Randall, 
Senior Counsels, Office of Regulations, at 202-435-7700 or https://reginquiries.consumerfinance.gov/. If you require this document in an 
alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION: 

I. Summary of the Proposed Rule

    The Bureau is proposing amendments to Regulation X to assist 
mortgage borrowers affected by the COVID-19 emergency. As described in 
more detail in part II, the pandemic has had a devastating economic 
impact in the United States, making it difficult for some mortgage 
borrowers to stay current on their mortgage payments. To help 
struggling borrowers, various Federal and State protections have been 
established throughout the last 13 months. For example, the Coronavirus 
Aid, Relief, and Economic Security Act (CARES Act),\1\ which was signed 
into law on March 27, 2020, provides up to 360 days of forbearance for 
mortgage borrowers with federally backed mortgages \2\ who request 
forbearance from their servicer and attest to a financial hardship 
during the COVID-19 emergency.\3\ In addition, in February 2021, the 
Federal Housing Finance Agency (FHFA), Federal Housing Administration 
(FHA), Department of Veterans Affairs (VA), or Department of 
Agriculture (USDA) announced that they were expanding their forbearance 
programs beyond the minimum required by the CARES Act for a maximum of 
up to 18 months of forbearance for borrowers who requested additional 
forbearance by a date certain.\4\ Through its mortgage market 
monitoring, the Bureau understands that servicers of mortgage loans 
that are not federally backed may be offering similar forbearance 
programs to borrowers. In addition, FHFA, FHA, USDA, and VA extended 
Federal foreclosure moratoria until June 30, 2021.\5\
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    \1\ The Coronavirus Aid, Relief, and Economic Security Act, 
Public Law 116-136, 134 Stat. 281 (2020) (CARES Act).
    \2\ The CARES Act defines a ``federally backed mortgage loan'' 
as any loan which is secured by a first or subordinate lien on 
residential real property (including individual units of 
condominiums and cooperatives) designed principally for the 
occupancy of from one-to-four families that is insured by the 
Federal Housing Administration under title II of the National 
Housing Act (12 U.S.C. 1707 et seq.); insured under section 255 of 
the National Housing Act (12 U.S.C. 1715z-20); guaranteed under 
section 184 or 184A of the Housing and Community Development Act of 
1992 (12 U.S.C. 1715z-13a, 1715z-13b); guaranteed or insured by the 
Department of Veterans Affairs; guaranteed or insured by the 
Department of Agriculture; made by the Department of Agriculture; or 
purchased or securitized by the Federal Home Loan Mortgage 
Corporation or the Federal National Mortgage Association. CARES Act 
section 4022(a)(2), 134 Stat. 281, 490.
    \3\ CARES Act, supra note 2, Sec.  4022, at 490-91.
    \4\ See Press Release, The White House, Fact Sheet: Biden 
Administration Announces Extension of COVID-19 Forbearance and 
Foreclosure Protections for Homeowners (Feb. 16, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/16/fact-sheet-biden-administration-announces-extension-of-covid-19-forbearance-and-foreclosure-protections-for-homeowners/; Press 
Release, U.S. Dep't of Hous. & Urban Dev., HUD No. 21-023, 
Extensions and expansions support the immediate and ongoing needs of 
homeowners who are experiencing economic impacts related to the 
COVID-19 pandemic (Feb. 16, 2021), https://www.hud.gov/press/press_releases_media_advisories/HUD_No_21_023; News Release, Fed. 
Hous. Fin. Agency, FHFA Extends COVID-19 Forbearance Period and 
Foreclosure and REO Eviction Moratoriums (Feb. 25, 2021), https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Extends-COVID-19-Forbearance-Period-and-Foreclosure-and-REO-Eviction-Moratoriums.aspx; Jason Davis, VA extends existing moratoriums on 
evictions and foreclosures and extends loan forbearance 
opportunities, Vantage Point: Official Blog of the U.S. Dep't of 
Veterans Aff. (Feb. 16, 2021 12:00 p.m.), https://blogs.va.gov/VAntage/84744/va-extends-existing-moratoriums-evictions-foreclosures-extends-loan-forbearance-opportunities/; Press Release, 
U.S. Dep't of Agric., Release No. 0026.21, Biden Administration 
Announces Another Foreclosure Moratorium and Mortgage Forbearance 
Deadline Extension That Will Bring Relief to Rural Residents (Feb. 
16, 2021), https://www.usda.gov/media/press-releases/2021/02/16/biden-administration-announces-another-foreclosure-moratorium-and.
    \5\ Id.

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[[Page 18841]]

    The Bureau is concerned that a potentially unprecedented number of 
borrowers may exit forbearance at the same time this fall when they 
reach the maximum term of forbearance. As of January 2021, there were 
more than 2.1 million borrowers in forbearance programs who were more 
than 90 days behind on their mortgage payments (including borrowers who 
have forborne three or more payments) that could still be experiencing 
severe hardships when their payments are to resume.\6\ If borrowers who 
are currently in an eligible forbearance program request an extension 
to the maximum time offered by the government agencies, those loans 
that were placed in a forbearance program early in the pandemic (March 
and April 2020) will reach the end of their forbearance period in 
September and October of 2021. Black Knight data suggests there could 
be an estimated 800,000 borrowers exiting their forbearance programs 
after 18 months of forborne payments in September and October of 
2021.\7\ This potentially historically high volume of borrowers exiting 
forbearance within the same short period of time could strain servicer 
capacity, potentially resulting in delays or errors in processing loss 
mitigation requests. Of the borrowers not in a forbearance program, as 
of January 2021, there were around 242,000 who were 90 days or more 
delinquent.\8\
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    \6\ Black Knights Mortg. Monitor, December 2020 Report at 5 
(Dec. 2020), https://cdn.blackknightinc.com/wp-content/uploads/2021/01/BKI_MM_Dec2020_Report.pdf (Black Dec. 2020 Report).
    \7\ Id. at 9.
    \8\ Id.
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    Both populations of delinquent borrowers are at heightened risk of 
referral to foreclosure soon after the foreclosure moratoria end if 
they cannot bring their loan current or reach a loss mitigation 
agreement with their servicer to resolve their delinquency and avoid 
foreclosure. The Bureau is also concerned that a potentially 
historically high number of borrowers will seek assistance from their 
servicers at the same time, which could lead to delays and errors as 
servicers work to process a high volume of loss mitigation inquiries 
and applications this fall. In addition, the Bureau is concerned that 
the circumstances facing borrowers due to the COVID-19 emergency, which 
may involve potential economic hardship, health conditions, and 
extended periods of forbearance or delinquency, may interfere with some 
borrowers' ability to obtain and understand important information that 
the existing rule aims to provide borrowers regarding the foreclosure 
avoidance options available to them.
    Overall, the proposed amendments aim to encourage borrowers and 
servicers to work together to facilitate review for foreclosure 
avoidance options, including to ensure that borrowers have the 
opportunity to be reviewed for loss mitigation options before a 
servicer makes the first notice or filing required for foreclosure. The 
proposed amendments would only apply to mortgage loans secured by the 
borrower's principal residence. An abandoned property is less likely to 
be a borrower's principal residence.\9\ None of the proposed amendments 
would apply to small servicers.\10\
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    \9\ Determining a borrower's principal residence will depend on 
the specific facts and circumstances regarding the property and 
applicable State law. For example, a vacant property may still be a 
borrower's principal residence. An abandoned property, however, 
might no longer be a borrower's principal residence.
    \10\ See 12 CFR 1024.30(b)(1); 12 CFR 1026.41(e)(4).
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    In this proposal, the Bureau is focused on both the population of 
borrowers who are currently delinquent and not in either an active 
forbearance or an alternative loss mitigation option, and on the large 
population of borrowers who will be exiting forbearance programs in the 
next several months. In issuing this proposal, the Bureau recognizes 
that both the weight of the COVID-19 pandemic and related economic 
effects have disproportionately fallen upon communities in which many 
individuals and families were struggling financially even before the 
pandemic including--Black, Hispanic, Native American, rural, and lower-
income communities. For example, the Bureau's analysis of a December 
2020 Census pulse survey showed that Black and Hispanic households were 
more than twice as likely to report being behind on their housing 
payments as white households.\11\
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    \11\ Bureau of Consumer Fin. Prot., Housing insecurity and the 
COVID-19 pandemic at 8 (Mar. 2021), https://files.consumerfinance.gov/f/documents/cfpb_Housing_insecurity_and_the_COVID-19_pandemic.pdf (Housing 
Insecurity Report).
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    The proposed amendments to Regulation X would establish a temporary 
COVID-19 emergency pre-foreclosure review period that would generally 
prohibit servicers from making the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process 
until after December 31, 2021. This restriction would be in addition to 
existing Sec.  1024.41(f)(1)(i), which prohibits a servicer from making 
the first notice or filing required by applicable law until a 
borrower's mortgage loan obligation is more than 120 days delinquent. 
The Bureau is also seriously considering, and therefore seeking comment 
on, exemptions from this proposed restriction that would permit 
servicers to make the first notice or filing before December 31, 2021, 
if the servicer (1) has completed a loss mitigation review of the 
borrower and the borrower is not eligible for any non-foreclosure 
option or (2) has made certain efforts to contact the borrower and the 
borrower has not responded to the servicer's outreach.
    Second, the Bureau proposes to permit servicers to offer certain 
streamlined loan modification options made available to borrowers with 
COVID-19-related hardships based on the evaluation of an incomplete 
application. Eligible loan modifications must satisfy certain criteria 
that aim to establish sufficient safeguards to ensure that a borrower 
is not harmed if the borrower chooses to accept an offer of an eligible 
loan modification instead of completing a loss mitigation application. 
First, to be eligible, the loan modification must be made available to 
a borrower experiencing a COVID-19-related hardship. Second, the loan 
modification may not cause the borrower's monthly required principal 
and interest payment to increase and may not extend the term of the 
loan by more than 480 months from the date the loan modification is 
effective. Third, any amounts that the borrower may delay paying until 
the mortgage loan is refinanced, the mortgaged property is sold, or the 
loan modification matures, must not accrue interest. Fourth, the 
servicer may not charge any fee in connection with the loan 
modification and must waive all existing late charges, penalties, stop 
payment fees, or similar charges promptly upon the borrower's 
acceptance of the loan modification. Finally, the borrower's acceptance 
of an offer of the loan modification must end any preexisting 
delinquency on the mortgage loan or the loan modification must be 
designed to end any preexisting delinquency on the mortgage loan upon 
the borrower satisfying the servicer's requirements for completing a 
trial loan modification plan and accepting a permanent loan 
modification. If the borrower accepts an offer made pursuant to this 
new exception, the proposal would exclude servicers from certain 
requirements with regard to any loss mitigation application submitted 
prior to the loan modification offer, including exercising reasonable 
diligence to complete the loss mitigation application and sending the

[[Page 18842]]

acknowledgment notice required by Sec.  1024.41(b)(2). However, the 
proposal would require servicers to immediately resume reasonable 
diligence with regard to any loss mitigation application the borrower 
submitted prior to the servicer's offer of the trial loan modification 
plan if the borrower fails to perform under a trial loan modification 
plan offered pursuant to the proposed new exception or requests further 
assistance.
    Third, the Bureau proposes amendments to the early intervention and 
reasonable diligence obligations to ensure that servicers are 
communicating timely and accurate information to borrowers about their 
loss mitigation options during the current crisis. Specifically, the 
Bureau is proposing to amend the early intervention requirements to 
require servicers to discuss specific additional COVID-19-related 
information during live contact with borrowers established under 
existing Sec.  1024.39(a) in two specific circumstances. First, if the 
borrower is not in a forbearance program at the time the servicer 
establishes live contact with the borrower pursuant to Sec.  1024.39(a) 
and the owner or assignee of the borrower's mortgage loan makes a 
forbearance program available to borrowers experiencing a COVID-19-
related hardship, the servicer must ask the borrower whether the 
borrower is experiencing a COVID-19-related hardship. If the borrower 
indicates that the borrower is experiencing a COVID-19-related 
hardship, the servicer must list and briefly describe to the borrower 
any such payment forbearance programs made available and the actions 
the borrower must take to be evaluated for such forbearance programs. 
Second, if the borrower is in a forbearance program made available to 
borrowers experiencing a COVID-19-related hardship, during the last 
live contact made pursuant to Sec.  1024.39(a) that occurs prior to the 
end of the forbearance period, the servicer must provide certain 
information to the borrower. The servicer must inform the borrower of 
the date the borrower's current forbearance program ends. In addition, 
the servicer must provide a list and brief description of each of the 
types of forbearance extension, repayment options, and other loss 
mitigation options made available by the owner or assignee of the 
borrower's mortgage loan to resolve the borrower's delinquency at the 
end of the forbearance program. Finally, the servicer must inform the 
borrower of the actions the borrower must take to be evaluated for such 
loss mitigation options. The Bureau proposes to include an August 31, 
2022 sunset date for the proposed amendments to the early intervention 
requirements.
    In addition, the Bureau proposes to clarify servicers' reasonable 
diligence obligations 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. Specifically, the proposed amendment would specify that a 
servicer must contact the borrower no later than 30 days before the end 
of the forbearance period to determine if the borrower wishes to 
complete the loss mitigation application and proceed with a full loss 
mitigation evaluation. If the borrower requests further assistance, the 
servicer must exercise reasonable diligence to complete the application 
before the end of the forbearance program period.
    Finally, the Bureau is also proposing to define COVID-19-related 
emergency to mean a financial hardship due, directly or indirectly, to 
the COVID-19 emergency as defined in the Coronavirus Economic 
Stabilization Act, section 4022(a)(1) (15 U.S.C. 9056(a)(1)).
    The Bureau solicits comment on all aspects of this proposed rule. 
The Bureau is particularly interested in whether the proposed 
amendments facilitate efficient and timely pre-foreclosure loss 
mitigation review without interfering with the housing market in a way 
that is not proportional to the level of potential borrower harm, 
including by permitting foreclosure for the disposition of abandoned 
properties and in other instances where loss mitigation is not 
possible. In this vein, the Bureau is interested in receiving comments 
on operational challenges mortgage servicers may experience in 
implementing the proposal or whether the proposal adequately addresses 
the risks to borrowers the Bureau has identified. In addition, the 
Bureau solicits comment generally on whether the proposal would 
successfully prevent avoidable foreclosures or might lead to other 
borrower harms. The Bureau also seeks comment on whether the Bureau has 
accurately identified the risks of borrower harm.

II. Background

A. The Bureau's Regulation X Mortgage Servicing Rules

    In January 2013, the Bureau issued the Mortgage Servicing Rules to 
implement the Real Estate Settlement Procedures Act of 1974 
(RESPA),\12\ and included these rules in Regulation X.\13\ The Bureau 
later clarified and revised Regulation X's servicing rules through 
several additional notice-and-comment rulemakings.\14\ In part, these 
rulemakings were intended to address deficiencies in servicers' 
handling of delinquent borrowers and loss mitigation applications 
during and after the 2008 financial crisis.\15\ When the housing crisis 
began, servicers were faced with historically high numbers of 
delinquent mortgages, loan modification requests, and in-process 
foreclosures in their portfolios.\16\ Many servicers lacked the 
infrastructure, trained staff, controls, and procedures needed to 
manage effectively the flood of delinquent mortgages they were 
obligated to

[[Page 18843]]

handle.\17\ Inadequate staffing and procedures led to a range of 
reported problems with servicing of delinquent loans, including some 
servicers misleading borrowers, failing to communicate with borrowers, 
losing or mishandling borrower-provided documents supporting loan 
modification requests, and generally providing inadequate service to 
delinquent borrowers.\18\
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    \12\ Real Estate Settlement Procedures Act of 1974, Pub. L. 93-
533, 88 Stat. 1724 (codified as amended at 12 U.S.C. 2601 et seq.).
    \13\ 78 FR 10695 (Feb. 14, 2013) (2013 RESPA Servicing Final 
Rule). In February 2013, the Bureau also published separate 
``Mortgage Servicing Rules Under the Truth in Lending Act 
(Regulation Z)'' (2013 TILA Servicing Final Rule). See 78 FR 10902 
(Feb. 14, 2013). The Bureau conducted an assessment of the RESPA 
mortgage servicing rule in 2018-19 and released a report detailing 
its findings in early 2019. Bureau of Consumer Fin. Prot., 2013 
RESPA Servicing Rule Assessment Report, (Jan. 2019), https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rule-assessment_report.pdf (Servicing Rule Assessment Report).
    \14\ Amendments to the 2013 Mortgage Rules under the Real Estate 
Settlement Procedures Act (Regulation X) and the Truth in Lending 
Act (Regulation Z), 78 FR 44686 (July 24, 2013); Amendments to the 
2013 Mortgage Rules under the Equal Credit Opportunity Act 
(Regulation B), Real Estate Settlement Procedures Act (Regulation 
X), and the Truth in Lending Act (Regulation Z), 78 FR 60382 (Oct. 
1, 2013); Amendments to the 2013 Mortgage Rules under the Real 
Estate Settlement Procedures Act (Regulation X) and the Truth in 
Lending Act (Regulation Z), 78 FR 62993 (Oct. 23, 2013); Amendments 
to the 2013 Mortgage Rules Under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z), 81 FR 72160 (Oct. 19, 2016) (2016 Mortgage Servicing 
Final Rule); Amendments to the 2013 Mortgage Rules Under RESPA 
(Regulation X) and TILA (Regulation Z), 82 FR 30947 (July 5, 2017); 
Mortgage Servicing Rules Under RESPA (Regulation X), 82 FR 47953 
(Oct. 16, 2017). The Bureau also issued notices providing guidance 
on the Rule and soliciting comment on the Rule. See, e.g., 
Applicability of Regulation Z's Ability-to-Repay Rule to Certain 
Situations Involving Successors-in-Interest, 79 FR 41631 (July 17, 
2014); Safe Harbors from Liability Under the Fair Debt Collections 
Practices Act for Certain Actions in Compliance with Mortgage 
Servicing Rules Under the Real Estate Settlement Procedures Act 
(Regulation X) and the Truth in Lending Act (Regulation Z), 81 FR 
71977 (Oct. 19, 2016); Policy Guidance on Supervisory and 
Enforcement Priorities Regarding Early Compliance With the 2016 
Amendments to the 2013 Mortgage Servicing Rules Under RESPA 
(Regulation X) and TILA (Regulation Z), 82 FR 29713 (June 30, 2017).
    \15\ See generally 2013 RESPA Servicing Final Rule, supra note 
13, at 10699-701.
    \16\ See Servicing Rule Assessment Report, supra note 13, at 37-
60.
    \17\ 2013 RESPA Servicing Final Rule, supra note 13, at 10700.
    \18\ See U.S. Gov't Accountability Off., Troubled Asset Relief 
Program: Further Actions Needed to Fully and Equitably Implement 
Foreclosure Mitigation Actions, GAO-10-634, at 14-16 (2010), https://www.gao.gov/assets/310/305891.pdf; Problems in Mortgage Servicing 
from Modification to Foreclosure: Hearing Before the S. Comm. on 
Banking, Hous., and Urban Affairs, 111th Cong. 54 (2010) (statement 
of Thomas J. Miller, Att'y Gen. State of Iowa), https://www.banking.senate.gov/imo/media/doc/MillerTestimony111610.pdf.
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    The Bureau's mortgage servicing rules address these concerns by 
establishing procedures that mortgage servicers generally must follow 
in evaluating loss mitigation applications submitted by mortgage 
borrowers \19\ and requiring certain communication efforts with 
delinquent borrowers.\20\ The mortgage servicing rules also provide 
certain protections against foreclosure based on the length of the 
borrower's delinquency and the receipt of a complete loss mitigation 
application.\21\ For example, Regulation X generally prohibits a 
servicer from making the first notice or filing required for 
foreclosure until the borrower's mortgage loan is more than 120 days 
delinquent.\22\ These requirements are discussed more fully in the 
section-by-section analysis in part IV.
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    \19\ See generally 12 CFR 1024.41. Small servicers, as defined 
in Regulation Z, 12 CFR 1026.41(e)(4), are generally exempt from 
these requirements. 12 CFR 1024.30(b)(1).
    \20\ 12 CFR 1024.39.
    \21\ 12 CFR 1024.41(f) through (g).
    \22\ 12 CFR 1024.41(f)(1)(i).
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    The COVID-19 pandemic was declared a national emergency on March 
13, 2020, and the emergency declaration was continued in effect on 
February 24, 2021.\23\ As described in more detail below, the pandemic 
has had a devastating economic impact in the United States. In June of 
2020, the Bureau issued an interim final rule (June 2020 IFR) amending 
Regulation X to provide a temporary exception from certain required 
loss mitigation procedures for certain loss mitigation options offered 
to borrowers experiencing a COVID-19-related hardship.\24\ The IFR 
aimed to make it easier for borrowers to transition out of financial 
hardship caused by the COVID-19 pandemic and for mortgage servicers to 
assist those borrowers. With certain exceptions, Regulation X prohibits 
servicers from offering a loss mitigation option to a borrower based on 
evaluation of an incomplete application.\25\ The June 2020 IFR amended 
Regulation X to allow servicers to offer certain loss mitigation 
options to borrowers experiencing financial hardships due, directly or 
indirectly, to the COVID-19 emergency based on an evaluation of an 
incomplete loss mitigation application. Eligible loss mitigation 
options, among other things, must permit borrowers to delay paying 
certain amounts until the mortgage loan is refinanced, the mortgaged 
property is sold, the term of the mortgage loan ends, or, for a 
mortgage insured by the Federal Housing Administration, the mortgage 
insurance terminates.
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    \23\ 86 FR 11599 (Feb. 26, 2021).
    \24\ 85 FR 39055 (June 30, 2020).
    \25\ See 12 CFR 1024.41(c)(2).
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B. Forbearance Programs Offered Under CARES Act

    The CARES Act was signed into law on March 27, 2020, and provides 
protections for borrowers with federally backed mortgages, which are 
mortgage loans purchased or securitized by Fannie Mae or Freddie Mac 
(the GSEs) and loans made, insured, or guaranteed by FHA, VA, or USDA. 
Under the CARES Act, a borrower with a federally backed loan may 
request a 180-day forbearance that may be extended for another 180 days 
at the request of the borrower if the borrower attests to financial 
hardship during the COVID-19 emergency. The servicer must grant these 
forbearances.\26\
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    \26\ CARES Act, supra note 2, Sec.  4022, at 490-91.
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    In February 2021, almost a year into the COVID-19 emergency, FHA, 
FHFA, USDA, and VA announced that they were expanding their forbearance 
programs beyond the minimum required by the CARES Act. The agencies 
noted that the expansion of the forbearance programs was to deliver 
immediate and continued relief for borrowers affected by the 
pandemic.\27\ The agencies extended the length of COVID-19 forbearance 
programs for up to an additional six months for a maximum of up to 18 
months of forbearance for borrowers who requested additional 
forbearance by a date certain.\28\ These additional forbearance program 
extensions may provide assistance to borrowers who need additional time 
to stabilize their financial situation. In addition to the expansion of 
the programs, FHA, USDA, and VA extended the period for borrowers to be 
approved for a COVID-19 forbearance program from their mortgage 
servicer to June 30, 2021.\29\ FHFA has not announced a deadline to 
request initial forbearance for loans purchased or securitized by the 
GSEs.\30\
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    \27\ See Press Release, The White House, Fact Sheet: Biden 
Administration Announces Extension of COVID-19 Forbearance and 
Foreclosure Protections for Homeowners (Feb. 16, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/16/fact-sheet-biden-administration-announces-extension-of-covid-19-forbearance-and-foreclosure-protections-for-homeowners/; Press 
Release, U.S. Dep't of Hous. & Urban Dev., HUD No. 21-023, 
Extensions and expansions support the immediate and ongoing needs of 
homeowners who are experiencing economic impacts related to the 
COVID-19 pandemic (Feb. 16, 2021), https://www.hud.gov/press/press_releases_media_advisories/HUD_No_21_023; News Release, Fed. 
Hous. Fin. Agency, FHFA Extends COVID-19 Forbearance Period and 
Foreclosure and REO Eviction Moratoriums (Feb. 25, 2021), https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Extends-COVID-19-Forbearance-Period-and-Foreclosure-and-REO-Eviction-Moratoriums.aspx; Jason Davis, VA extends existing moratoriums on 
evictions and foreclosures and extends loan forbearance 
opportunities, Vantage Point: Official Blog of the U.S. Dep't of 
Veterans Aff. (Feb. 16, 2021 12:00 p.m.), https://blogs.va.gov/VAntage/84744/va-extends-existing-moratoriums-evictions-foreclosures-extends-loan-forbearance-opportunities/; Press Release, 
U.S. Dep't of Agric., Release No. 0026.21, Biden Administration 
Announces Another Foreclosure Moratorium and Mortgage Forbearance 
Deadline Extension That Will Bring Relief to Rural Residents (Feb. 
16, 2021), https://www.usda.gov/media/press-releases/2021/02/16/biden-administration-announces-another-foreclosure-moratorium-and.
    \28\ FHA, VA, and USDA permit borrowers who were in a COVID-19 
forbearance program prior to June 30, 2020 to be granted up to two 
additional three-month payment forbearance programs. FHFA stated 
that the additional three-month extension allows borrowers to be in 
forbearance for up to 18 months. Eligibility for the extension is 
limited to borrowers who are in a COVID-19 forbearance program as of 
February 28, 2021, and other limits may apply. Id.
    \29\ See supra note 27.
    \30\ News Release, Fed. Hous. Fin. Agency, FHFA Announces that 
Enterprises will Purchase Qualified Loans in Forbearance to Keep 
Lending Flowing (Apr. 22, 2020), https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-that-Enterprises-will-Purchase-Qualified-Loans.aspx.
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    These forbearance programs offered under the CARES Act have 
assisted borrowers in a meaningful way by providing a lifeline during 
the economic crisis.\31\ Through its mortgage market monitoring, the 
Bureau understands that servicers of mortgage loans that are not 
federally backed may be offering similar forbearance programs to 
borrowers.
---------------------------------------------------------------------------

    \31\ JPMorgan Chase & Co. Inst., Is Mortgage Forbearance 
Reaching the Right Homeowners during the COVID-19 Pandemic? (Dec. 
2020), https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chase-and-co/institute/pdf/institute-covid-mortgage-forbearance-policy-brief-new.pdf.

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[[Page 18844]]

C. Borrowers With Loans in Forbearance Due to the COVID-19 Emergency

    Since the CARES Act was enacted, 6.9 million borrowers have entered 
a forbearance program.\32\ As of February 2021, approximately 2.7 
million borrowers remain in active forbearance programs.\33\ Of the 
loans actively in forbearance, 903,000 are owned by the GSEs, 1.26 
million are insured by FHA, VA, and 678,000 are held in portfolio or 
are privately securitized.\34\ Of the 1.5 million borrowers who are 
currently 90 days or more past due on their mortgage payments, more 
than 98 percent have either received a forbearance on their mortgage 
loan or are currently actively participating in loss mitigation with 
their servicer.\35\
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    \32\ Black Dec. 2020 Report, supra note 6, at 12.
    \33\ Id.
    \34\ Id.
    \35\ Id. at 14.
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    Of the 6.9 million borrowers who have entered forbearance programs, 
approximately 4.2 million borrowers have exited their forbearance 
program.\36\ More than 50 percent of all borrowers who initiated a 
forbearance program, since the pandemic started, have begun to make 
their mortgage payments and are reperforming under the original terms 
of their agreement or have paid their mortgage off in full by either 
refinancing or selling their home.\37\ Although market conditions have 
been favorable for refinancing or selling a borrower's home, it remains 
uncertain how market conditions will affect a borrower's ability to 
sell or refinance their home in the future.
---------------------------------------------------------------------------

    \36\ Black Knights Mortg. Monitor, January 2021 Report at 11 
(Jan. 2021), https://cdn.blackknightinc.com/wp-content/uploads/2021/03/BKI_MM_Jan2021_Report.pdf (Black Jan. 2021 Report).
    \37\ Id.
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    The disposition or exit of loans in a COVID-19 forbearance has 
varied by investor. Of the millions of borrowers who have entered a 
forbearance program, more than half have since exited.\38\ Nearly two-
thirds of GSE borrowers have exited their forbearance programs and 
roughly 60 percent are either now current on their mortgage or have 
paid off their mortgage in full by either refinancing or selling their 
home.\39\ Although FHA has the highest rate of borrowers in a 
forbearance program, they also have the lowest portion of borrowers who 
have exited a forbearance program.\40\ Of the FHA loans that entered a 
forbearance program, 49 percent have exited to date.\41\ In addition, 
35 percent of FHA borrowers are reperforming and 7 percent have paid 
off their mortgage.\42\ Comparatively, of the loans in forbearance held 
in private securities or portfolio approximately 50 percent have 
exited.\43\
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    \38\ Id.
    \39\ Id.
    \40\ Id.
    \41\ Id.
    \42\ Id.
    \43\ Id.
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    Based on informal outreach the Bureau has conducted with servicers 
since the COVID-19 emergency began, the Bureau understands that payment 
behavior of borrowers in forbearance programs has changed over time. 
These changes suggest that borrowers who are in forbearance programs 
now are borrowers who are experiencing severe or permanent hardships, 
and it may be more challenging for these borrowers to resume their 
mortgage payments. Black Knight reports that more than 40 percent of 
borrowers in forbearance programs continued to make their mortgage 
payments in the early months of the pandemic.\44\ However, as of 
January 2021, the percent of borrowers making their mortgage payments 
had fallen to 10 percent.\45\ Freddie Mac also examined payment 
behavior of borrowers in February 2021. Freddie Mac's research revealed 
that in the first month of forbearance 40 percent of borrowers 
continued to make their mortgage payment. In the second month, only 24 
percent of borrowers made their mortgage payment.\46\
---------------------------------------------------------------------------

    \44\ Id. at 12.
    \45\ Id.
    \46\ Fed. Home Loan Mortg. Corp., Mortgage Forbearance and 
Performance during the Early Months of the COVID-19 Pandemic (Feb. 
08, 2021), https://www.freddiemac.com/research/insight/20210208_mortgage_forbearance_rate_during_COVID-19.page.
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    This data is consistent with information that servicers have shared 
with the Bureau informally. Servicers have indicated that early in the 
pandemic almost half of borrowers in forbearance programs continued to 
make their monthly mortgage payments. Some borrowers only missed one or 
two mortgage payments, which made it possible for those borrowers to 
make up the missed payments. Other borrowers requested forbearance just 
in case they became unable to make their mortgage payments, but 
ultimately continued to make their payments. The Bureau, through its 
market monitoring, understands that in general, the percent of 
borrowers making their mortgage payments while in a forbearance program 
has declined relative to the number of borrowers who remain in 
forbearance.
    Considering that the number of borrowers making payments while in a 
forbearance program may continue to decline, combined with the large 
number of mortgages that entered forbearance since the COVID-19 
emergency, the Bureau anticipates that most of the borrowers who remain 
in active forbearance will need to obtain a loss mitigation option, 
such as repayment plans, payment deferral programs, loan modifications, 
or short sales, to resolve their delinquency when their forbearance 
programs come to an end.
    Furthermore, because the number of new forbearance requests also 
continues to decline (as of February 16, 2021, this number had fallen 
to the lowest post-pandemic rate) the Bureau anticipates that those who 
entered a forbearance program early in the pandemic and are not making 
their mortgage payments might struggle the most when the time comes to 
restart making their payments.\47\ The Bureau welcomes comments and 
information on these trends and on which borrowers might be at highest 
risk of foreclosure at the end of their forbearance program.
---------------------------------------------------------------------------

    \47\ Black Jan. 2021 Report, supra note 36, at 8.
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    Borrowers who requested forbearance early on in the pandemic have 
reached a critical milestone. At the end of February 2021, 
approximately 160,000 borrowers in forbearance programs reached 12 
months of forbearance.\48\ At the end of March 2021, an estimated 
additional 600,000 borrowers had been in a forbearance program for 12 
months.\49\ Another estimated 300,000 or more borrowers will reach the 
end of their 12 months of forbearance required by the CARES Act at the 
end of April 2021.\50\ The Bureau is not aware of another time when 
this many mortgage borrowers were in forbearances of such long duration 
at once, or another time when as many mortgage borrowers were forecast 
to exit forbearance within a relatively short time frame. This lack of 
historical precedent creates market uncertainty for the future. The 
Bureau anticipates that many borrowers who continue to be financially 
impacted (for example, those who are unemployed or underemployed) will 
request additional forbearance, as a result of the recently announced 
government extensions. For borrowers previously employed in the 
hospitality industry, which has been hit particularly hard, long-term 
unemployment may further impact their

[[Page 18845]]

ability to resume paying their mortgages.\51\
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    \48\ Id. at 7.
    \49\ Id. at 9.
    \50\ Id. at 11.
    \51\ Neil Paine, The Industries Hit Hardest By The Unemployment 
Crisis, FiveThirtyEight, (May 5, 2020), https://fivethirtyeight.com/features/the-industries-hit-hardest-by-the-unemployment-crisis/.
---------------------------------------------------------------------------

    If borrowers who are currently in an eligible forbearance program 
request an extension to the maximum time offered by the government 
agencies, those loans that were placed in a forbearance program early 
in the pandemic (March and April 2020) will reach the end of their 
forbearance period in September and October of 2021. Black Knight data 
suggests there could be an estimated 800,000 borrowers exiting their 
forbearance programs after 18 months of forborne payments in September 
and October of 2021.\52\ This potentially historically high volume of 
borrowers exiting forbearance within the same short period of time 
could strain servicer capacity, potentially resulting in delays or 
errors in processing loss mitigation requests. It remains unclear how 
many borrowers in a forbearance program will exit forbearance at 12 
months rather than exercising any additional extensions.\53\
---------------------------------------------------------------------------

    \52\ Black Jan. 2021 Report, supra note 36, at 9.
    \53\ Id.
---------------------------------------------------------------------------

    Borrowers facing more permanent hardships may need to seek a loss 
mitigation option when their forbearance program ends to resolve their 
delinquency.\54\ Additionally, borrowers for whom homeownership is no 
longer sustainable may need additional time to sell their homes.
---------------------------------------------------------------------------

    \54\ Michael Neal, Urban Inst., Mortgage Market COVID 19 
Collaborative: Forbearance and Delinquency Among Agency Mortgage 
Loans, (Mar. 19, 2021), https://www.urban.org/policy-centers/housing-finance-policy-center/projects/mortgage-markets-covid-19-collaborative/covid-19-research-and-data.
---------------------------------------------------------------------------

D. Borrowers With Loans Not in a Forbearance Program

    Even though millions of borrowers have received assistance through 
forbearance programs, there are still thousands of borrowers who are 
delinquent or in danger of becoming delinquent and are not in a 
forbearance program or actively in loss mitigation. As of January 2021, 
serious delinquencies (90 days or more delinquent) were 5 times their 
pre-pandemic levels.\55\ There were also approximately 207,000 
seriously delinquent borrowers who were delinquent before the pandemic 
started and are not in a forbearance program, and another 35,000 
borrowers who became seriously delinquent after the pandemic began and 
had not entered a forbearance program and were not in active loss 
mitigation.\56\ As of August 2020, the serious delinquency rate has not 
been this high since February 2014.\57\ This means there is a 
significant population (an estimated 242,000) of borrowers who were 
seriously delinquent and could benefit from a forbearance program.
---------------------------------------------------------------------------

    \55\ Black Jan. 2021 Report, supra note 36, at 4.
    \56\ Black Dec. 2020 Report, supra note 6, at 14.
    \57\ Molly Boesel, Loan Performance Insights Report Highlights: 
November 2020, Corelogic Insights Blog (Feb. 9, 2021), https://www.corelogic.com/blog/2021/2/rate-of-new-delinquencies-falls-below-pre-pandemic-levels.aspx.
---------------------------------------------------------------------------

    The amendments included in this proposed rule are intended to 
encourage all borrowers and servicers to work together to facilitate 
review for foreclosure avoidance options. The Bureau recognizes that 
the large number of borrowers expected to exit forbearance over the 
coming months will place significant strain on servicer infrastructure. 
The proposed amendments allowing streamlined loan modifications based 
on the evaluation of an incomplete application should facilitate 
efficient post-forbearance resolutions for many borrowers for whom a 
payment deferral program does not meet the borrowers' needs. Similarly, 
the proposals regarding early intervention and reasonable diligence aim 
to emphasize the importance of servicers conducting outreach to 
borrowers. The Bureau is proposing the special pre-foreclosure review 
period as a final backstop to ensure that borrowers affected by COVID-
19 emergency have an opportunity to be evaluated for loss mitigation 
before foreclosure, including, where appropriate, time to sell their 
homes in an arms' length transaction rather than at a foreclosure sale.

E. Post-Forbearance Options for Borrowers Affected by the COVID-19 
Emergency

    Since the beginning of the COVID-19 emergency, servicers have 
implemented several post-forbearance repayment options and other loss 
mitigation options to assist borrowers experiencing a COVID-19-related 
hardship. Many borrowers have been able to benefit from historically 
low-interest rates and have refinanced their mortgage resulting in a 
lower mortgage payment. However, access to low interest-rate refinances 
may be less available for some borrowers.
    Borrowers exiting a forbearance program may have several options 
available depending on their specific financial situation, and the 
owner, investor, or insurer of their loan. For example, at any point 
during a forbearance program, a borrower has the option to reinstate 
their mortgage by paying all missed mortgage payments at once. After a 
borrower reinstates their mortgage, the borrower continues to pay their 
monthly mortgage payment under the original terms of their mortgage 
loan agreement. Reinstatement may be increasingly difficult for 
borrowers who did not make any payments during the lengthy forbearances 
offered to borrowers with COVID-19 related hardships.
    Another option for borrowers exiting forbearance programs includes 
repayment plans. Repayment plans are best suited for borrowers with 
resolved hardships, who can afford to restart making their full 
contractual monthly mortgage payments plus an agreed-upon amount of the 
missed mortgage payments each month until the total missed payment 
amount is repaid in full. Regulation X generally permits a servicer to 
offer a short-term repayment plan, as defined in the rule, without 
evaluating a complete loss mitigation application from the borrower, if 
certain requirements are met.\58\ However, there may be repayment plans 
that do not meet this definition that may require the borrower to be 
reviewed based on a complete application.
---------------------------------------------------------------------------

    \58\ Section 1024.41(c)(2)(iii) defines a repayment plan for 
purposes of Sec.  1024.41(c)(2) as a loss mitigation option with 
terms under which a borrower would repay all past due payments over 
a specified period of time to bring the mortgage loan account 
current. Comment 41(c)(2)(iii)-4 also defines a short-term repayment 
plan for purposes of Sec.  1024.41(c)(2)(iii) as a repayment plan 
allowing for the repayment of no more than three months of past due 
payments and allowing a borrower to repay the arrearage over a 
period lasting no more than six months. Short-term repayment plans 
not meeting this definition would generally require a complete 
application.
---------------------------------------------------------------------------

    Servicers have also made available options such as payment deferral 
programs or partial claims programs to assist in the repayment of 
delinquent mortgage amounts. The benefit of these programs for 
borrowers is that they allow the borrower, if financially able, to 
resume their pre-forbearance mortgage payment and defer any missed 
payment amounts until the end of the mortgage term without accruing any 
additional interest or late fees. These programs bring a borrower's 
mortgage current but are typically only available when other options, 
such as reinstatement or a repayment plan, are not feasible. The June 
2020 IFR provides flexibility for servicers to offer certain deferrals 
to borrowers based on the evaluation of an incomplete application.\59\
---------------------------------------------------------------------------

    \59\ 85 FR 39055 (June 30, 2020) (permitting servicers to offer 
certain payment deferrals based on the evaluation of an incomplete 
application).

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[[Page 18846]]

    Servicers have also made available loan modification options for 
borrowers. With a loan modification, the borrower's mortgage terms 
change, such as through extending the number of years to repay the 
loan, reducing the interest rate, or reducing the principal balance. 
Loan modifications often lower the borrower's monthly payment to a more 
affordable amount. The GSEs and FHA permit streamlined application 
procedures for some loan modifications, such as the GSE Streamlined 
Flex Modification and FHA's COVID-19 Modification.
    If borrowers find themselves unable to stabilize their finances or 
do not wish to remain in their home, servicers also offer short sales 
or deed-in-lieu of foreclosure as an alternative to foreclosure.

F. Heightened Risk of Foreclosures

    The Bureau's mortgage servicing rules generally prohibit servicers 
from making the first notice or filing required for foreclosure until 
the borrower's mortgage loan obligation is more than 120 days 
delinquent.\60\ Even where forbearance programs pause or defer payment 
obligations, they do not necessarily pause delinquency.\61\ A 
borrower's delinquency may begin or continue during a forbearance 
period if a periodic payment sufficient to cover principal, interest, 
and, if applicable, escrow is due and unpaid during the forbearance. 
Because the forbearance programs offered during the current crisis 
generally do not pause delinquency and borrowers may be delinquent for 
longer than 120 days, it is possible that a servicer may refer the loan 
to foreclosure soon after a borrower's forbearance program ends unless 
a foreclosure moratorium or other restriction is in place.
---------------------------------------------------------------------------

    \60\ 12 CFR 1024.41(f). See also 12 CFR 1024.30(c)(2) (limiting 
the scope of this provision to a mortgage loan secured by a property 
that is the borrower's principal residence).
    \61\ For purposes of Regulation X, a preexisting delinquency 
period could continue or a new delinquency period could begin even 
during a forbearance program that pauses or defers loan payments if 
a periodic payment sufficient to cover principal, interest, and, if 
applicable, escrow is due and unpaid according to the loan contract 
during the forbearance program. 12 CFR 1024.31 (defining delinquency 
as the ``period of time during which a borrower and a borrower's 
mortgage loan obligation are delinquent'' and stating that ``a 
borrower and a borrower's mortgage obligation are delinquent 
beginning on the date a periodic payment sufficient to cover 
principal, interest, and, if applicable, escrow becomes due and 
unpaid, until such time as no periodic payment is due and unpaid.'') 
However, it is important to note that Regulation X's definition of 
delinquency applies only for purposes of the mortgage servicing 
rules in Regulation X and is not intended to affect consumer 
protections under other laws or regulations, such as the Fair Credit 
Reporting Act (FCRA) and Regulation V. The Bureau clarified this 
relationship in the Bureau's 2016 Mortgage Servicing Final Rule. 81 
FR 72160, 72193 (Oct. 19, 2016). Under the CARES Act amendments to 
the FCRA, furnishers are required to continue to report certain 
credit obligations as current if a consumer receives an 
accommodation and is not required to make payments or makes any 
payments required pursuant to the accommodation. See Bureau of 
Consumer Fin. Prot., Consumer Reporting FAQs Related to the CARES 
Act and COVID-19 Pandemic, https://files.consumerfinance.gov/f/documents/cfpb_fcra_consumer-reporting-faqs-covid-19_2020-06.pdf 
(for further guidance on furnishers' obligations under the FCRA 
related to the COVID-19 pandemic).
---------------------------------------------------------------------------

    Since the CARES Act took effect in March of 2020, various Federal 
and State foreclosure moratoria have been established. The Federal 
foreclosure moratoria stopped new foreclosure actions (except those 
concerning abandoned properties) and suspended all foreclosure actions 
in process through a certain date.\62\ The moratoria generally do not 
apply to properties that are considered abandoned under applicable law. 
The proposed amendments, like the existing foreclosure restrictions in 
Regulation X, would only apply to mortgage loans secured by the 
borrower's principal residence. An abandoned property is less likely to 
be a borrower's principal residence.\63\
---------------------------------------------------------------------------

    \62\ Ctr. for Disease Control and Prevention, Temporary Halt in 
Residential Evictions to Prevent the Further Spread of COVID-19 
(Feb. 4, 2021), https://www.cdc.gov/coronavirus/2019-ncov/covid-eviction-declaration.html.
    \63\ Determining a borrower's principal residence will depend on 
the specific facts and circumstances regarding the property and 
applicable State law. For example, a vacant property may still be a 
borrower's principal residence. An abandoned property, however, 
might no longer be a borrower's principal residence.
---------------------------------------------------------------------------

    FHFA, FHA, VA, and USDA have emergency foreclosure moratoria in 
effect until June 30, 2021.\64\ Most foreclosure proceedings have been 
halted as a result of the CARES Act and therefore foreclosures are at 
historic lows.\65\ The Bureau is concerned that when the Federal 
moratoria ends millions of borrowers may be at risk of referral to 
foreclosure. As of January 2021, there were an estimated 3 million 
borrowers who were 30 days or more delinquent on their mortgage 
obligations. Of those, there were more than 2.1 million borrowers in 
forbearance programs who were more than 90 days behind on their 
mortgage payments (including borrowers who have forborne three or more 
payments) that could still be experiencing severe hardships when their 
payments are to resume.\66\ Of the borrowers not in a forbearance 
program, as of January 2021, there were around 242,000 who were 90 days 
or more delinquent. Both populations of delinquent borrowers are at 
heightened risk of referral to foreclosure soon after the foreclosure 
moratoria end if they do not resolve their delinquency or reach a loss 
mitigation agreement with their servicer.
---------------------------------------------------------------------------

    \64\ See Press Release, The White House, Fact Sheet: Biden 
Administration Announces Extension of COVID-19 Forbearance and 
Foreclosure Protections for Homeowners (Feb. 16, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/16/fact-sheet-biden-administration-announces-extension-of-covid-19-forbearance-and-foreclosure-protections-for-homeowners/; Press 
Release, U.S. Dep't of Hous. & Urban Dev., HUD No. 21-023, 
Extensions and expansions support the immediate and ongoing needs of 
homeowners who are experiencing economic impacts related to the 
COVID-19 pandemic (Feb. 16, 2021), https://www.hud.gov/press/press_releases_media_advisories/HUD_No_21_023; News Release, Fed. 
Hous. Fin. Agency, FHFA Extends COVID-19 Forbearance Period and 
Foreclosure and REO Eviction Moratoriums (Feb. 25, 2021), https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Extends-COVID-19-Forbearance-Period-and-Foreclosure-and-REO-Eviction-Moratoriums.aspx; Jason Davis, VA extends existing moratoriums on 
evictions and foreclosures and extends loan forbearance 
opportunities, Vantage Point: Official Blog of the U.S. Dep't of 
Veterans Aff. (Feb. 16, 2021 12:00 p.m.), https://blogs.va.gov/VAntage/84744/va-extends-existing-moratoriums-evictions-foreclosures-extends-loan-forbearance-opportunities/; Press Release, 
U.S. Dep't of Agric., Release No. 0026.21, Biden Administration 
Announces Another Foreclosure Moratorium and Mortgage Forbearance 
Deadline Extension That Will Bring Relief to Rural Residents (Feb. 
16, 2021), https://www.usda.gov/media/press-releases/2021/02/16/biden-administration-announces-another-foreclosure-moratorium-and.
    \65\ ATTOM Data Solutions, Q3 2020 U.S. Foreclosure Activity 
Reaches Historical Lows as the Foreclosure Moratorium Stalls Filings 
(Oct. 15, 2020), https://www.attomdata.com/news/market-trends/foreclosures/attom-data-solutions-september-and-q3-2020-u-s-foreclosure-market-report/.
    \66\ Black Jan. 2021 Report, supra note 36, at 5.
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    The Bureau is focused on minority borrowers who might be at 
heightened risk of foreclosure resulting in the gaps in the 
homeownership rates continuing to grow. Homeownership rates vary 
significantly by race and ethnicity. In 2019, the homeownership rate 
among white non-Hispanic Americans was approximately 73 percent, 
compared to 42 percent among Black Americans. The homeownership rate 
was 47 percent among Hispanic or Latino Americans, 50 percent among 
American Indians or Alaska Natives, and 57 percent among Asian or 
Pacific Islander Americans.\67\ If minority borrowers are displaced 
from their homes as a result of foreclosure, it will make homeownership 
more unattainable in the future, thus widening the divide for this 
population of borrowers.
---------------------------------------------------------------------------

    \67\ USAFacts, Homeownership rates show that Black Americans are 
currently the least likely group to own homes (Oct. 16, 2020), 
https://usafacts.org/articles/homeownership-rates-by-race/.

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[[Page 18847]]

    ATTOM Data Solutions' 2021 first-quarter analysis found that 
approximately 175,000 homes secured by mortgages are in some stage of 
the process of foreclosure.\68\ However, with the Federal moratoria in 
place until June 30, 2021, it is unclear how many of these properties 
will proceed to foreclosure. The Bureau is proposing amendments that 
aim to prevent avoidable foreclosures and facilitate review of loss 
mitigation options. The proposed amendments would only apply to 
mortgage loans secured by the borrower's principal residence. An 
abandoned property is less likely to be a borrower's principal 
residence.\69\ The Bureau is also aware of the impact abandoned 
properties has on communities.\70\ That said, of the homes in the 
foreclosure process, only approximately 3.8 percent are currently 
abandoned.\71\
---------------------------------------------------------------------------

    \68\ ATTOM Data Solutions, Vacant Zombie Properties Remain 
Miniscule Factor in U.S. Housing Market Amid Ongoing Foreclosure 
Moratorium (Feb. 25, 2021), https://www.attomdata.com/news/market-trends/attom-data-solutions-q1-2021-vacant-property-and-zombie-foreclosure-report/.
    \69\ Determining a borrower's principal residence will depend on 
the specific facts and circumstances regarding the property and 
applicable State law. For example, a vacant property may still be a 
borrower's principal residence. An abandoned property, however, 
might no longer be a borrower's principal residence.
    \70\ See supra note 68.
    \71\ Id.
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G. The Bureau's COVID-19 Emergency Mortgage Servicing Efforts

    In the wake of the COVID-19 pandemic, the Bureau has taken numerous 
steps to protect and assist mortgage borrowers. Although the below does 
not describe all the efforts the Bureau has undertaken, it does 
summarize a few of the Bureau's initiatives since the beginning of the 
pandemic. The Bureau issued a mortgage servicing-related interagency 
policy statement and FAQs,\72\ various guidance materials, and an 
Interim Final Rule (IFR) amending Regulation X's loss mitigation rules, 
as discussed above. The Bureau has engaged in targeted supervisory 
activity,\73\ and has created and disseminated consumer education 
resources in coordination with HUD, FHA, FHFA, USDA, and VA.\74\ Among 
other things, these actions by the Bureau serve to encourage servicers 
to work with borrowers during the pandemic, educate homeowners about 
their options, and ensure that mortgage servicers have the operational 
capacity to assist them. In addition, the Bureau recently released 
guidance announcing the Bureau's supervision and enforcement priorities 
regarding housing insecurity.\75\
---------------------------------------------------------------------------

    \72\ Bureau of Consumer Fin. Prot., Joint Statement on 
Supervisory and Enforcement Practices Regarding the Mortgage 
Servicing Rules in Response to the COVID-19 Emergency and the CARES 
Act (Apr. 3, 2020), https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_mortgage-servicing-rules-covid-19.pdf; 
Bureau of Consumer Fin. Prot., Bureau's Mortgage Servicing Rules 
FAQs related to the COVID-19 Emergency (Apr. 3, 2020), https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rules-covid-19_faqs.pdf.
    \73\ Bureau of Consumer Fin. Prot., Supervisory Highlights 
COVID-19 Prioritized Assessments Special Edition, Issue 23, (January 
2021), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-23_2021-01.pdf.
    \74\ See, e.g., News Release, Fed. Hous. Fin. Agency, CFPB, 
FHFA, & HUD Launch Joint Mortgage and Housing Assistance website for 
Americans Impacted by COVID-19 (May 12, 2020), https://www.fhfa.gov/Media/PublicAffairs/Pages/CFPB-FHFA-HUD-Launch-Joint-Mortgage-and-Housing-Assistance-website-for-Americans-Impacted-by-COVID-19.aspx.
    \75\ Bureau of Consumer Fin. Prot., Supervision and Enforcement 
Priorities Regarding Housing Insecurity (Apr. 1, 2021), https://files.consumerfinance.gov/f/documents/cfpb_bulletin-2021-02_supervision-and-enforcement-priorities-regarding-housing_WHcae8E.pdf (Supervision & Enforcement Housing Report).
---------------------------------------------------------------------------

    This proposed rule aims to complement these and the other strategic 
efforts the Bureau has initiated since the onset of the pandemic to 
assist struggling borrowers and to protect those most vulnerable.

III. Legal Authority

    The Bureau is issuing this proposed rule pursuant to its authority 
under RESPA and the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act),\76\ including the authorities, 
discussed below. The Bureau is issuing this proposed rule in reliance 
on the same authority relied on in adopting the relevant provisions of 
the 2013 RESPA Servicing Final Rule,\77\ as discussed in detail in the 
Legal Authority and Section-by-Section Analysis of the 2013 RESPA 
Servicing Final Rule.
---------------------------------------------------------------------------

    \76\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \77\ 2013 RESPA Servicing Final Rule, supra note 13.
---------------------------------------------------------------------------

A. RESPA

    Section 19(a) of RESPA, 12 U.S.C. 2617(a), authorizes the Bureau to 
prescribe such rules and regulations, to make such interpretations, and 
to grant such reasonable exemptions for classes of transactions, as may 
be necessary to achieve the purposes of RESPA, which include its 
consumer protection purposes. In addition, section 6(j)(3) of RESPA, 12 
U.S.C. 2605(j)(3), authorizes the Bureau to establish any requirements 
necessary to carry out section 6 of RESPA, section 6(k)(1)(E) of RESPA, 
and 12 U.S.C. 2605(k)(1)(E) and authorizes the Bureau to prescribe 
regulations that are appropriate to carry out RESPA's consumer 
protection purposes. The consumer protection purposes of RESPA include 
ensuring that servicers respond to borrower requests and complaints in 
a timely manner and maintain and provide accurate information, helping 
borrowers prevent avoidable costs and fees, and facilitating review for 
foreclosure avoidance options. The amendments to Regulation X in this 
notice of proposed rule are intended to achieve some or all these 
purposes.
    Specifically, and as described below, during the COVID pandemic, 
borrowers have faced unique circumstances including potential economic 
hardship, health conditions, and extended periods of forbearance. 
Because of these unique circumstances, the procedural safeguards under 
the 2013 RESPA Servicing Final Rule and subsequent amendments to date, 
may not have been sufficient to facilitate review for foreclosure 
avoidance. Specifically, the Bureau is concerned that the present 
circumstances may interfere with these borrowers' ability to obtain and 
understand important information that the existing rule aims to provide 
borrowers regarding the foreclosure avoidance options available to 
them. As a result, the Bureau believes that a substantial number of 
borrowers will not have had a meaningful opportunity to pursue 
foreclosure avoidance options before exiting their forbearance or the 
end of current foreclosure moratoria.
    The Bureau is also concerned that based on the unique circumstances 
described above, there exists a significant risk of a large number of 
potential borrowers seeking foreclosure avoidance options in a 
relatively short time period and that such a large wave of borrowers 
could overwhelm servicers, potentially straining servicer capacity and 
resulting in delays or errors in processing loss mitigation requests. 
These strains on servicer capacity coupled with potential fiduciary 
obligations to foreclose could result in some servicer liability for 
failing to meet required timeline and accuracy obligations as well as 
other obligations under the existing rule with resulting harm to 
borrowers.
    In light of these unique circumstances, the Bureau's interventions 
are designed to provide advance notice to borrowers about foreclosure 
avoidance options and forbearance termination dates, as well as to 
extend the pre-foreclosure review period. The interventions aim to help 
borrowers understand their options and

[[Page 18848]]

encourage them to seek available loss mitigation options at the 
appropriate time while also allowing sufficient time for servicers to 
conduct a meaningful review of borrowers for such options in the 
present circumstances that the existing rules were not designed to 
address.

B. Dodd-Frank Act

    Section 1022(b)(1) of the Dodd-Frank Act, 12 U.S.C. 5512(b)(1), 
authorizes the Bureau to prescribe rules ``as may be necessary or 
appropriate to enable the Bureau to administer and carry out the 
purposes and objectives of the Federal consumer financial laws, and to 
prevent evasions thereof.'' RESPA is a Federal consumer financial law.
    The authority granted to the Bureau in Dodd-Frank Act section 
1032(a) is broad and empowers the Bureau to prescribe rules regarding 
the disclosure of the ``features'' of consumer financial protection 
products and services generally. Accordingly, the Bureau may prescribe 
rules containing disclosure requirements even if other Federal consumer 
financial laws do not specifically require disclosure of such features.
    Dodd-Frank Act section 1032(c) provides that, in prescribing rules 
pursuant to Dodd-Frank Act section 1032, the Bureau ``shall consider 
available evidence about consumer awareness, understanding of, and 
responses to disclosures or communications about the risks, costs, and 
benefits of consumer financial products or services.'' 12 U.S.C. 
5532(c). The Bureau requests any such available evidence.\78\ The 
Bureau also requests comment on any sources that the Bureau should 
consider in determining whether to finalize this proposal under section 
1032(a).
---------------------------------------------------------------------------

    \78\ The Bureau is unaware of research that explicitly 
investigates the link between COVID-19-related stress and 
comprehension of information about forbearance and foreclosure. 
However, previous research demonstrates that prolonged or excessive 
stress can impair decision-making and may be associated with reduced 
cognitive control, leading to more impulsive and riskier decision-
making, including in financial contexts. See, e.g., Katrin Starcke & 
Matthias Brand, Effects of stress on decisions under uncertainty: A 
meta-analysis, 142 Psychol. Bulletin 909 (2016), https://doi.apa.org/doi/10.1037/bul0000060. Further, research has shown that 
thinking that one is or could get seriously ill can lead to stress 
that negatively affects consumer decision-making. See, e.g., Barbara 
Kahn & Mary Frances Luce, Understanding high-stakes consumer 
decisions: Mammography adherence following false-alarm test results, 
22 Marketing Sci. 393 (2003), https://doi.org/10.1287/mksc.22.3.393.17737. Additionally, research conducted in the last 
year has identified substantial variability in 1) COVID-19-related 
anxiety and traumatic stress, which has been linked to consumer 
behavior including panic-buying; and 2) perceived threats to 
physical and psychological well-being. See, e.g., Steven Taylor et 
al., COVID stress syndrome: Concept, structure, and correlates, 37 
Depression & Anxiety 706 (2020), https://doi.org/10.1002/da.23071; 
Frank Kachanoff et al., Measuring realistic and symbolic threats of 
COVID-19 and their unique impacts on well-being and adherence to 
public health behaviors, Soc. Psychol. & Personality Sci. 1 (2020), 
https://journals.sagepub.com/doi/pdf/10.1177/1948550620931634. Taken 
together, the available evidence suggests that experiencing 
heightened stress and anxiety can impair decision-making in 
financial contexts, and this association may be particularly strong 
during the COVID-19 pandemic.
---------------------------------------------------------------------------

    In addition, section 1032(a) of the Dodd-Frank Act authorizes the 
Bureau to prescribe rules to ensure that the features of any consumer 
financial product or service, both initially and over the term of the 
product or service, are fully, accurately and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances.

IV. Section-by-Section Analysis

Section 1024.31 Definitions

COVID-19 Related Hardship
    For clarity and ease of reference, the Bureau is proposing to 
define a new term, ``a COVID-19-related hardship,'' for purposes of 
subpart C. The proposal would define COVID-19-related hardship to mean 
a financial hardship due, directly or indirectly, to the COVID-19 
emergency as defined in the Coronavirus Economic Stabilization Act, 
section 4022(a)(1) (15 U.S.C. 9056(a)(1)). The proposed amendments to 
the early intervention requirements in Sec.  1024.39 and the loss 
mitigation requirements in Sec.  1024.41 use this new term. The Bureau 
solicits comment on this proposed definition.

Section 1024.39 Early Intervention

39(a) Live Contact
    As discussed below in the section-by-section analysis of proposed 
Sec.  1024.39(e), the Bureau is proposing to add temporary additional 
early intervention live contact requirements during the COVID-19 
emergency. The Bureau is proposing conforming amendments to revise 
Sec.  1024.39(a) and related commentary \79\ to incorporate a reference 
to proposed Sec.  1024.39(e).
---------------------------------------------------------------------------

    \79\ When amending commentary, the Office of the Federal 
Register requires reprinting of certain subsections being amended in 
their entirety rather than providing more targeted amendatory 
instructions and related text. The sections of commentary text 
included in this document show the language of those sections with 
the changes as adopted in this final rule. In addition, the Bureau 
is releasing an unofficial, informal redline to assist industry and 
other stakeholders in reviewing the changes this final rule makes to 
the regulatory and commentary text of Regulation X. This redline is 
posted on the Bureau's website with the proposed rule. If any 
conflicts exist between the redline and the text of Regulation X or 
this final rule, the documents published in the Federal Register and 
the Code of Federal Regulations are the controlling documents.
---------------------------------------------------------------------------

39(e) Temporary COVID-19-Related Live Contact
    The Bureau is proposing to add Sec.  1024.39(e) to require 
temporary additional actions in certain circumstances when a servicer 
establishes live contact with a borrower during the COVID-19 emergency. 
Currently, a servicer is required 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.\80\ Promptly after establishing live contact, the servicer 
must inform the borrower of loss mitigation options that are available 
to the borrower, as applicable.\81\ The servicer has the discretion to 
determine whether it is appropriate to inform the borrower of loss 
mitigation options.\82\ If the servicer determines it is appropriate, 
the servicer need not notify borrowers of specific loss mitigation 
options, but rather may provide a general statement that loss 
mitigation options may apply.\83\ The servicer is not required to 
establish or make good faith efforts to establish live contact with the 
borrower if the servicer has already established and is maintaining 
ongoing contact with the borrower under the loss mitigation procedures 
under Sec.  1024.41.\84\
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    \80\ Small servicers, as defined in Regulation Z, 12 CFR 
1026.41(e)(4), are not subject to these requirements. 12 CFR 
1024.30(b)(1).
    \81\ 12 CFR 1024.39(a).
    \82\ 12 CFR 1024.39(a); Comment 39(a)-4.i.
    \83\ 12 CFR 1024.39(a); Comment 39(a)-4.ii.
    \84\ 12 CFR 1024.39(a); Comment 39(a)-6.
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    Proposed Sec.  1024.39(e) would temporarily require servicers to 
take additional actions during live contacts established under existing 
Sec.  1024.39(a) requirements for one year after the effective date of 
the final rule. In general, proposed Sec.  1024.39(e)(1) would require 
servicers to ask whether borrowers who are not in a forbearance program 
at the time of the live contact are experiencing a COVID-19-related 
hardship and, if so, to list and briefly describe available forbearance 
programs to those borrowers and the actions a borrower must take to be 
evaluated. In general, proposed Sec.  1024.39(e)(2) would require that, 
for borrowers who are in a forbearance program at the time of live 
contact, during the last required live contact made prior to the end of 
the forbearance period servicers must

[[Page 18849]]

provide specific information about the borrower's current forbearance 
program and list and briefly describe available post-forbearance loss 
mitigation options and the actions a borrower must take to be evaluated 
for such options.
    The Bureau believes the current crisis has resulted in temporary 
difficulties for borrowers, both financially and in their ability to 
obtain and understand necessary loss mitigation information, that may 
warrant expanding existing Sec.  1024.39(a) live contact early 
intervention communication requirements during this time. As discussed 
in part II, the Bureau understands that servicers are generally making 
loss mitigation options available to borrowers experiencing COVID-19-
related hardships to help them avoid foreclosure, including CARES Act 
and investor-provided forbearance programs, investor-provided payment 
deferral programs, and the GSEs' flex modification programs. However, 
the Bureau is concerned that currently, not all borrowers who are 
eligible for these options are taking advantage of them. In addition, 
for those borrowers who were able to take advantage of forbearance 
options, the Bureau is concerned that borrowers may largely exit those 
forbearance programs around the same time and are not properly prepared 
to pursue post-forbearance loss mitigation options, if needed. Given 
the large volume of borrowers in this population, the crisis seems to 
call for additional action to further encourage borrowers to pursue all 
loss mitigation options as early as possible, and also to encourage 
borrowers to pursue post-forbearance loss mitigation options so that 
there is sufficient time and servicer capacity to complete a loss 
mitigation review before the servicer initiates foreclosure.\85\ As 
explained below, the Bureau aims to ensure that these borrowers are 
provided a meaningful opportunity to be assessed for foreclosure 
avoidance and concludes the proposed interventions would help by 
facilitating the provision of timely information to borrowers about 
foreclosure avoidance options before forbearance program options expire 
and at a time that could help encourage borrowers currently in 
forbearance to seek loss mitigation assistance early.
---------------------------------------------------------------------------

    \85\ Black Jan. 2021 Report, supra note 36, at 9.
---------------------------------------------------------------------------

    As discussed above in part II, as a result of the current crisis, 
in December 2020, over 3 million borrowers were 30 or more days 
delinquent on their mortgage payments, with more than half of those 
borrowers seriously delinquent, putting them at heightened risk of 
potential foreclosure initiation, especially once Federal and State 
foreclosure moratoria end.\86\ Of those borrowers, almost 800,000, 
including almost 250,000 that were seriously delinquent, had not 
accepted any forbearance program assistance.\87\ These borrowers may 
miss the opportunity to take advantage of forbearance program 
assistance or other loss mitigation options before the expiration of 
many of the COVID-19-related programs. Of the remaining borrowers, 
approximately 2.74 million were in a forbearance program, with most in 
forbearance programs 12 months or longer. Those borrowers may or may 
not be able to obtain a workable repayment option or other loss 
mitigation option to manage the forborne payments by the time their 
forbearance program ends. Both categories of borrowers face a serious 
risk of foreclosure.
---------------------------------------------------------------------------

    \86\ Housing Insecurity Report, supra note 11, at 6 (citing 
Black Dec. 2020 Report, supra note 6).
    \87\ Black Dec. 2020 Report, supra note 6, at 14.
---------------------------------------------------------------------------

    For those borrowers who have not accepted any forbearance program 
assistance, consumer advocacy organizations, industry surveys, and 
other sources have suggested that many of these delinquent borrowers 
are unaware of the forbearance program options available to them.\88\ 
Additionally, the Bureau is concerned about reports, including findings 
discussed in the Bureau's 2021 COVID-19 Prioritized Assessments Special 
Edition of Supervisory Highlights, that some servicers may be providing 
borrowers with inconsistent or inaccurate information about forbearance 
programs, inhibiting borrowers' ability to take advantage of available 
COVID-19-related assistance, including forbearance program 
assistance.\89\ For borrowers who did enter into forbearance programs 
during the COVID-19 pandemic, sources also indicate that some either 
lack information about available post-forbearance loss mitigation 
options or received inaccurate information about the post-forbearance 
effects on their mortgage.\90\
---------------------------------------------------------------------------

    \88\ Letter from the Nat'l Consumer Law Ctr. et al., to David 
Uejio, Acting Director of the Bureau of Consumer Fin. Prot., (Jan. 
28, 2021), https://www.nclc.org/images/pdf/special_projects/covid-19/CFPB_Covid_Foreclosure_Wave.pdf (group letter to CFPB urging 
prevention of Covid-19 related foreclosures); Letter form Senator 
Sherrod Brown et al., to Hon. Kathleen Kraninger, Director of the 
Bureau of Consumer Fin. Prot., (Sept. 2, 2020), https://www.brown.senate.gov/imo/media/doc/09.02.2020%20Letter%20to%20CFPB%20on%20Forbearance%20Relief%20Awareness.pdf (citing Jung Hyun Choi & Daniel Pang, Six Facts You Should 
Know about Current Mortgage Forbearances, Urban Institute, Urban 
Wire: Housing and Housing Finance Blog, (Aug. 18, 2020), https://www.urban.org/urban-wire/six-facts-you-should-know-about-current-mortgage-forbearances; Douglass Duncan, COVID-19: The Need for 
Consumer Outreach and Home Purchase/Financing Digitization--National 
Housing Survey, Fed. Nat'l Mortg. Ass'n, Perspectives Blog (Aug. 12, 
2020), https://www.fanniemae.com/research-and-insights/perspectives/covid-19-need-consumer-outreach-and-home-purchasefinancing-digitization.
    \89\ Bureau of Consumer Fin. Prot., Supervisory Highlights 
COVID-19 Prioritized Assessments Special Edition, Issue 23, (Jan. 
2021), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-23_2021-01.pdf; Letter from 
Senator Sherrod Brown et al., to Hon. Kathleen Kraninger, Director 
of the Bureau of Consumer Fin. Prot., (Sept. 2, 2020), https://www.brown.senate.gov/imo/media/doc/09.02.2020%20Letter%20to%20CFPB%20on%20Forbearance%20Relief%20Awareness.pdf. (``These findings echoed a report from the Office of the 
Inspector General at HUD, which found that servicer web pages 
focused on forbearance `provided incomplete, inconsistent, dated, 
and unclear guidance to borrowers related to their forbearance 
options under the CARES Act.' Similarly, under a separate review, 
the FHFA Inspector General found `incomplete and/or unclear 
information about forbearance and repayment on 14 of the 20 websites 
of the large servicers and generally limited to no information on 
forbearance and repayment on the remaining 40 websites,' of medium 
and small servicers.'') (citing Fed. Hous. Fin. Agency, Off. of 
Inspector Gen., Some Mortgage Loan Servicers' Websites Offer 
Information about CARES Act Loan Forbearance That Is Incomplete, 
Inconsistent, Dated, and Unclear (Apr. 27, 2020), https://www.hudoig.gov/reports-publications/topic-brief/some-mortgage-loan-servicers-websites-offer-information-about; Fed. Hous. Fin. Agency, 
Off. of Inspector Gen., Oversight by Fannie Mae and Freddie Mac of 
Compliance with Forbearance Requirements Under the CARES Act and 
Implementing Guidance by Mortgage Servicers (July 27, 2020), https://www.fhfaoig.gov/sites/default/files/OIG-2020-004.pdf).
    \90\ Id.
---------------------------------------------------------------------------

    The Bureau is concerned that the present unique circumstances of 
the COVID-19 emergency may have interfered with or may continue to 
interfere with some borrowers' ability to obtain and understand the 
important information servicers are required to provide under existing 
rules regarding foreclosure avoidance options. The lack of information 
may prevent some borrowers from understanding the potential urgency and 
need for foreclosure avoidance options for their loan, particularly 
once the forbearance program ends. These borrowers may not understand 
their loan's heightened risk for foreclosure initiation, a risk that is 
even greater for borrowers with longer forbearance periods prevalent in 
the COVID-19 emergency, as discussed more fully in part II. Even if 
borrowers received accurate information about the risk of foreclosure 
and the availability of foreclosure avoidance options, the Bureau is 
concerned that borrowers may still not fully understand the urgency. 
The Bureau believes that because there are foreclosure moratoria in 
place that have been extended multiple times, and because investors are 
offering multiple forbearance extensions, borrowers in the

[[Page 18850]]

current crisis may not correctly anticipate the end-date to these 
benefits and thus, may not fully understand the urgency related to 
their foreclosure risk. The Bureau believes providing borrowers certain 
additional information about foreclosure avoidance options during live 
contact may help borrowers better understand the options available and 
understand the urgency to develop a foreclosure avoidance plan.
    The Bureau also notes that the current crisis is predicted to 
result in an unprecedented volume of loans exiting forbearance programs 
at relatively the same time, and that a large percentage of those 
borrowers likely will need post-forbearance loss mitigation upon 
exiting. Such a wave of loans exiting forbearance programs may create a 
heightened risk of delays or inadvertent errors that could result in 
avoidable foreclosure initiations and fees. For example, misplaced 
borrower applications, failure to correctly identify completed loss 
mitigation applications, or errors in the review of supporting 
documentation could result in unnecessary delays in the loss mitigation 
process that may, erroneously and in violation of the existing 
regulation, result in non-compliant foreclosure initiations or illegal 
foreclosure completions. For borrowers currently in forbearance, the 
Bureau believes providing borrowers additional information about loss 
mitigation options before the end of the borrower's forbearance program 
may help to encourage borrowers to apply for those options before their 
forbearance ends.
    Accordingly, the Bureau is proposing Sec.  1024.39(e), discussed 
below, to require servicers to provide specific additional information 
to delinquent borrowers with a COVID-19-related hardship promptly after 
establishing live contact. The proposed requirements would apply for 
one year from the effective date of the final rule. The proposed 
additional information that servicers would provide is dependent on 
whether the borrower is or is not in a forbearance program at the time 
the live contact is established. As discussed in more detail below, 
proposed Sec.  1024.39(e)(1) generally would require servicers to list 
and briefly describe certain available forbearance programs to 
delinquent borrowers experiencing a COVID-19-related hardship but who 
are not yet in a forbearance program at the time live contact is 
established, as well as the actions a borrower must take to be 
evaluated for such programs. For delinquent borrowers who are in a 
forbearance program at the time live contact is established, proposed 
Sec.  1024.39(e)(2) generally would require servicers to provide 
specific information about the borrower's current forbearance program 
and list and briefly describe certain available post-forbearance loss 
mitigation options and the actions a borrower must take to be evaluated 
for such programs. Servicers would be required to provide this 
information to the borrower during the last required live contact 
before the end of the forbearance period.
    Proposed Sec.  1024.39(e) would be a temporary requirement in place 
for one year after the effective date of the final rule. The Bureau is 
not persuaded that this provision will be needed in perpetuity, given 
that the genesis and necessity arise from the current crisis, which is 
temporary.
    The Bureau notes that proposed Sec.  1024.39(e) would not require 
additional good faith efforts to establish live contact beyond those 
required by existing Sec.  1024.39(a). Instead, the proposal specifies 
additional information that servicers would need to provide during live 
contacts established under existing Sec.  1024.39(a) requirements. 
Proposed Sec.  1024.39(e) change the timing requirements or exceptions 
for existing Sec.  1024.39(a).
    Additionally, as is the case with the existing regulation, proposed 
Sec.  1024.39(e) would not require a servicer to make good faith 
efforts to establish live contact with a borrower when the servicer has 
established and is maintaining ongoing contact with a borrower under 
the loss mitigation procedures under existing Sec.  1024.41, including 
during the borrower's completion of a loss mitigation application or 
the servicer's evaluation of the borrower's complete loss mitigation 
application, or if the servicer has sent the borrower a notice pursuant 
to existing Sec.  1024.41(c)(1)(ii) that the borrower is not eligible 
for any loss mitigation options.\91\ Because the Bureau is proposing 
conforming amendments to Sec.  1024.39(a), in the circumstances 
described the servicer would be deemed compliant with the proposed 
Sec.  1024.39(e), in addition to the current Sec.  1024.39(a).
---------------------------------------------------------------------------

    \91\ Comment 39(a)-6.
---------------------------------------------------------------------------

    As discussed above, promptly after establishing live contact with a 
borrower, a servicer currently has discretion to determine whether it 
is appropriate to inform the borrower of loss mitigation options.\92\ 
In certain circumstances, the proposed amendments would eliminate that 
discretion. Proposed Sec.  1024.39(e) would require servicers to 
provide specific information about certain available loss mitigation 
options and application procedures to borrowers in the circumstances 
described in proposed Sec.  1024.39(e)(1) and (e)(2).
---------------------------------------------------------------------------

    \92\ 12 CFR 1024.39(a); Comment 39(a)-4.i.
---------------------------------------------------------------------------

    The Bureau is seeking comment on all aspects of proposed Sec.  
1024.39(e), including proposed Sec.  1024.39(e)(1) and (e)(2) discussed 
below. Specifically, the Bureau seeks comment on whether proposed Sec.  
1024.39(e) should apply even in instances where the servicer has 
already established and is maintaining ongoing contact with a borrower 
pursuant to the loss mitigation procedures in Sec.  1024.41, as 
discussed in existing comment 39(a)-6. The Bureau believes it may be 
redundant to require the servicer to provide the information required 
in proposed Sec.  1024.39(e) when the servicer has established ongoing 
contact as described in existing comment 39(a)-6, but seeks comment on 
whether there is some additional benefit to borrowers specific to the 
COVID-19 emergency that may be missed if finalized as proposed.
    The Bureau is also seeking comment on whether the one-year sunset 
date for proposed Sec.  1024.39(e) would provide enough time to 
sufficiently reach enough borrowers experiencing a COVID-19-related 
hardship. In proposing this date, the Bureau considered whether 
borrowers may continue to benefit from this information for more than a 
year after the proposed effective date of the final rule. The Bureau 
considered tying the sunset date of this provision to Federal 
foreclosure moratoria end-dates or to the COVID-19-related forbearance 
program end-dates, but is concerned that those periods may be too short 
or uncertain to ensure that borrowers who may face extended economic or 
health hardships have the necessary time to discuss foreclosure 
avoidance options with servicers, as discussed above. The Bureau seeks 
comment on whether those or other alternative sunset dates would be 
more appropriate for proposed Sec.  1024.39(e). The Bureau also seeks 
comment on whether a date-certain sunset poses significant 
implementation challenges.
39(e)(1)
    Proposed Sec.  1024.39(e)(1) would temporarily require servicers to 
take certain actions promptly after establishing live contact with 
borrowers who are not currently in a forbearance program where the 
owner or assignee of the borrower's mortgage loan makes a payment 
forbearance program available to borrowers experiencing a COVID-19-
related hardship. In those circumstances, proposed Sec.  1024.39(e)(1)

[[Page 18851]]

would require that the servicer ask if the borrower is experiencing a 
COVID-19-related hardship. If the borrower indicates they are 
experiencing a COVID-19-related hardship, proposed Sec.  1024.39(e)(1) 
would require the servicer to provide the borrower a list and 
description of forbearance programs available to borrowers experiencing 
COVID-19-related hardships and the actions the borrower must take to be 
evaluated for such forbearance programs.
    As discussed above, approximately 800,000 borrowers are currently 
delinquent but have not accepted forbearance program assistance during 
the current crisis. As discussed above, there is concern that this 
population of borrowers is unaware of the forbearance program options 
available. It is possible that during the current crisis, even if 
borrowers are aware of the options available, some borrowers may be 
uncertain as to how to access the assistance or may even mistrust the 
servicer's ability to provide the assistance to them. The Bureau 
explained in the 2013 RESPA Servicing Final Rule that it added early 
intervention live contact requirements because delinquent borrowers may 
not make contact with servicers to discuss their options for these very 
reasons.\93\ The Bureau is concerned that the current crisis is 
exacerbating that lack of awareness and inability to access information 
because of the speed at which new loss mitigation options may become 
available and potential crisis-related limitations on certain forms of 
communication, such as in-person meetings and call-center availability 
due to limitations on staffing. The present unique circumstances 
described above may have interfered or may be interfering with some 
borrowers' abilities to obtain and understand the important information 
that the existing rules aim to provide regarding foreclosure avoidance 
options. As the Bureau concluded in the 2013 RESPA Servicing Final 
Rule, a servicer's delinquency management, including these early 
intervention requirements, plays a significant role in whether the 
borrower cures the delinquency or ends up in foreclosure.\94\ As such, 
the proposed amendments would aim to address the lack of borrower 
awareness or hesitancy with respect to the almost 800,000 borrowers who 
are delinquent but not in forbearance by requiring servicers to provide 
them with additional information about their available forbearance 
program options.
---------------------------------------------------------------------------

    \93\ 2013 RESPA Servicing Final Rule, supra note 13, at 10788 
(citing to see, e.g., Future of Housing Finance: Hearing on the 
current state of the housing finance market and how to facilitate 
the return of private sector capital into the mortgage markets 
before H. Subcomm. on Ins., Hous., and Comm. Opportunity of the H. 
Comm. on Fin. Services, 112th Cong. 50-51 (2011) (statement of 
Phyllis Caldwell, Chief, Homeownership Preservation Office, U.S. 
Dep't. of the Treasury), https://www.govinfo.gov/content/pkg/CRPT-112hrpt742/html/CRPT-112hrpt742.htm; Fed. Home Loan Mortg. Corp., 
Foreclosure Avoidance Research II: A Follow-Up to the 2005 Benchmark 
Study 8 (2008), https://www.freddiemac.com/service/msp/pdf/foreclosure_avoidance_dec2007.pdf; Fed. Home Loan Mortg. Corp., 
Foreclosure Avoidance Research (2005), https://www.freddiemac.com/service/msp/pdf/foreclosure_avoidance_dec2005.pdf; Off. of the 
Comptroller of the Currency, Foreclosure Prevention: Improving 
Contact with Borrowers (June 2007), https://www.occ.gov/publications-and-resources/publications/community-affairs/community-affairs-publications-archive.html).
    \94\ 2013 RESPA Servicing Final Rule, supra note 13, at 10788 
(citing to Diane Thompson, Foreclosing Modifications: How Servicer 
Incentives Discourage Loan Modifications, 86 Wash. L. Rev. 755, 768 
(2011), https://digitalcommons.law.uw.edu/wlr/vol86/iss4/8/; 
Kristopher Gerardi & Wenli Li, Mortgage Foreclosure Prevention 
Efforts, 95 Fed. Reserve Bank of Atlanta Econ. Rev.1, 8-9 (2010), 
https://www.frbatlanta.org/-/media/documents/research/publications/economic-review/2010/vol95no2_gerardi_li.pdf; Michael A. Stegman et 
al., Preventative Servicing is Good for Business and Affordable 
Homeownership Policy, 18 Hous. Policy Debate 243, at 274 (2007), 
https://communitycapital.unc.edu/wp-content/uploads/sites/340/2007/01/PreventiveServicing.pdf; see also part VII of the 2013 RESPA 
Servicing Final Rule, supra note 13).
---------------------------------------------------------------------------

    Proposed Sec.  1024.39(e)(1) would require, for borrowers who are 
not in forbearance programs at the time the servicer establishes live 
contact and where the owner or assignee of the borrower's mortgage loan 
makes a forbearance program available through the servicer to borrowers 
experiencing a COVID-19-related hardship, that the servicer ask whether 
the borrower is experiencing a COVID-19-related hardship. The servicer 
would be required to complete this requirement promptly after 
establishing live contact. If the borrower indicates that the borrower 
is experiencing a COVID-19-related hardship, proposed Sec.  
1024.39(e)(1) would require the servicer to list and briefly describe 
any such forbearance programs made available to borrowers in a COVID-
19-related hardship and the actions the borrower must take to be 
evaluated for such forbearance programs.
    Under proposed Sec.  1024.39(e)(1), when the servicer lists and 
describes available forbearance programs, it would list and briefly 
describe all forbearance programs made available by the owner or 
assignee of the borrower's mortgage loan through the servicer to 
borrowers experiencing a COVID-19-related hardship. The Bureau notes 
the requirement is not limited to forbearance programs specific to 
COVID-19 or only available during the COVID-19 emergency. Programs that 
meet the proposed requirement may include COVID-19-specific forbearance 
programs, but would also include generally available programs where 
COVID-19-related hardships are sufficient to meet the hardship-related 
requirements for the forbearance program. Examples of forbearance 
programs a servicer may need to describe to the borrower if this 
proposal is finalized include any payment forbearance program made 
pursuant to the CARES Act, section 4022 (15 U.S.C. 9056), investor-
provided forbearance programs whose eligibility includes borrowers with 
COVID-19-related hardship, or State law required COVID-19-related 
forbearance program options. However, proposed Sec.  1024.39(e)(1) 
would not require servicers to list and describe forbearance program 
options for which the borrower is ineligible. For example, under the 
proposed rule, the servicer would not list and describe forbearance 
programs that the investor no longer offers.
    Under proposed Sec.  1024.39(e)(1), the forbearance programs that 
servicers must identify include more than just short-term forbearance 
programs.\95\ The Bureau recognizes the current crisis has placed 
extended financial hardship on many consumers. The extended COVID-19-
related hardship may mean that for some borrowers, longer-term options 
are more appropriate or are necessary to avoid foreclosure. As a 
result, the Bureau has proposed that servicers provide borrowers with 
all qualifying forbearance programs, regardless of length.
---------------------------------------------------------------------------

    \95\ Existing Sec.  1024.41(c)(2)(iii) and comment 41(c)(2)(iii) 
define short-term payment forbearance program as a payment 
forbearance program that allows the forbearance of payments due over 
periods of no more than six months.
---------------------------------------------------------------------------

    In addition to a list and description of applicable forbearance 
programs made available to borrowers experiencing COVID-19-related 
hardships, proposed Sec.  1024.39(e)(1) would require the servicer to 
describe the actions the borrower must take to be evaluated for such 
forbearance programs. The Bureau notes that the proposed requirements 
to list and briefly describe available forbearance programs and to 
identify the actions borrowers must take to be evaluated for such 
programs are modeled on existing requirements in Regulation X, 
intending that servicers would already have this information available. 
Under the policy and procedure requirements in the existing rule, 
including the continuity of contact policy and procedure requirements, 
servicers must have certain policies and

[[Page 18852]]

procedures reasonably designed to ensure that servicer personnel can 
provide accurate information to borrowers about loss mitigation options 
available to the borrower from the owner or assignee of the borrower's 
mortgage loan.\96\ In addition, under existing continuity of contact 
requirements servicers must maintain policies and procedures reasonably 
designed to ensure that servicer personnel assigned to a delinquent 
borrower can, among other things, provide the borrower with accurate 
information about the actions the borrower must take to be evaluated 
for loss mitigation options.\97\
---------------------------------------------------------------------------

    \96\ 12 CFR 1024.38(b)(2); 12 CFR 1024.40(b)(1)(i).
    \97\ 12 CFR 1024.40(b)(1)(ii).
---------------------------------------------------------------------------

    The Bureau seeks comment on all aspects of proposed Sec.  
1024.39(e)(1). Specifically, the Bureau seeks comment on which 
forbearance options servicers should be required to describe to 
borrowers pursuant to proposed Sec.  1024.39(e)(1). Currently, the 
Bureau is proposing to require the servicer to discuss any forbearance 
program that the owner or assignee of the borrower's mortgage makes 
available through the servicer for which a borrower with a COVID-19-
related hardship could be considered. The Bureau considered requiring 
servicers to discuss all forbearance program options but believed this 
approach may be too broad and may not sufficiently limit the programs 
discussed to those that are applicable to the borrower. Additionally, 
the Bureau considered requiring servicers to discuss only those 
forbearance programs specific to the COVID-19 emergency but believed 
this approach may be too narrow to provide sufficient optionality for 
the borrower. The Bureau seeks comment on whether it should broaden or 
narrow the scope of forbearance programs that servicers would be 
required to discuss with borrowers under proposed Sec.  1024.39(e)(1). 
The Bureau also seeks comment on whether additional guidance is 
necessary for servicers to determine which forbearance programs they 
must discuss with the borrower.
    Relatedly, the Bureau also seeks comment on whether limiting the 
scope of these expanded communications to COVID-19 related hardships 
until the sunset date presents implementation challenges. Proposed 
Sec.  1024.39(e)(1) limits the scope of the proposed new requirements 
to situations where the owner or assignee of the borrower's mortgage 
loan makes a forbearance program available through the servicer to 
borrowers experiencing a COVID-19-related hardship and where the 
borrower indicates that the borrower is experiencing a COVID-19-related 
hardship. The Bureau also proposes an August 31, 2022 sunset date for 
the proposed new requirement. The Bureau seeks comment on whether 
requiring that servicers provide a list and description of all 
applicable forbearance program options to all borrowers until the 
proposed sunset date would be easier for servicers to implement.
    In addition, the Bureau seeks comment on whether it should expand 
the options the servicer must describe to the borrower to include all 
loss mitigation options available to borrowers experiencing a COVID-19-
related hardship that the owner or assignee of the borrower's mortgage 
makes available through the servicer, instead of only applicable 
forbearance programs. The Bureau notes that existing Sec.  1024.39(a) 
would still apply in addition to proposed Sec.  1024.39(e), meaning 
servicers would still need to mention that loss mitigation options may 
be available, should the servicer determine it appropriate.
    Finally, the Bureau seeks comment on whether it should specify 
components of the loss mitigation option description the servicer would 
provide. Proposed Sec.  1024.39(e)(1) would require servicers to list 
and briefly describe the applicable forbearance programs made 
available. The Bureau seeks comment on whether it should require that 
the description include discussion of what repayment options are 
included in forbearance programs, or what impact the forbearance 
program has on how the servicer reports the loan to credit reporting 
agencies.
39(e)(2)
    Proposed Sec.  1024.39(e)(2) would temporarily require a servicer 
to provide certain information promptly after establishing live contact 
with borrowers currently in a forbearance program made available to 
those experiencing a COVID-19-related hardship. First, the servicer 
would be required to provide the borrower with the date the borrower's 
current forbearance program ends. Second, the servicer would be 
required to provide a list and brief description of each of the types 
of forbearance extensions, repayment options and other loss mitigation 
options made available by the owner or assignee of the borrower's 
mortgage loan to resolve the borrower's delinquency at the end of the 
forbearance program. The servicer would also be required to inform the 
borrower of the actions the borrower must take to be evaluated for such 
loss mitigation options. Proposed Sec.  1024.39(e)(2) would require the 
servicer to provide the borrower with this additional information 
during the last live contact made pursuant to existing Sec.  1024.39(a) 
that occurs before the end of the loan's forbearance period.
    Although forbearance programs assist borrowers in avoiding 
foreclosure for a period of time, lengthy forbearance programs can 
result in heightened foreclosure initiation risk once the program ends. 
The Bureau is concerned that because some forbearance agreements may 
require full repayment of the forborne amount at the end of the 
program, unless the borrower obtains other, additional loss mitigation 
options such as a payment deferral or loan modification, borrowers may 
struggle to repay the amount owed at the end of a forbearance program 
and may be seriously delinquent. In addition, it is possible that a 
servicer may be permitted to initiate the foreclosure process soon 
after the borrower exits forbearance. As discussed more fully in the 
section-by-section analysis of Sec.  1024.41(f), Regulation X generally 
prohibits servicers from making the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process 
unless the borrower is more than 120 days delinquent.\98\ Because, 
generally, forbearance does not pause the homeowner's underlying 
delinquency,\99\ many borrowers will be more than 120 days delinquent 
when exiting their forbearance program during the COVID-19 emergency. 
Yet many borrowers may not take action before the end of forbearance to 
submit a complete loss mitigation application because the temporary 
protection provided by forbearance coupled with Federal and State 
foreclosure moratoria might lead, or at least enable, borrowers to 
defer thinking about their difficult personal financial issues and 
instead focus on other pressing concerns, especially in light of the 
health and economic upheaval caused by the current crisis. Thus, it is 
possible that a servicer under existing rules would be permitted to 
refer a loan to foreclosure soon after forbearance ends, unless a 
foreclosure moratorium or other restriction is in place, or the 
borrower brings their accounts current. With over 2 million borrowers 
currently in forbearance programs, and a majority in programs for 12 
months or longer, the Bureau is concerned that the extended length of 
the current forbearance programs may increase the borrower's total 
delinquency and risk of referral to foreclosure if these borrowers do 
not

[[Page 18853]]

receive additional loss mitigation assistance.
---------------------------------------------------------------------------

    \98\ 12 CFR 1024.41(f)(1).
    \99\ Supra note 61 and accompanying text.
---------------------------------------------------------------------------

    However, as noted above, the Bureau is concerned that the unique 
circumstances during the COVID-19 emergency may have interfered with or 
may be interfering with some borrowers' ability to obtain and 
understand important information that the existing rules aim to provide 
regarding foreclosure avoidance options, preventing them from seeking 
this necessary loss mitigation assistance. For the borrowers currently 
in a forbearance program, the proposed additions to early intervention 
aim to help ensure these borrowers are provided with additional 
information about when their forbearance program ends, the types of 
loss mitigation options made available, and the actions a borrower must 
take to be evaluated. The Bureau believes that this information during 
the proposed new, temporary intervention may be necessary to educate 
and encourage more borrowers to seek loss mitigation assistance before 
the end of forbearance, rather than waiting until their forbearance 
program has ended. As discussed above, the Bureau believes encouraging 
borrowers to seek loss mitigation assistance earlier may help ensure 
that borrowers and servicers have sufficient time for a loss mitigation 
review before the borrower exits forbearance, reducing the risk of 
avoidable foreclosure, including foreclosure caused by loss mitigation 
assistance delays and errors. The Bureau also recognizes that in the 
current crisis, providing borrowers with specific information about the 
actions they must take to be evaluated may help to provide consistent 
and necessary information so that they may obtain loss mitigation 
assistance in a timely manner.
    For these reasons, the Bureau is proposing new Sec.  1024.39(e)(2). 
Proposed Sec.  1024.39(e)(2) would require that servicers provide 
borrowers currently enrolled in a forbearance program made available to 
borrowers experiencing a COVID-19-related hardship additional 
information promptly after establishing the last live contact with the 
borrower prior to the expiration of that forbearance program. Proposed 
Sec.  1024.39(e)(2) would require the servicer to provide the borrower 
with (1) the date their current forbearance program ends, and (2) a 
list and brief description of each of the types of forbearance program 
extension and repayment options and other loss mitigation options made 
available by the owner or assignee of the borrower's mortgage loan to 
resolve the borrower's delinquency at the end of the forbearance 
program. It would also require the servicer to describe the actions the 
borrower must take to be evaluated for such loss mitigation options.
    Proposed Sec.  1024.39(e)(2) would require servicers to provide 
information on all loss mitigation options available to the borrower by 
the owner or assignee of the borrower's mortgage loan, including 
forbearance program extensions and repayment options, for which a 
borrower with a COVID-19 hardship might qualify. Given the current 
conditions and the length of many borrowers' forbearance programs, the 
Bureau is not proposing to limit this requirement to COVID-19-specific 
loss mitigation options or programs only provided during the COVID-19 
crisis. Rather, the Bureau believes servicers should provide 
information to borrowers about any options that may meet their specific 
needs during the crisis, and for which a COVID-related hardship would 
meet applicable hardship-related requirements under the program. 
Further, proposed Sec.  1024.39(e)(2) is not limited to a specific type 
of loss mitigation. Under proposed Sec.  1024.39(e)(2), servicers must 
provide borrowers with information about all available loss mitigation 
types, such as repayment plans, loan modifications, short-sales, and 
others. However, proposed Sec.  1024.39(e)(2) would not require 
servicers to list and describe loss mitigation options for which the 
borrower is ineligible.
    In addition to listing and describing the applicable loss 
mitigation options made available to certain borrowers, Sec.  
1024.39(e)(2) would also require the servicer to identify the actions 
the borrower must take to be evaluated for such options. As discussed 
in the section-by-section analysis of Sec.  1024.39(e)(1) above, the 
proposed requirements to identify available forbearance programs and 
the actions borrowers must take to be evaluated for such programs are 
modeled on existing continuity of contact and other general policies 
and procedures requirements in Regulation X, so servicers should 
already have this information.\100\ The proposed rule would require 
that servicers provide the required information promptly after 
establishing the last live contact prior to the end of the forbearance 
period.
---------------------------------------------------------------------------

    \100\ 12 CFR 1024.38(b)(2); 12 CFR 1024.40(b)(1)(i) and (ii).
---------------------------------------------------------------------------

    The Bureau intends proposed Sec.  1024.39(e)(2) to work with the 
new reasonable diligence obligations in proposed comment 41(b)(1)-4.iv 
to ensure borrowers receive notification of loss mitigation options 
that would be available after their COVID-19-related forbearance 
program ends. Because the reasonable diligence obligations described in 
section Sec.  1024.41(b)(1) only apply if a borrower has submitted an 
incomplete loss mitigation application, proposed comment 41(b)(1)-4.iv 
would not apply to borrowers who are in forbearance programs that were 
offered without any evaluation of a loss mitigation application 
submitted by the borrower or forbearance programs offered based on the 
evaluation of a complete application. Proposed Sec.  1024.39(e)(2), 
however, would generally apply to delinquent borrowers with whom the 
servicer establishes live contact pursuant to Sec.  1024.39(a), even if 
they have not submitted an incomplete loss mitigation application. 
Together, the two provisions would complement each other to help ensure 
that borrowers receive information about loss mitigation options that 
may be available at the end of their forbearance period even if they 
have not submitted a loss mitigation application.
    Proposed Sec.  1024.39(e)(2) would apply only to the last live 
contact made pursuant to existing Sec.  1024.39(a) that occurs prior to 
the end of the forbearance period. Proposed Sec.  1024.39(e)(2) does 
not require additional live contacts with the borrower beyond those 
made pursuant to existing Sec.  1024.39(a). Instead, proposed Sec.  
1024.39(e)(2) only requires that the servicer provide additional 
information promptly after establishing live contact pursuant to 
existing Sec.  1024.39(a), and only requires this additional 
information be provided during the last live contact established prior 
to the end of the forbearance period. The last live contact would be 
calculated based on the date the borrower's forbearance program is 
scheduled to expire under the terms of the agreement. The Bureau 
proposes to apply the requirement to the end of the borrower's 
forbearance agreement in part because it believes that borrowers may 
defer consideration of loss mitigation options until the end of their 
current forbearance program. The Bureau believes the information 
provided by proposed Sec.  1024.39(e)(2) may be most successful in 
prompting borrower action closer to when borrowers are likely to take 
that action, rather than, for example, at the beginning of forbearance 
periods. Additionally, the Bureau understands that some mortgage 
investors have added specific contact requirements for the COVID-19 
emergency, and generally those contacts must occur just prior to the 
end of certain forbearance

[[Page 18854]]

programs.\101\ The Bureau is aware these requirements may have similar 
or congruent content requirements,\102\ but are generally only provided 
just prior to the end of forbearance programs. To prevent unnecessarily 
duplicative servicer efforts and potential borrower confusion, the 
Bureau's proposed timing for Sec.  1024.39(e)(2) requires the 
additional information be provided promptly after establishing the last 
required live contact prior to the end of the forbearance period.
---------------------------------------------------------------------------

    \101\ Fed. Nat'l Mortg. Ass'n, Lender Letter (LL-2021-02) (Feb. 
25, 2021), https://singlefamily.fanniemae.com/media/24891/display; 
Fed. Home Loan Mortg. Corp., Bulletin 2020-10: Temporary Servicing 
Guidance Related to COVID-19 (Apr. 8, 2020), https://guide.freddiemac.com/app/guide/bulletin/2020-10; see also Fed. Home 
Loan Mortg. Corp., Bulletin 2021-6 Temporary Servicing Guidance 
Related to COVID-19 (Feb. 10, 2021), https://guide.freddiemac.com/app/guide/bulletin/2021-6; Fed. Home Loan Corp., Bulletin 2020-4 
Temporary Servicing Guidance Related to COVID-19 (Mar. 18, 2020) 
https://guide.freddiemac.com/app/guide/bulletin/2020-4.
    \102\ See, e.g., id. For example, the Bureau understands that 
some investors may require a waterfall structure during contacts 
discussing loss mitigation options with the borrower, where loss 
mitigation options are presented in a specified order. The Bureau 
does not believe that proposed Sec.  1024.39(e)(2) would prohibit 
servicers from structuring the list and description as required by 
investors, should the servicer choose to comply with both the 
proposed rule and investor requirements at the same time.
---------------------------------------------------------------------------

    The Bureau seeks comment on all aspects of proposed Sec.  
1024.39(e)(2). Specifically, the Bureau seeks comment on whether it 
should consider alternative timing requirements. The Bureau considered 
requiring that proposed Sec.  1024.39(e)(2) occur a set number of days 
before the end of the forbearance program, for example, 45 days, but 
was concerned this would not necessarily allow the servicer to provide 
the information promptly after establishing live contact under existing 
requirements. Further, the Bureau was concerned that this may conflict 
with investor requirements, requiring duplicative contacts to the 
borrower which may be confusing.
    Relatedly, the Bureau also seeks comment on whether proposed Sec.  
1024.39(e)(2) would conflict with or duplicate similar investor 
requirements. The Bureau is aware that some investors have specific 
content, format, and timing requirements for servicers when contacting 
borrowers in COVID-19-related forbearance programs approaching the end 
of their programs. For example, during the current crisis, the GSEs 
have added additional quality right party contacts (QRPCs) for 
servicers to ensure they contact borrowers in forbearance.\103\ The 
Bureau seeks comment on whether proposed Sec.  1024.39(e)(2) would 
conflict with or duplicate investor requirements such as these, 
particularly considering the proposal and investor requirements 
respective format, content, and timing.
---------------------------------------------------------------------------

    \103\ Fed. Nat'l Mortg. Ass'n, Lender Letter (LL-2021-02) (Feb. 
25, 2021), https://singlefamily.fanniemae.com/media/24891/display; 
Fed. Home Loan Mortg. Corp., Bulletin 2020-10: Temporary Servicing 
Guidance Related to COVID-19 (Apr. 8, 2020), https://guide.freddiemac.com/app/guide/bulletin/2020-10; see also Fed. Home 
Loan Mortg. Corp., Bulletin 2021-6 Temporary Servicing Guidance 
Related to COVID-19 (Feb. 10, 2021), https://guide.freddiemac.com/app/guide/bulletin/2021-6; Fed. Home Loan Corp., Bulletin 2020-4 
Temporary Servicing Guidance Related to COVID-19 (Mar. 18, 2020) 
https://guide.freddiemac.com/app/guide/bulletin/2020-4.
---------------------------------------------------------------------------

    The Bureau also seeks comment on whether to require these expanded 
communications with all borrowers in forbearance until the sunset date 
rather than limiting the scope to borrowers in a forbearance made 
available to borrowers experiencing a COVID-19 related hardship. 
Proposed Sec.  1024.39(e)(2) limits the scope of the proposed new 
requirements to situations where the borrower is in a forbearance 
program made available to borrowers experiencing a COVID-19 related 
hardship. The Bureau also proposes an August 31, 2022 sunset date for 
the proposed new requirement. The Bureau seeks comment on whether 
expanding the proposed requirement to include all borrowers in 
forbearance would be easier for servicers to implement.
    The Bureau also seeks comment on whether it has appropriately 
limited the number of times the borrower should receive the information 
in proposed Sec.  1024.39(e)(2). Given that the current crisis may mean 
borrowers may need to seek one or more extensions of their forbearance 
programs, the Bureau recognizes that tying the proposed timing of the 
requirements in Sec.  1024.39(e)(2) to the end of the forbearance could 
result in some borrowers receiving the information more than once if 
the borrower extends the forbearance program. The Bureau seeks comment 
on whether the duplicity of information would be confusing for 
borrowers, and if there is an alternative approach that would prevent 
this duplicity.
    Additionally, the Bureau seeks comment on the scope of the content 
in proposed Sec.  1024.39(e)(2). The Bureau proposed only to require 
servicers to provide the date the borrower's forbearance program ends 
and to list and briefly describe loss mitigation options made available 
to certain borrowers and to identify the actions the borrower must take 
to be evaluated for such options. Given potential borrower confusion 
about the impacts of foreclosure on their mortgage, as discussed above, 
the Bureau also considered requiring the servicer to provide the 
borrower with information to help the borrower identify whether they 
may be referred to foreclosure if they did not obtain additional loss 
mitigation at the end of the forbearance program, such as information 
about the repayment options detailed in the forbearance agreement, the 
credit reporting impacts during the forbearance period, or the 
delinquency status of their account at the end of the forbearance 
program. However, the Bureau is concerned that this information may not 
be readily available to the servicer's assigned personnel or may be too 
complex to provide in a meaningful way during a live contact. The 
Bureau is also concerned that this may further cause borrowers to view 
servicer contacts as adversarial and with apprehension, rather than as 
a collaboration to bring the account current. The Bureau seeks comment 
on whether this information should be required under proposed Sec.  
1024.39(e)(2), and if so, seeks suggestions on borrower-friendly ways 
to provide that information.
    Finally, the Bureau seeks comment on whether proposed Sec.  
1024.39(e)(2) should exclude borrowers who will not need loss 
mitigation at the end of their forbearance because, for example, the 
terms of their forbearance agreement include or are combined with an 
agreement for deferral of the forborne amounts or a repayment plan. The 
Bureau considered adding qualifiers to proposed Sec.  1024.39(e)(2) 
that would limit application of the provision to only those borrowers 
whose mortgage accounts would be considered delinquent after the 
forbearance program, or to borrowers whose forbearance agreements did 
not include a provision, such as deferral, that would bring the account 
current if the borrower performed under the terms of the forbearance 
agreement. The Bureau ultimately did not include these qualifiers in 
the proposal because it understands that it may be unlikely that a 
forbearance program would include such a provision to bring the account 
current. The Bureau seeks comment on whether it should consider one of 
these qualifiers. The Bureau also seeks comment on whether it should 
limit the scope of proposed Sec.  1024.39(e)(2) to exclude borrowers 
with forbearance agreements that bring the borrower's account current 
in some way if the borrower performs under the terms of the agreement.

[[Page 18855]]

Section 1024.41 Loss Mitigation Procedures

41(b) Receipt of a Loss Mitigation Application
41(b)(1) Complete Loss Mitigation Application
    Section 1024.41(b)(1) provides that a complete loss mitigation 
application means an application in connection with which a servicer 
has received all the information that the servicer requires from a 
borrower in evaluating applications for the loss mitigation options 
available to the borrower. It further provides that a servicer shall 
exercise reasonable diligence in obtaining documents and information to 
complete a loss mitigation application.\104\
---------------------------------------------------------------------------

    \104\ Small servicers, as defined in Regulation Z, 12 CFR 
1026.41(e)(4) are not subject to these requirements. 12 CFR 
1024.30(b)(1).
---------------------------------------------------------------------------

    Comment 41(b)(1)-4 provides guidance to servicers on what is 
considered reasonable diligence to complete loss mitigation 
applications. In general, a servicer must request information necessary 
to make a loss mitigation application complete promptly after receiving 
the loss mitigation application. Comment 41(b)1-4.iii discusses a 
servicer's reasonable diligence obligations when a servicer offers a 
borrower a short-term payment forbearance program or a short-term 
repayment plan based on an evaluation of an incomplete loss mitigation 
application and provides the borrower the written notice pursuant to 
Sec.  1024.41(c)(2)(iii). If the borrower remains in compliance with 
the short-term payment forbearance program or short-term repayment 
plan, and the borrower does not request further assistance, the 
servicer may suspend reasonable diligence efforts until near the end of 
the payment forbearance program or repayment plan. However, if the 
borrower fails to comply with the program or plan or requests further 
assistance, the servicer must immediately resume reasonable diligence 
efforts. Near the end of a short-term payment forbearance program 
offered based on an evaluation of an incomplete loss mitigation 
application pursuant to Sec.  1024.41(c)(2)(iii), and prior to the end 
of the forbearance period, if the borrower remains delinquent, a 
servicer must contact the borrower to determine if the borrower wishes 
to complete the loss mitigation application and proceed with a full 
loss mitigation evaluation. For the reasons discussed below, the Bureau 
is amending comment 41(b)(1)-4 to clarify the expectations for 
servicers when the borrower is in a short-term payment forbearance made 
available to a borrower with a COVID-19-related hardship that was 
offered based on the evaluation of an incomplete application.
    During the past year, mortgage servicers have offered short-term 
payment forbearance options like forbearance programs made available by 
the CARES Act to borrowers facing COVID-19-related hardships. As 
discussed more fully in part II, over 2 million borrowers remain in 
forbearance programs, including large numbers who will have been in 
forbearance programs for over a year when they exit. It is expected 
that a large number of borrowers who took advantage of a full 18 months 
of forbearance made available to borrowers with federally backed 
mortgages will begin to exit forbearance in September 2021. The Bureau 
expects that these borrowers will have had longer term hardships and 
may require loan modifications or other loss mitigation options to 
bring their loans current and to avoid referral to foreclosure. The 
Bureau is also concerned that the present unique circumstances, where 
forbearance periods can be extended to 18 months, have interfered with 
borrower's ability to understand and focus on the risk of foreclosure 
after the forbearance period and important information regarding 
foreclosure avoidance options. Indeed, in the circumstances of the 
pandemic, a borrower in a long-term forbearance with no immediate 
payments due and with protection from foreclosure may be likely to 
defer consideration of their long-term ability to meet their monthly 
mortgage payment obligations in favor of short-term needs concerning 
health, childcare, and lost wages. The Bureau is also concerned 
servicers may face challenges when a large number of borrowers may be 
exiting forbearance and seeking loss mitigation review within the same 
short period of time later this year. During the COVID-19 emergency, to 
help maximize the likelihood that borrowers exiting forbearance have 
sufficient time to complete a loss mitigation application and the 
opportunity to start being be evaluated for loss mitigation options 
before exiting forbearance, servicers need to reach out to borrowers to 
perform reasonable diligence regarding completion of an incomplete loss 
mitigation application with ample time before a forbearance ends.
    Current comment 41(b)(1)-4.iii provides that reasonable diligence 
means servicers must contact the borrower before the short-term payment 
forbearance program ends, but it does not specify when servicers must 
make the contact. The Bureau is concerned that some servicers may not 
make this contact early enough for borrowers affected by the unique 
circumstances of the COVID-emergency to complete a loss mitigation 
application before the end of the forbearance period. Therefore, the 
Bureau believes that it may be appropriate to provide additional 
clarity as to when servicers must make this contact with certain 
borrowers during this time.
    For these reasons, the Bureau is proposing to add a new comment 
41(b)1-4.iv which states that if the borrower is in a short term 
payment forbearance program made available to borrowers experiencing a 
financial hardship due, directly or indirectly, to the COVID-19 
emergency, including a payment forbearance program made pursuant to the 
Coronavirus Economic Stability Act, section 4022 (15 U.S.C. 9056), that 
was offered based on evaluation of an incomplete application, a 
servicer must contact the borrower no later than 30 days prior to the 
end of the forbearance period to determine if the borrower wishes to 
complete the loss mitigation application and proceed with a full loss 
mitigation evaluation. If the borrower requests further assistance, the 
servicer should exercise reasonable diligence to complete the 
application prior to the end of the forbearance period. The servicer 
must also continue to exercise reasonable diligence to complete the 
loss mitigation application prior to the end of forbearance 
period.\105\
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    \105\ However, a servicer would not be required to continue 
reasonable diligence efforts if the borrower accepts a loss 
mitigation option offered based on the evaluation of an incomplete 
application pursuant to Sec.  1024.41(c)(2)(v) or proposed Sec.  
1024.41(c)(2)(vi).
---------------------------------------------------------------------------

    The Bureau intends proposed comment 41(b)1-4.iv to work with the 
proposed new intervention live contact requirements in proposed Sec.  
1024.39(e)(2) to ensure borrowers receive notification of loss 
mitigation options that would be available after their COVID-19-related 
forbearance program ends. Because the reasonable diligence obligations 
described in Sec.  1024.41(b)(1) only apply if a borrower has submitted 
an incomplete loss mitigation application, proposed comment 41(b)(1)-
4.iv would not apply to borrowers who are in forbearance programs that 
were offered without any evaluation of a loss mitigation application. 
Proposed Sec.  1024.39(e)(2), however, would generally apply to 
delinquent borrowers with whom the servicer established live contact 
pursuant to section 1024.39(a), even if they have not submitted an 
incomplete

[[Page 18856]]

loss mitigation application. Together, the two provisions would 
complement each other to ensure that borrowers receive information 
about loss mitigation options that may be available at the end of their 
forbearance period.
    Requiring servicers to contact the borrower at least 30 days prior 
to the end of the forbearance as set out in proposed Sec.  
1024.41(b)(1)-4 should help maximize the likelihood that borrowers have 
time to complete a loss mitigation application while being close enough 
to the end of forbearance that borrowers are incentivized to actually 
do so. The Bureau solicits comment on the proposed 30-day deadline for 
completing the reasonable diligence contact at the end of the 
forbearance and whether a different deadline is appropriate.
    Proposed comment 41(b)(1)-4.iv limits the circumstances when 
servicers must comply with the requirements of the proposed comment to 
situations when the borrower is in a short-term payment forbearance 
program made available to borrowers experiencing a COVID-19 related 
hardship. The Bureau solicits comment on whether to, instead, extend 
these requirements to all borrowers exiting short-term payment 
forbearance programs during a specified time period. The Bureau seeks 
comment on whether that alternative would be easier for servicers to 
implement.
41(c) Evaluation of Loss Mitigation Applications
41(c)(2)(i) In General
    Section 1024.41(c)(2)(i) states that, in general, servicers shall 
not evade the requirement to evaluate a complete loss mitigation 
application for all loss mitigation options available to the borrower 
by making an offer based upon an incomplete application. For ease of 
reference, this section-by-section analysis generally refers to this 
provision as the ``anti-evasion requirement.'' Currently, the provision 
identifies three general exceptions to this anti-evasion requirement, 
Sec.  1024.41(c)(2)(ii), (iii), and (v). As further described in the 
section-by-section analysis of Sec.  1024.41(c)(2)(vi) below, the 
Bureau is proposing to add a temporary exception to this anti-evasion 
requirement in new Sec.  1024.41(c)(2)(vi) for certain loan 
modification options made available to borrowers experiencing COVID-19-
related hardships. The Bureau is therefore proposing to amend 
1024.41(c)(2)(i) to reference the new proposed exception in Sec.  
1024.41(c)(2)(vi). As described more fully below, the Bureau solicits 
comment on the proposed amendment.
41(c)(2)(v) Certain COVID-19-Related Loss Mitigation Options
    Section 1024.41(c)(2)(v) currently allows servicers to offer a 
borrower certain loss mitigation options made available to borrowers 
experiencing a COVID-19-related hardship based upon the evaluation of 
an incomplete application, provided that certain criteria are met. The 
Bureau added this provision to the mortgage servicing rules in its June 
2020 IFR. Section 1024.41(c)(2)(v)(A)(1) refers to a COVID-19-related 
hardship as a financial hardship due, directly or indirectly, to the 
COVID-19 emergency. Section 1024.41(c)(2)(v)(A)(1) further states that 
the term COVID-19 emergency has the same meaning as under the 
Coronavirus Economic Stabilization Act, section 4022(a)(1) (15 U.S.C. 
9056(a)(1)).
    As discussed in the section-by-section analysis of Sec.  1024.30, 
the Bureau is proposing to define the term ``COVID-19-related 
hardship'' for purposes of subpart C, including Sec.  1024.41(c)(2)(v), 
as ``a financial hardship due, directly or indirectly, to the COVID-19 
emergency as defined in the Coronavirus Economic Stabilization Act, 
section 4022(a)(1) (15 U.S.C. 9056(a)(1)).'' Thus, the Bureau proposes 
a conforming amendment to Sec.  1024.41(c)(2)(v) to utilize the 
proposed new term. The Bureau does not intend for this proposed 
amendment to substantively change Sec.  1024.41(c)(2)(v). The Bureau 
solicits comment on the proposed amendment to Sec.  1024.41(c)(2)(v) 
and does not seek comment on other aspects of existing Sec.  
1024.41(c)(2)(v).
41(c)(2)(vi) Certain COVID-19-Related Loan Modification Options
    Section 1024.41(c)(2)(i) states that, in general, servicers shall 
not evade the requirement to evaluate a complete loss mitigation 
application for all loss mitigation options available to the borrower 
by making an offer based upon an incomplete application.\106\ The 
Bureau added a temporary exception to this anti-evasion requirement in 
its June 2020 IFR. This exception currently allows servicers to offer a 
borrower certain loss mitigation options made available to borrowers 
experiencing a COVID-19-related hardship based upon the evaluation of 
an incomplete application, provided that certain criteria are met. 
These criteria are intended to align with the criteria outlined in 
FHFA's COVID-19 payment deferral and other comparable programs, such as 
FHA's COVID-19 partial claim.\107\ For the reasons discussed below, the 
Bureau is proposing to add a new temporary exception to the anti-
evasion requirement in Sec.  1024.41(c)(2)(i) in new Sec.  
1024.41(c)(2)(vi) for certain loan modification options made available 
to borrowers with COVID-19-related hardships.
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    \106\ Id.
    \107\ 85 FR 39055, 39059, 39061-62 (June 30, 2020) (a 
description of the criteria that deferrals and partial claims must 
meet to qualify for the exception in Sec.  1024.41(c)(2)(v)). The 
Bureau is proposing similar criteria for the proposed new exception, 
with adjustments for the different types of loss mitigation programs 
that the Bureau intends for the proposed new exception to cover.
---------------------------------------------------------------------------

    As described in more detail in the section-by-section analysis of 
Sec.  1024.41(f), Sec.  1024.41(f)(1) generally prohibits a servicer 
from making the first notice or filing required by applicable law for 
any judicial or non-judicial foreclosure process, unless the borrower's 
mortgage loan obligation is more than 120 days delinquent. Regulation X 
generally refers to this prohibition as a pre-foreclosure review 
period. For ease of reference, this section-by-section analysis 
generally refers to the first notice or filing required by applicable 
law for any judicial or non-judicial foreclosure process as 
``foreclosure referral'' or the ``first notice or filing.''
    As discussed in part II, Federal foreclosure moratoria are 
scheduled to end in late June 2021, and borrowers who entered CARES Act 
forbearance programs when those programs first became available and 
extended them to the maximum time period will be required to begin 
repayment in September 2021. Most borrowers with loans that are still 
in forbearance programs as of April 2021 will be required to exit by 
the end of November 2021. This could result in a sudden and sharp 
increase in loss mitigation-related default servicing activity around 
the same time. Because forbearance generally does not pause the 
homeowner's underlying delinquency,\108\ many borrowers with loans that 
are currently in forbearance programs will become eligible for 
foreclosure referral shortly after exiting a forbearance program or as 
soon as Federal foreclosure moratoria are lifted, unless their 
delinquencies are resolved. Often forbearance agreements do not specify 
how borrowers must repay the forborne payments at the conclusion of the 
forbearance program.
---------------------------------------------------------------------------

    \108\ See supra note 61 and accompanying text.
---------------------------------------------------------------------------

    Through certain loss mitigation options, such as payment deferral 
and loan modification programs, eligible

[[Page 18857]]

borrowers can eliminate the immediate potential risk of foreclosure 
referral. Certain investors and insurers, such as the GSEs and FHA, 
permit servicers to offer some of these programs using streamlined 
application procedures, under which they do not need to collect a 
complete loss mitigation application from the borrower.
    For example, as the Bureau discussed in the June 2020 IFR, the FHFA 
COVID-19 payment deferral and certain similar programs provide benefits 
both to borrowers and servicers during the COVID-19 emergency. Through 
these programs, borrowers who can resume their normal periodic payments 
but who cannot afford to repay the forborne or delinquent amounts in 
the short-term would be able to eliminate the immediate potential risk 
of losing their homes to foreclosure, resume repaying the mortgage loan 
with no delinquency and no additional fees or interest, and better plan 
how eventually to repay the forborne or delinquent amount that has been 
deferred. In addition, the Bureau noted that permitting servicers to 
utilize streamlined application procedures to offer these options would 
help ensure that servicers have sufficient resources to address 
requests from the unusually large number of borrowers who will be 
seeking assistance as many forbearance programs end. The Bureau 
acknowledged that borrowers accepting a loss mitigation option under 
the new streamlined procedures permitted in the June 2020 IFR would not 
receive protections under Sec.  1024.41 that are critical in other 
circumstances, but concluded that other new protections established in 
the IFR would provide sufficient safeguards for borrowers in the narrow 
context of the COVID-19 emergency.\109\
---------------------------------------------------------------------------

    \109\ 85 FR 39055, 39060-61 (June 30, 2020).
---------------------------------------------------------------------------

    As discussed in part II, it appears that many borrowers who will 
exit forbearance programs in November 2021 will do so with lengthy 
delinquencies and may be in need of post-forbearance foreclosure 
avoidance options, such as loan modifications that lower their monthly 
payments, extend the term of the loan, or both. The Bureau believes 
that it may be appropriate to add a new exception to the servicing 
rule's anti-evasion requirement for certain loan modification options, 
like the GSEs' flex modification programs, FHA's COVID-19 owner-
occupant loan modification, and other comparable programs 
(``streamlined loan modifications''). Like the payment deferral 
programs discussed in the June 2020 IFR, the Bureau understands that 
servicers may utilize streamlined application procedures for these 
programs that do not require a borrower to submit a complete loss 
mitigation application. The Bureau believes that providing additional 
flexibility under the rule's loss mitigation procedures for certain 
streamlined loan modifications may be appropriate during the COVID-19 
emergency, which presents extraordinary circumstances.
    Streamlined application procedures, such as those authorized by the 
GSEs for certain loss mitigation options such as flex modifications, 
may help ensure that servicers have sufficient resources to efficiently 
and accurately respond to loss mitigation assistance requests from the 
unusually large number of borrowers who will be seeking assistance from 
them in the coming months as Federal foreclosure moratoria and many 
forbearance programs end. And borrowers dealing with the social and 
economic effects of the COVID-19 emergency may be less likely than they 
would be under normal circumstances to take the steps necessary to 
complete a loss mitigation application to receive a full evaluation. 
This could prolong their delinquencies and put them at risk for 
foreclosure referral. Moreover, by allowing servicers to assist 
borrowers eligible for streamlined loan modifications more efficiently, 
servicers will have more resources to provide other loss mitigation 
assistance to borrowers who are ineligible for or do not want 
streamlined loan modifications.
    The Bureau believes that loan modifications that satisfy the 
proposed eligibility criteria for the new exception to the anti-evasion 
requirement would protect borrowers from certain potential harms, such 
as the financial strain of being required to quickly repay all forborne 
amounts, if they accept an offer of a loan modification eligible for 
the proposed new exception.\110\ As discussed more fully below, to be 
eligible for the proposed new exception, the loan modification option 
would need to satisfy certain criteria. Specifically, the loan 
modifications eligible for the proposed new exception must limit a 
potential term extension to 480 months, not increase the required 
monthly principal and interest payment, not charge a fee associated 
with the option, and waive certain other fees or charges. For loan 
modifications to qualify under the proposed new exception, they must 
not charge interest on amounts that are deferred and will not become 
due until the mortgage loan is refinanced, the mortgaged property is 
sold, or the loan modification matures. However, loan modifications 
that charge interest on past due amounts that are capitalized into a 
new modified term could qualify for the proposed new exception, as long 
as they otherwise satisfy all of the criteria in proposed Sec.  
1024.41(c)(2)(vi)(A). To qualify for the proposed new exception, a loan 
modification must also either be designed to end any preexisting 
delinquency on the mortgage loan upon the borrower satisfying the 
servicer's requirements for completing a trial loan modification plan 
and accepting a permanent loan modification or cause any preexisting 
delinquency to end upon the borrower's acceptance of the offer.
---------------------------------------------------------------------------

    \110\ As discussed more fully below, receiving a streamlined 
loan modification under the proposed exception based on an 
incomplete application generally would not remove a borrower's right 
under Sec.  1024.41 to submit a complete loss mitigation application 
and receive an evaluation for all available loss mitigation options.
---------------------------------------------------------------------------

    These proposed criteria are intended to remove the immediate threat 
of foreclosure referral. They also would help ensure that borrowers in 
forbearance programs would not face any additional fees or a balloon 
payment immediately after their forbearance programs end, and they 
would ease the financial strain of having to make additional payments 
to repay any past due amounts. As a result of the proposed eligibility 
criteria, borrowers receiving one of the covered loan modifications 
would have additional time to repay past due amounts that may be 
capitalized and would have years to plan to address amounts due that 
are deferred until the mortgage loan is refinanced, the mortgaged 
property is sold, or the loan modification matures. This may be 
particularly important during the COVID-19 emergency, as many borrowers 
may be facing extended periods of economic uncertainty.
    The Bureau acknowledges that borrowers accepting a loan 
modification offer under the new proposed exception would not receive 
protections under Sec.  1024.41 that are critical in other 
circumstances. As the Bureau explained in the 2013 RESPA Servicing 
Final Rule, the general requirement to evaluate a borrower for all 
available loss mitigation options based on a single, complete 
application ensures that borrowers have a full understanding of their 
loss mitigation options when deciding on a program.\111\ It also makes 
the loss mitigation application process more efficient by eliminating 
multiple, sequential evaluations that are sometimes based on similar 
application

[[Page 18858]]

information,\112\ with the resulting efficiency often saving borrowers 
time and resources.
---------------------------------------------------------------------------

    \111\ 2013 RESPA Servicing Final Rule, supra note 13, at 10828.
    \112\ Id.
---------------------------------------------------------------------------

    The Bureau believes that the exception set forth in proposed Sec.  
1024.41(c)(2)(vi) would be unlikely to affect this benefit in most 
cases, given the narrow scope and particular circumstances of the 
proposed exception. Even if a borrower may be interested in and 
eligible for another form of loss mitigation besides a streamlined loan 
modification, receiving a streamlined loan modification would not 
generally remove the borrower's right under Sec.  1024.41 to submit a 
complete loss mitigation application and receive an evaluation for all 
available options after the streamlined loan modification is in place.
    Further, to be eligible for the exception under proposed Sec.  
1024.41(c)(2)(vi)(A), a loan modification must bring the loan current 
or be designed to end any preexisting delinquency on the mortgage loan 
upon the borrower satisfying the servicer's requirements for completing 
a trial loan modification plan and accepting a permanent loan 
modification. In most cases, a borrower must be more than 120 days 
delinquent before a servicer may make the first notice or filing 
required under applicable law to initiate foreclosure proceedings. 
Thus, if a borrower wishes to pursue another loss mitigation option 
after accepting a permanent loan modification offer, the borrower will 
still have a considerable amount of time to complete a loss mitigation 
application before they would be at risk for foreclosure.
    Additionally, if a borrower fails to perform under a trial loan 
modification plan offered pursuant to proposed Sec.  
1024.41(c)(2)(vi)(A) or requests further assistance, under proposed 
Sec.  1024.41(c)(2)(vi)(B) the servicer must immediately resume 
reasonable diligence efforts to collect a complete loss mitigation 
application as required under Sec.  1024.41(b)(1). As further discussed 
below, the Bureau seeks comment about whether and in what manner to 
provide additional foreclosure protections to borrowers who have 
accepted a trial loan modification plan offered pursuant to proposed 
Sec.  1024.41(c)(2)(vi)(A), but whose loans have not yet been 
permanently modified.
    The Bureau requests comment on all aspects of proposed Sec.  
1024.41(c)(2)(vi), including on whether the proposed new exception 
would establish sufficient protections for borrowers and whether it 
would provide operational benefits for servicers. The Bureau also 
requests comment on whether the Bureau should adopt additional or 
different eligibility criteria. The Bureau also solicits comment on 
whether proposed Sec.  1024.41(c)(2)(vi) would adequately preserve a 
borrower's rights under Sec.  1024.41 to submit a complete loss 
mitigation option and receive an evaluation for all available loss 
mitigation options after the borrower accepts an offer under proposed 
Sec.  1024.41(c)(2)(vi). Additionally, the Bureau solicits comment on 
whether and how a borrower's future eligibility for loss mitigation 
options may be impacted after a borrower accepts or rejects an offer 
for a streamlined loan modification under proposed Sec.  
1024.41(c)(2)(vi).
41(c)(2)(vi)(A)
    The Bureau is proposing to add a temporary exception to the anti-
evasion requirement in Sec.  1024.41(c)(2)(i) under new Sec.  
1024.41(c)(2)(vi) for certain loan modifications that are made 
available to borrowers experiencing COVID-19-related hardships and that 
satisfy certain criteria specified in proposed Sec.  
1024.41(c)(2)(vi)(A)(1)-(4), described more fully below. Proposed Sec.  
1024.41(c)(2)(vi)(A)(1)-(4) sets forth the minimum specific criteria 
that the loan modification option would have to meet for the new anti-
evasion requirement exception to apply. Under the proposal, the loan 
modification option would need to extend the term of the loan by no 
more than 480 months from the date the loan modification is effective 
and not cause the borrower's monthly required principal and interest 
payment to increase. For a loan modification option to qualify, a 
servicer would also be prohibited from charging interest on amounts 
that the borrower is permitted to delay paying until the mortgage loan 
is refinanced, the mortgaged property is sold, or the loan modification 
matures. In addition, the servicer would be prohibited from charging 
any fee in connection with the loan modification option, and the 
servicer must waive all existing late charges, penalties, stop payment 
fees, or similar charges promptly upon the borrower's acceptance of the 
loan modification option. The proposed anti-evasion requirement 
exception would also be limited to loan modification options made 
available to borrowers experiencing COVID-19-related hardships, and it 
would require that either the borrower's acceptance of the loan 
modification offer end any preexisting delinquency on the mortgage loan 
or the loan modification offer be designed to end any preexisting 
delinquency upon the borrower satisfying the servicer's requirements 
for completing a trial loan modification plan and accepting a permanent 
loan modification.
    The Bureau understands that certain loan modification programs, 
including the GSEs' flex modifications, can involve, among other 
features, the capitalization of past due amounts, potential resetting 
of the interest rate, and deferral of principal to reach a certain 
mark-to-market loan to value ratio. The Bureau is not proposing to 
require or prohibit the incorporation of these features into loan 
modifications for them to qualify for the proposed exception outlined 
in Sec.  1024.41(c)(2)(vi).\113\ A loan modification option would 
qualify for the proposed exception as long as it satisfies all of the 
applicable criteria in Sec.  1024.41(c)(2)(vi)(A). In allowing 
flexibility beyond the proposed term extension limits and monthly 
payment increase prohibition in proposed in Sec.  1024.41(c)(2)(vi)(A), 
the Bureau seeks to ensure that a variety of loan modifications are 
available to borrowers experiencing COVID-19-related hardships.
---------------------------------------------------------------------------

    \113\ As noted above, for loan modifications to qualify under 
the proposed new exception, they must not charge interest on amounts 
that are deferred and will not become due until the mortgage loan is 
refinanced, the mortgaged property is sold, or the loan modification 
matures. However, loan modifications that charge interest on past 
due amounts that are capitalized into a new modified term could 
qualify for the proposed new exception, as long as they otherwise 
satisfy all of the criteria in proposed Sec.  1024.41(c)(2)(vi)(A).
---------------------------------------------------------------------------

    The Bureau solicits comment on the proposed amendment, including on 
whether the Bureau should consider additional criteria for the proposed 
new exception and on whether the proposed criteria would present 
obstacles for servicers in utilizing the proposed new exception.
41(c)(2)(vi)(A)(1)
    Under proposed Sec.  1024.41(c)(2)(vi)(A), servicers would be 
permitted to offer a loan modification based on evaluation of an 
incomplete application, as long as the loan modification meets all of 
the additional criteria set forth in Sec.  1024.41(c)(2)(vi)(A)(1)-(4). 
Under proposed Sec.  1024.41(c)(2)(vi)(A)(1), the first criterion is 
that the loan modification must extend the term of the loan by no more 
than 480 months from the date the loan modification is effective and 
not cause the borrower's monthly required principal and interest 
payment to increase.

[[Page 18859]]

    As noted in the section-by-section analysis of Sec.  
1024.41(c)(2)(vi) above, the Bureau believes that it may be 
advantageous to borrowers and servicers alike to facilitate the timely 
transition of eligible borrowers into certain streamlined loan 
modifications that enable borrowers experiencing COVID-19-related 
hardships to quickly resume repaying the mortgage loan with no 
delinquency and thus eliminate the immediate potential risk of referral 
to foreclosure.
    The Bureau understands that the GSEs offer a flex modification 
entailing, among other terms, an extension of the borrower's mortgage 
term to 480 months and no increase in the monthly required principal 
and interest payment amount.\114\ Similarly, FHA offers a COVID-19 
owner occupant loan modification with a term of 360 months that, except 
in certain circumstances, does not entail an increase in the monthly 
required principal and interest payment amount. FHA guidance provides 
that a borrower's monthly required principal and interest payment 
amount may increase if the borrower ``has exhausted the 30 percent 
maximum statutory value of all Partial Claims for an FHA-insured 
Mortgage.'' \115\
---------------------------------------------------------------------------

    \114\ See Fed. Home Loan Mortg. Corp., Freddie Mac Flex 
Modification Reference Guide (Mar. 2021), https://sf.freddiemac.com/content/_assets/resources/pdf/other/flex_mod_ref_guide.pdf; Fed. 
Nat'l Mortg. Ass'n, Servicing Guide: D2-3.2-07: Fannie Mae Flex 
Modification (Sept. 9, 2020), https://servicing-guide.fanniemae.com/THE-SERVICING-GUIDE/Part-D-Providing-Solutions-to-a-Borrower/Subpart-D2-Assisting-a-Borrower-Who-is-Facing-Default-or/Chapter-D2-3-Fannie-Mae-s-Home-Retention-and-Liquidation/Section-D2-3-2-Home-Retention-Workout-Options/D2-3-2-07-Fannie-Mae-Flex-Modification/1042575201/D2-3-2-07-Fannie-Mae-Flex-Modification-09-09-2020.htm.
    \115\ U.S. Dep't of Hous. and Urban Dev., Mortgagee Letter 2021-
05 at 10 (Feb. 16, 2021), https://www.hud.gov/sites/dfiles/OCHCO/documents/2021-05hsgml.pdf.
---------------------------------------------------------------------------

    The Bureau believes that the proposed term extension requirements 
and prohibitions on monthly required principal and interest payment 
amount increases adopted by the GSEs and FHA will provide valuable 
assistance to borrowers qualifying for these programs in avoiding 
foreclosure and resolving delinquencies. Therefore, the Bureau is 
proposing to permit servicers to offer a loan modification based on 
evaluation of an incomplete application that extends the term of the 
loan by no more than 480 months from the date the loan modification is 
effective and does not cause the borrower's monthly required principal 
and interest payment to increase, as long as the loan modification 
meets all of the additional criteria set forth in proposed Sec.  
1024.41(c)(2)(vi)(A).
    The Bureau solicits comment on this proposed eligibility criterion, 
including whether this criterion creates risks for borrowers and 
whether it would present implementation challenges for servicers. In 
particular, the Bureau solicits comment on whether borrowers and 
servicers may benefit from additional flexibility to extend loan terms 
beyond 480 months from the date the loan modification is effective, and 
whether borrowers and servicers may benefit from additional flexibility 
to increase the monthly required principal and interest payment amount 
such as, for example, when a borrower's loan is insured by FHA and the 
borrower has exceeded FHA's applicable thresholds for partial claims.
41(c)(2)(vi)(A)(2)
    Proposed Sec.  1024.41(c)(2)(vi)(A)(2) would provide that, to 
qualify for the anti-evasion requirement exception, amounts deferred 
until the mortgage loan is refinanced, the mortgaged property is sold, 
or the loan modification matures must not accrue interest. The GSEs 
specify in their flex modification guidelines that amounts deferred 
until the mortgage loan is refinanced, the mortgaged property is sold, 
or the loan modification matures must not accrue interest.\116\ The 
Bureau is proposing the loan modification maturity language in Sec.  
1024.41(c)(2)(vi)(A)(2) to align with what it understands to be the 
practice of the GSEs and FHA in deferring certain amounts until the end 
of the modified loan term.
---------------------------------------------------------------------------

    \116\ The Bureau notes that a similar provision in the existing 
COVID-19 related anti-evasion requirement exception, Sec.  
1024.41(c)(2)(v)(A)(1), does not reference loan modification 
maturity but instead references the point when the term of the 
mortgage loan ends. Section 1024.41(c)(2)(v)(A)(1) goes on to define 
the term of the mortgage loan as the term of the mortgage loan 
according to the obligation between the parties in effect when the 
borrower is offered the loss mitigation option. The Bureau 
understands that, when streamlined loan modifications involve 
deferral of certain amounts until the end of the loan, the GSEs and 
FHA defer these amounts until the end of the modified loan term. By 
contrast, for payment deferral programs that may qualify for the 
existing anti-evasion requirement exception in Sec.  
1024.41(c)(2)(v), the GSEs and FHA defer certain amounts until the 
end of term in effect prior to the servicer offering the loss 
mitigation option which, in most cases, is likely the original term 
of the loan. The Bureau emphasizes that it does not intend to 
substantively change the requirements of existing Sec.  
1024.41(c)(2)(v).
---------------------------------------------------------------------------

    As noted in the section-by-section analysis of proposed Sec.  
1024.41(c)(2)(vi)(A) above, proposed Sec.  1024.41(c)(2)(vi)(A) would 
not prohibit the capitalization of past due amounts into a new modified 
term for a loan modification to qualify for the exception outlined in 
that section. However, when amounts are deferred and do not become due 
until the mortgage loan is refinanced, the mortgaged property is sold, 
or the loan modification matures, a loan modification option would only 
qualify for the anti-evasion requirement exception in proposed Sec.  
1024.41(c)(2)(vi) if those amounts do not accrue interest. This 
criterion would avoid imposing additional economic hardship on 
borrowers who accept an offer of a loan modification made pursuant to 
the proposed anti-evasion exception.
    The GSEs also specify that amounts deferred until the mortgage loan 
is transferred or the unpaid principal balance (UPB) is paid off do not 
accrue interest. The Bureau seeks comment on whether to specify in a 
final rule that interest cannot be charged on amounts deferred until 
UPB pay off, transfer, or both.
    Proposed Sec.  1024.41(c)(2)(vi)(A)(2) would also provide that, to 
qualify for the anti-evasion requirement exception in Sec.  
1024.41(c)(2)(vi), a servicer must not charge any fee in connection 
with the loan modification option, and a servicer must waive all 
existing late charges, penalties, stop payment fees, or similar charges 
promptly upon the borrower's acceptance of the option. This criterion 
would avoid imposing additional economic hardship on borrowers who 
accept an offer of a loan modification made pursuant to the proposed 
anti-evasion exception.
    The Bureau notes that some investors or insurers, such as FHA, may 
only require servicers to waive fees incurred after the beginning of 
the COVID-19 pandemic, but provide servicers with discretion to waive 
other fees. The Bureau recognizes that offers of loan modifications 
where the servicer elects not to waive such fees or charges, including 
some FHA COVID-19 owner occupant loan modifications, would not qualify 
for the proposed new anti-evasion requirement exception. The Bureau 
invites comment on whether the proposed fee waiver provision in Sec.  
1024.41(c)(2)(vi)(A)(2) is appropriate and on whether it should be 
further limited by, for example, requiring that only fees incurred 
after a certain date be waived for a loan modification option to 
qualify for the anti-evasion requirement exception in proposed Sec.  
1024.41(c)(2)(vi). The Bureau also solicits comment on all other 
aspects of proposed Sec.  1024.41(c)(2)(vi)(A)(2).

[[Page 18860]]

41(c)(2)(vi)(A)(3)
    Proposed Sec.  1024.41(c)(2)(vi)(A)(3) would require that, to 
qualify for the anti-evasion requirement exception, the loan 
modification in proposed Sec.  1024.41(c)(2)(vi)(A) must be made 
available to borrowers experiencing a COVID-19-related hardship. As 
discussed in the section-by-section analysis of Sec.  1024.30, the 
Bureau is proposing to define the term ``COVID-19-related hardship'' as 
``a financial hardship due, directly or indirectly, to the COVID-19 
emergency as defined in the Coronavirus Economic Stabilization Act, 
section 4022(a)(1) (15 U.S.C. 9056(a)(1)).''
    As noted in part II, the COVID-19 emergency presents a unique 
period of economic uncertainty, during which borrowers may be facing 
extended periods of financial hardship and servicers expect to face 
extraordinary operational challenges to assist large numbers of 
delinquent borrowers. The Bureau, therefore, proposes to limit the 
proposed anti-evasion requirement exception in Sec.  
1024.41(c)(2)(vi)(A) to loan modifications made available to borrowers 
experiencing a COVID-19-related hardship. The Bureau solicits comment 
on whether to, instead, condition eligibility on loan modifications 
offered during a specified time period, regardless of whether the 
option is available to borrowers with a COVID-19 related hardship. The 
Bureau seeks comment on whether that alternative would be easier for 
servicers to implement. The Bureau also solicits comment on all other 
aspects of proposed Sec.  1024.41(c)(2)(vi)(A)(3).
41(c)(2)(vi)(A)(4)
    Proposed Sec.  1024.41(c)(2)(vi)(A)(4) would require that either 
the borrower's acceptance of a loan modification offer must end any 
preexisting delinquency on the mortgage loan, or a loan modification 
offered must be designed to end any preexisting delinquency on the 
mortgage loan upon the borrower satisfying the servicer's requirements 
for completing a trial loan modification plan and accepting a permanent 
loan modification, for a loan modification to qualify for the proposed 
anti-evasion requirement exception in Sec.  1024.41(c)(2)(vi). As 
discussed below in the section-by-section analysis of Sec.  
1024.41(c)(2)(vi)(B), with respect to borrowers who may be required to 
complete a trial loan modification plan, the Bureau is also proposing 
in Sec.  1024.41(c)(2)(vi)(B), discussed more fully below, to require a 
servicer to immediately resume reasonable diligence efforts to complete 
a loss mitigation application as required under Sec.  1024.41(b)(1) if 
the borrower fails to perform under a trial loan modification plan 
offered pursuant to proposed Sec.  1024.41(c)(2)(vi)(A) or if the 
borrower requests further assistance. In the section-by-section 
analysis of Sec.  1024.41(c)(2)(vi)(B), the Bureau also solicits 
comment on providing additional foreclosure protections for borrowers 
who may be required to complete a trial loan modification plan.
    The Bureau believes that these proposed provisions, taken together, 
would help ensure that borrowers who accept a loan modification offered 
under proposed Sec.  1024.41(c)(2)(vi) have ample time to complete an 
application and be reviewed for all loss mitigation options before 
foreclosure can be initiated. Servicers are generally prohibited from 
making the first notice or filing until a mortgage loan obligation is 
more than 120 days delinquent.\117\ If the borrower's acceptance of a 
loan modification offer ends any preexisting delinquency on the 
mortgage loan, Sec.  1024.41(f)(1)(i) would prohibit a servicer from 
making a foreclosure referral until the loan becomes delinquent again, 
and until that delinquency exceeds 120 days. Similarly, if the loan 
modification offered is designed to end any preexisting delinquency on 
the mortgage loan upon the borrower satisfying the servicer's 
requirements for completing a trial loan modification plan and 
accepting a permanent loan modification and the loan modification is 
finalized, Sec.  1024.41(f)(1)(i) would prohibit a servicer from making 
a foreclosure referral until the loan becomes delinquent again after 
the trial ends, and until that delinquency exceeds 120 days. This would 
provide borrowers who become delinquent again time to complete an 
application and be reviewed for all loss mitigation options before 
foreclosure can be initiated.
---------------------------------------------------------------------------

    \117\ 12 CFR 1024.41(f)(1).
---------------------------------------------------------------------------

    Additionally, the Bureau notes that servicers must still comply 
with the requirements of Sec.  1024.41 for the first loss mitigation 
application submitted after acceptance of a loan modification offered 
pursuant to proposed Sec.  1024.41(c)(2)(vi)(A), due to Sec.  
1024.41(i)'s requirement that a servicer comply with Sec.  1024.41 if a 
borrower submits a loss mitigation application, unless the servicer has 
previously complied with the requirements of Sec.  1024.41 for a 
complete application submitted by the borrower and the borrower has 
been delinquent at all times since submitting that complete 
application. The proposed exception described under new Sec.  
1024.41(c)(2)(vi) would only apply to offers based on the evaluation of 
an incomplete loss mitigation application. Regardless of whether the 
loan modification is finalized and therefore resolves any preexisting 
delinquency, a servicer would be required to comply with all of the 
provisions of Sec.  1024.41 with respect to the first subsequent 
application submitted by the borrower after the borrower accepts an 
offer under proposed Sec.  1024.41(c)(2)(vi).
    Additionally, servicers may be required to comply with early 
intervention obligations if a borrower's mortgage loan account remains 
delinquent after a loan modification is offered and accepted under 
proposed Sec.  1024.41(c)(2)(vi)(A) (such as when a borrower is in a 
trial loan modification plan) or becomes delinquent after a loan 
modification under proposed Sec.  1024.41(c)(2)(vi)(A) is 
finalized.\118\ These include live contact and written notification 
obligations that, in part, require servicers to inform borrowers of the 
availability of additional loss mitigation options and how the 
borrowers can apply.\119\
---------------------------------------------------------------------------

    \118\ Small servicers, as defined in Regulation Z, 12 CFR 
1026.41(e)(4), are not subject to these requirements. 12 CFR 
1024.30(b)(1).
    \119\ See 12 CFR 1024.39(a) and (b). Also, servicers generally 
must have policies and procedures in place to advise borrowers of 
all of their loss mitigation options. 12 CFR 1024.38. During the 
COVID-19 emergency, one of the loss mitigation options to be 
presented to borrowers with federally backed mortgages is their 
right to CARES Act forbearance.
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    The Bureau solicits comment on all aspects of proposed Sec.  
1024.41(c)(2)(vi)(A)(4).
41(c)(2)(vi)(B)
    Section 1024.41(b)(1) generally requires that a servicer exercise 
reasonable diligence to complete any loss mitigation application 
submitted 45 days or more before a foreclosure sale, and Sec.  
1024.41(b)(2) requires a servicer to review such an application and 
assess its completeness, and to send the written notice described in 
Sec.  1024.41(b)(2) in connection with such an application. Proposed 
Sec.  1024.41(c)(2)(vi)(B) would offer servicers relief from these 
regulatory requirements when a borrower accepts a loan modification 
under proposed Sec.  1024.41(c)(2)(vi)(A), but would require a servicer 
to immediately resume reasonable diligence efforts as required under 
Sec.  1024.41(b)(1) with regard to any loss mitigation application the 
borrower submitted before the servicer's offer of the trial loan 
modification plan if the borrower fails to perform under a trial loan 
modification plan offered pursuant

[[Page 18861]]

to proposed Sec.  1024.41(c)(2)(vi)(A) or if the borrower requests 
further assistance.
    The protections in Sec.  1024.41(b)(1) and (2) are part of a 
regulatory regime designed to ensure that borrowers generally receive 
an evaluation for all available loss mitigation options based upon a 
single application. This regulatory regime generally is intended to 
ensure that borrowers have a full information about their loss 
mitigation options before deciding on a program.\120\ It also makes the 
loss mitigation application process more efficient by eliminating 
multiple, sequential evaluations that are sometimes based on similar 
application information, with the resulting efficiency often saving 
borrowers time and resources.\121\
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    \120\ 2013 RESPA Servicing Final Rule, supra note 13, at 10827-
28.
    \121\ Id.
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    As further discussed above, the Bureau believes that the 
requirements of Sec.  1024.41(b)(1) and (2) may not be necessary to 
protect borrowers in the limited context of a loan modification offered 
under proposed Sec.  1024.41(c)(2)(vi)(A). Servicers will be dealing 
with an abnormally high number of requests for loss mitigation 
assistance due to the pandemic. If servicers were required to exercise 
reasonable diligence to obtain a complete application for each of these 
borrowers when they exit forbearance programs, as generally required 
under Sec.  1024.41(b)(1), or to provide borrower-specific 
notifications of the documents and information each individual 
applicant must submit to complete the application, as required under 
Sec.  1024.41(b)(2), it would likely interfere with their ability to 
provide effective, efficient, and accurate assistance. And borrowers 
dealing with the social and economic effects of the COVID-19 emergency 
may be less likely than normal to take the steps necessary to complete 
a loss mitigation application to receive a full evaluation.
    The Bureau notes that, if a borrower does wish to pursue a complete 
application and receive the full protections of Sec.  1024.41, proposed 
Sec.  1024.41(c)(2)(vi) would not prohibit them from doing so. In 
addition, as discussed in the section-by-section analysis of Sec.  
1024.41(c)(2)(vi)(A)(4), the Bureau stresses that servicers would be 
required to comply with Sec.  1024.41, including Sec.  1024.41(b)(1) 
and (2), if the borrower submits a new loss mitigation application 
after accepting a loan modification under proposed Sec.  
1024.41(c)(2)(vi)(A).
    Additionally, servicers may be required to comply with early 
intervention obligations if a borrower's mortgage loan account becomes 
delinquent after a loan modification takes effect or remains delinquent 
due to, for example, being in a trial loan modification plan, after a 
borrower accepts an offer under proposed Sec.  1024.41(c)(2)(vi)(A). 
Further, the Bureau believes that a borrower whose mortgage loan 
account becomes delinquent or remains delinquent after acceptance of a 
loan modification under proposed Sec.  1024.41(c)(2)(vi)(A) will have 
sufficient notice that other options may be available should the 
borrower wish to submit another application. In general, borrowers who 
previously entered into a forbearance program will have received at 
least two written notifications earlier in the loss mitigation process, 
as required under Regulation X: (1) The written notice required under 
Sec.  1024.41(b)(2) when the borrower submits the initial application 
requesting a forbearance program, and (2) written notification of the 
terms and conditions of the forbearance program, required under Sec.  
1024.41(c)(2)(iii), stating that the servicer offered the program based 
on evaluation of an incomplete application, that other loss mitigation 
options may be available, and that the borrower still has the option to 
submit a complete application to receive an evaluation for all 
available options.
    Additionally, many borrowers who would receive an offer under 
proposed Sec.  1024.41(c)(2)(vi)(A) are likely to have received early 
intervention efforts by their servicers, including the written notice 
required under Regulation X stating, among other things, a brief 
description of examples of loss mitigation options that may be 
available, as well as application instructions or a statement informing 
the borrower about how to obtain more information about loss mitigation 
options from the servicer.
    In light of these protections, as well as the safeguards set forth 
in proposed Sec.  1024.41(c)(2)(vi)(A), the Bureau believes that the 
requirements of Sec.  1024.41(b)(1) and (2) may not be necessary to 
protect borrowers in this limited context. Proposed Sec.  
1024.41(c)(2)(vi)(B) would therefore generally provide that a servicer 
is not required to comply with Sec.  1024.41(b)(1) or (2)'s 
requirements with regard to any loss mitigation application the 
borrower submitted prior to the servicer's offer of the loan 
modification described in proposed Sec.  1024.41(c)(2)(vi)(A).
Trial Loan Modifications
    As discussed above, to be eligible for the proposed exception to 
the anti-evasion requirement under Sec.  1024.41(c)(2)(vi), proposed 
Sec.  1024.41(c)(2)(vi)(A)(4) would require that either the borrower's 
acceptance of a loan modification offer must end any preexisting 
delinquency on the mortgage loan, or a loan modification offered must 
be designed to end any preexisting delinquency on the mortgage loan 
upon the borrower satisfying the servicer's requirements for completing 
a trial loan modification plan and accepting a permanent loan 
modification. In most cases, borrowers must be more than 120 days 
delinquent before a servicer may refer a loan to foreclosure.\122\ 
Thus, if a borrower wishes to pursue another loss mitigation option 
after the borrower's preexisting delinquency ends upon their acceptance 
of an offer under Sec.  1024.41(c)(2)(vi)(A), the borrower will still 
have a considerable amount of time to complete a loss mitigation 
application before they would be at risk for foreclosure.\123\
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    \122\ 12 CFR 1024.41(f)(1).
    \123\ Similarly, to be eligible for the current exception to the 
anti-evasion requirement under Sec.  1024.41(c)(2)(v)(A), 
established in the June 2020 IFR, a loss mitigation option such as a 
deferral must bring the loan current. Thus, if a borrower wishes to 
pursue another loss mitigation option after accepting a deferral 
offered under current Sec.  1024.41(c)(2)(v)(A), the borrower will 
still have a considerable amount of time to complete a loss 
mitigation application before the servicer could make the first 
notice or filing.
---------------------------------------------------------------------------

    The Bureau understands that certain loan modification options, such 
as the flex modifications offered by the GSEs, require that a borrower 
complete a trial loan modification plan before the loan modification is 
finalized and a borrower's delinquency ends. Borrowers seeking this 
type of loan modification who are more than 120 days delinquent would 
likely remain so during the trial period, and thus would not be 
protected under Sec.  1024.41(f)(1)(i)'s prohibition on foreclosure 
referral during a trial loan modification plan. However, limiting the 
proposed exception to the anti-evasion requirement in Sec.  
1024.41(c)(2)(vi) to loan modification options that bring the borrower 
current upon acceptance of the offer would exclude flex modifications 
requiring trial loan modification plans offered by the GSEs, a result 
that would limit the scope of the proposed new exception too narrowly.
    The Bureau seeks to ensure that borrowers are not harmed by a loan 
modification offer that requires the completion of a trial loan 
modification

[[Page 18862]]

plan before ending any preexisting delinquency on the mortgage loan 
account. Specifically, the Bureau wants to ensure that, if those 
borrowers failed to perform under a trial loan modification plan, they 
would still have sufficient opportunity to complete an application and 
be reviewed for all loss mitigation options before foreclosure can be 
initiated. To achieve this goal, the Bureau is proposing to require the 
resumption of reasonable diligence efforts if a borrower fails to 
perform under a trial loan modification plan offered pursuant to 
proposed Sec.  1024.41(c)(2)(vi)(A) or if a borrower requests further 
assistance.
    The Bureau believes it may be appropriate that a borrower who fails 
to perform under a trial loan modification plan offered pursuant to 
proposed Sec.  1024.41(c)(2)(vi)(A) should be provided with an 
opportunity to complete an application that they began before the trial 
loan modification plan, so that the borrower can be expeditiously 
reviewed for all available loss mitigation options.\124\ It also may be 
appropriate that a borrower who contacts a servicer during a trial loan 
modification plan for further loss mitigation assistance, even if the 
borrower has not yet failed to perform under a trial loan modification 
plan, should be provided with an opportunity to complete an incomplete 
application that they submitted before the trial loan modification 
plan, so that the borrower can be expeditiously reviewed for all 
available loss mitigation options. For that reason, the Bureau is 
proposing to require a servicer to immediately resume reasonable 
diligence efforts as required under Sec.  1024.41(b)(1) with regard to 
any incomplete loss mitigation application a borrower submitted before 
the servicer's offer of the trial loan modification plan if the 
borrower fails to perform under a trial loan modification plan offered 
pursuant to proposed Sec.  1024.41(c)(2)(vi)(A) or if the borrower 
requests further assistance.
---------------------------------------------------------------------------

    \124\ 12 CFR 1024.41(c)(1)(i) generally requires that a servicer 
evaluate a borrower for all loss mitigation options available to the 
borrower if the servicer receives a complete loss mitigation 
application more than 37 days before a scheduled foreclosure sale.
---------------------------------------------------------------------------

    As noted above, borrowers seeking a loan modification who are more 
than 120 days delinquent would likely remain so during the trial 
period, and thus would not be protected during a trial loan 
modification plan under Sec.  1024.41(f)(1)'s prohibition on 
foreclosure referral. The Bureau recognizes that providing additional 
foreclosure referral protections for borrowers who accept a trial loan 
modification plan under proposed Sec.  1024.41(c)(2)(vi)(A) may 
dissuade servicers from offering streamlined loan modifications that 
require the successful completion of a loan modification trial period. 
The Bureau solicits comment on whether additional foreclosure referral 
protection is appropriate in these circumstances, on the most effective 
ways to achieve this additional protection, and to what extent this 
additional protection may be necessary if the Bureau were to finalize 
the special COVID-19 Emergency pre-foreclosure review period discussed 
in the below section-by-section analysis of Sec.  1024.41(f). The 
Bureau has considered, for example, restricting foreclosure for a 
certain period of time for a borrower who accepts a trial loan 
modification plan under proposed Sec.  1024.41(c)(2)(vi)(A) or altering 
the definition of delinquency such that a borrower's delinquency would 
end for purposes of Sec.  1024.41(f)(1)(i)'s prohibition on foreclosure 
referral when a borrower accepts a trial loan modification plan under 
proposed Sec.  1024.41(c)(2)(vi)(A).
    The Bureau also solicits comment on all other aspects of proposed 
Sec.  1024.41(c)(2)(vi)(B), including offering servicers relief from 
the regulatory requirements in Sec.  1024.41(b)(1) and (b)(2) when a 
borrower accepts a loan modification under proposed Sec.  
1024.41(c)(2)(vi)(A), and requiring a servicer to immediately resume 
reasonable diligence efforts under Sec.  1024.41(b)(1) with regard to 
any loss mitigation application the borrower submitted prior to the 
servicer's offer of the trial loan modification plan if the borrower 
fails to perform under a trial loan modification plan offered pursuant 
to proposed Sec.  1024.41(c)(2)(vi)(A) or if the borrower requests 
further assistance.
41(f) Prohibition on Foreclosure Referral
    Section 1024.41(f) prohibits a servicer from referring a borrower 
to foreclosure in certain circumstances. Specifically, Sec.  
1024.41(f)(1) prohibits a servicer from making the first notice or 
filing required by applicable law for any judicial or non-judicial 
foreclosure process, unless the borrower's mortgage loan obligation is 
more than 120 days delinquent, the foreclosure is based on a borrower's 
violation of a due-on-sale clause, or the servicer is joining the 
foreclosure action of a superior or subordinate lienholder. Regulation 
X generally refers to this prohibition as a pre-foreclosure review 
period.
    The Bureau adopted Sec.  1024.41(f)(1) to address the potentially 
substantial harm to borrowers who may occur when servicers commence a 
foreclosure proceeding before the borrower has had a meaningful 
opportunity to submit a loss mitigation application or while a complete 
loss mitigation application is pending.\125\ Harms from undertaking 
these processes simultaneously, known as dual tracking, include 
potentially avoidable foreclosure costs and fees and consumer confusion 
from receiving inconsistent communications, which might lead borrowers 
not to complete loss mitigation processes or impede borrowers' ability 
to identify errors by servicers reviewing loss mitigation applications. 
In the 2013 RESPA Servicing Final Rule, the Bureau, therefore, 
concluded that a servicer generally should not be permitted to begin 
the foreclosure process when there is a pending complete loss 
mitigation application and explained that including such a general 
prohibition in that rule, unless coupled with a restriction on when the 
foreclosure process can begin, might incentivize servicers to begin the 
foreclosure process earlier than would otherwise occur to avoid delay 
resulting from the submission of a complete loss mitigation 
application.\126\ Accordingly, the Bureau included both the general 
prohibition and the foreclosure referral timing restriction in the 2013 
RESPA Servicing Final Rule.
---------------------------------------------------------------------------

    \125\ 2013 RESPA Servicing Final Rule, supra note 13, at 10833.
    \126\ Id.
---------------------------------------------------------------------------

    Section 1024.41 generally does not apply to small servicers.\127\ 
However, the pre-foreclosure review period in Sec.  1024.41(f)(1) does 
apply to small servicers.\128\
---------------------------------------------------------------------------

    \127\ 12 CFR 1024.30(b)(1).
    \128\ 12 CFR1024.41(j).
---------------------------------------------------------------------------

The Proposal
    The Bureau is proposing to revise Sec.  1024.41(f) to provide a 
special COVID-19 Emergency pre-foreclosure review period (the ``special 
pre-foreclosure review period'') that generally would prohibit 
servicers from making a first notice or filing from the effective date 
of the rule until after December 31, 2021. This restriction would be in 
addition to existing Sec.  1024.41(f)(1)(i), which prohibits a servicer 
from making the first notice or filing required by applicable law until 
a borrower's mortgage loan obligation is more than 120 days delinquent. 
The Bureau is also seriously considering exemptions from this proposed 
restriction that would permit servicers to make the first notice or 
filing before December 31, 2021, if the servicer (1) has completed a 
loss mitigation review of the borrower and

[[Page 18863]]

the borrower is not eligible for any non-foreclosure option or (2) has 
made certain efforts to contact the borrower and the borrower has not 
responded to the servicer's outreach. Like the current restrictions, 
the special pre-foreclosure review period would only apply to mortgage 
loans secured by a borrower's principal residence.
    If adopted, this special pre-foreclosure review period should help 
ensure that every borrower who is experiencing a delinquency between 
the time the rule becomes final until the end of 2021, regardless of 
when the delinquency first occurred, will have sufficient time in 
advance of foreclosure referral to pursue foreclosure avoidance options 
with their servicer. Ensuring borrowers have sufficient time before 
foreclosure referral should, in turn, help to avoid the harms of dual 
tracking, including unwarranted or unnecessary costs and fees, and 
other harm when a potentially unprecedented number of borrowers may be 
in need of loss mitigation assistance at around the same time later 
this year after the end of forbearance periods and foreclosure 
moratoria.
    As explained in part II above, the current crisis has brought about 
extraordinary hardships for borrowers across the country. Many 
borrowers have been offered relief through forbearance or other short-
term loss mitigation options based on an incomplete application, or 
without the submission of any loss mitigation application. Likewise, 
foreclosure moratoria on most mortgages have ensured that even 
borrowers who have not taken advantage of any loss mitigation options 
have been able to remain in their homes during the current crisis. 
However, the foreclosure moratoria that apply to most mortgages are 
scheduled to end in late June 2021. In addition, most borrowers with 
loans in forbearance programs as of the publication of this proposed 
rule are expected to reach the maximum term of 18 months in forbearance 
available for federally backed mortgage loans between September and 
November of this year and will likely be required to exit their 
forbearance program at that time. These expirations could trigger a 
sudden and sharp increase in loss mitigation-related default servicing 
activity at around the same time because many of these borrowers have 
not yet pursued or been reviewed for available loss mitigation options. 
In addition, because forbearance generally does not pause the 
homeowner's underlying delinquency, many of these borrowers will be 
more than 120 days delinquent when exiting their forbearance 
program.\129\ Thus, it is possible that a servicer may refer a loan to 
foreclosure soon after forbearance ends, before borrowers have an 
opportunity to pursue foreclosure avoidance options, unless a 
foreclosure moratorium or other restriction is in place or the borrower 
brings their accounts current. Among other concerns, this could cause 
borrower harm from potential dual tracking.
---------------------------------------------------------------------------

    \129\ See supra note 61 and accompanying text.
---------------------------------------------------------------------------

    Borrowers exiting forbearance programs may be eligible for one or 
more loss mitigation options, and the options added in the Bureau's 
June 2020 IFR and in proposed Sec.  1024.41(c)(2)(vi) facilitate a 
borrower's transition back to current status in certain circumstances. 
However, those circumstances may not be available to every borrower. 
For the reasons described herein, the Bureau is concerned that 
borrowers and servicers may both need additional time before 
foreclosure referral in the months ahead to ensure borrowers have a 
meaningful opportunity to pursue foreclosure avoidance options 
consistent with the purposes of RESPA. Many community groups and 
Members of Congress have expressed similar concerns and urged the 
Bureau to take action, highlighting for example that borrowers are 
unlikely to understand how quickly foreclosure could begin after 
exiting their forbearance program.\130\
---------------------------------------------------------------------------

    \130\ See supra note 88.
---------------------------------------------------------------------------

    Servicers should be in a much better position to handle the 
increased volume of default servicing at this time than they were 
during the 2008 crisis because legal requirements are clearer, 
processes have generally improved, and servicers have had time to 
predict and plan for additional staffing needed to handle the increased 
volume. Despite this, servicers faced significant challenges responding 
to the rapidly evolving situation last year,\131\ and the Bureau is 
concerned that servicers may face similar challenges again later this 
year. Given the potentially unprecedented nature of the situation (as 
discussed herein), it may have been impossible to predict the staffing 
and training needed to properly assist the volume of severely 
delinquent borrowers exiting their forbearance programs later this year 
who may need help determining how to avoid foreclosure.
---------------------------------------------------------------------------

    \131\ Housing Insecurity Report, supra note 11, at 5-9.
---------------------------------------------------------------------------

    A lack of adequately trained staff during the anticipated deluge of 
loss mitigation activity could harm borrowers in multiple ways. For 
example, servicers may not have adequate resources to meet reasonable 
diligence obligations under Sec.  1024.41(c)(4) or may inadvertently 
provide inaccurate information regarding a borrower's options or the 
materials needed to complete a loss mitigation application. As another 
example, it may take servicers longer to process application 
information submitted by borrowers due to the volume of incoming 
application information at the same time. As a result, it is possible 
that a servicer may erroneously refer a loan to foreclosure in 
violation of Regulation X,\132\ not recognizing that the borrower has 
submitted a complete loss mitigation application or that the servicer 
has otherwise interfered with the borrower's ability to pursue a 
foreclosure avoidance option. These errors could lead to additional 
fees associated with the borrower's delinquency or foreclosure referral 
that would not have been incurred absent the servicer's failures. These 
risks could be further exacerbated if any servicing transfers were to 
occur during this period.\133\
---------------------------------------------------------------------------

    \132\ See 12 CFR 1024.41(f)(2).
    \133\ The Bureau has expressed concerns about potential harms to 
borrowers who can result when mortgage servicing is transferred. 
See, e.g., Bureau of Consumer Fin. Prot., Consumer Financial 
Protection Bureau Outlines Mortgage Loan Transfer Process to Prevent 
Consumer Harm (Apr. 24, 2020), https://www.consumerfinance.gov/about-us/newsroom/cfpb-outlines-mortgage-loan-transfer-process-prevent-consumer-harm/ (noting that the Bureau ``has found weakness 
in how some servicers manage mortgage servicing transfers''); 81 FR 
72160, 72273 (Oct. 19, 2016) (``The Bureau has always believed that 
there is a risk of borrower harm in the context of servicing 
transfers.''); Bureau of Consumer Fin. Prot., Compliance bulletin 
and policy guidance re: Mortgage servicing transfers (Aug. 19, 
2014), https://www.consumerfinance.gov/compliance/supervisory-guidance/bulletin-mortgage-servicing-transfers/; 79 FR 63295, 63296 
(Oct. 23, 2014) (``There is heightened risk inherent in transferring 
loans in loss mitigation, including the risk that documents and 
information are not accurately transferred.'').
---------------------------------------------------------------------------

    Further, the combination of evolving requirements, new staff, and 
the high volume of severely delinquent borrowers could cause error 
rates associated with the servicing of delinquent borrowers to 
increase, even for servicers with otherwise strong compliance 
management systems. Given the volume of borrowers who may be facing a 
heightened risk of foreclosure referral, even a small error rate could 
lead to many borrowers experiencing harm. The Bureau expects servicers 
to have in place appropriate staffing and monitoring systems to 
identify and correct such errors. However, the Bureau is concerned 
that, during this potentially unparalleled COVID-19 emergency, 
servicers may not be able to identify or correct errors that may lead 
them to make foreclosure referrals

[[Page 18864]]

erroneously. Allowing servicers to proceed with foreclosure according 
to investor requirements, which often set a deadline for making the 
first notice or filing,\134\ in these circumstances could cause harm to 
a large number of borrowers if they are not able to meaningfully pursue 
foreclosure avoidance options because of servicer errors. As a result, 
the Bureau believes that it is appropriate to impose a special pre-
foreclosure review period that would give servicers time to complete 
compliance reviews, identify and correct any errors, and ensure that 
they can accurately respond to the potentially unprecedented volume of 
borrowers in need of assistance at around the same time. If the Bureau 
were to allow the first notice or filing to occur with respect to these 
loans during the special pre-foreclosure review period, borrowers may 
suffer harms associated with, among other things, dual tracking.
---------------------------------------------------------------------------

    \134\ See, e.g., U.S. Dep't of Hous. and Urban Dev., Mortgagee 
Letter 2021-05 (Feb. 16, 2021), https://www.hud.gov/sites/dfiles/OCHCO/documents/2021-05hsgml.pdf.
---------------------------------------------------------------------------

    In addition to servicer-related concerns, the Bureau is also 
concerned that borrowers may encounter obstacles during this period and 
may need additional time before foreclosure referral to consider 
foreclosure avoidance options. Regulation X currently requires 
servicers to reach out to these borrowers regarding loss mitigation 
options, and to exercise reasonable diligence to obtain and timely 
evaluate complete loss mitigation applications.\135\ This proposal 
seeks to bolster these consumer protections.
---------------------------------------------------------------------------

    \135\ See generally 12 CFR 1024.39; 12 CFR 1024.41(b)(1).
---------------------------------------------------------------------------

    The available evidence and early outreach suggest that the present 
circumstances may have so interfered with a borrower's ability to 
obtain and understand important information regarding the status of 
their loans and foreclosure avoidance that immediately subjecting them 
to foreclosure proceedings upon exiting forbearance or losing the 
protection of a foreclosure mortarium risks denying them a meaningful 
opportunity to be reviewed for potential foreclosure avoidance options 
available to them. For example, borrowers may have received outdated or 
incorrect information that could delay their requests for loss 
mitigation options, or they may have delayed such requests because they 
did not understand the risk of foreclosure due to potentially 
historically long forbearance periods and lengthy foreclosure 
moratoria. Indeed, the long forbearance and moratoria periods in the 
circumstances of the pandemic may have led borrowers to defer 
consideration of their long-term ability to meet their monthly mortgage 
payment obligations in favor of short-term needs concerning health, 
childcare, and lost wages. Many borrowers also may not have taken steps 
to address their delinquency because they expected that the foreclosure 
moratoria would be extended again or that they would have another the 
opportunity to extend their forbearance. The Bureau believes that such 
expectations are understandable given repeated extensions of the same 
throughout the current economic and health crisis. The current crisis 
also may have created unique obstacles, such as physical barriers 
preventing borrowers from obtaining documentation required to complete 
a loss mitigation application, which may have significantly undermined 
borrower ability to address their delinquencies sooner. Without 
additional regulatory intervention now, some investors may require 
servicers to proceed with the foreclosure process before some borrowers 
obtain a meaningful opportunity to seek and be considered for potential 
foreclosure avoidance options.
    To be sure, some borrowers may seek help at a slightly earlier date 
because of the proposed early intervention requirements described above 
in the section-by-section analysis of Sec.  1024.39(e). That would be a 
good thing. But other borrowers may not do so for the reasons described 
herein or for other ongoing economic or health circumstances unique to 
the COVID-19 pandemic and the resulting economic crisis. This could 
lead to servicers making foreclosure referrals for a large number of 
borrowers before such borrowers have had an opportunity to meaningful 
pursue foreclosure avoidance options. Allowing servicers to proceed 
with the first notice or filing in these circumstances, in turn, could 
lead to borrower harms similar to the harms that the 2013 RESPA 
Servicing Final Rule originally sought to address in Sec.  1024.41(f) 
and that cannot be adequately remediated after the fact, including 
large fees associated with foreclosure referral even if the servicer 
ultimately does not proceed with the final foreclosure action.
    To address these concerns, the Bureau is proposing to impose a 
special pre-foreclosure review period. Specifically, the Bureau is 
proposing to amend Sec.  1024.41(f)(1)(i) to state that a servicer 
shall not make the first notice or filing unless a borrower's mortgage 
loan obligation is more than 120 days delinquent and paragraph (f)(3) 
does not apply. The Bureau is also proposing to add new Sec.  
1024.41(f)(3) to provide that a servicer shall not rely on paragraph 
(f)(1)(i) to make the first notice or filing until after December 31, 
2021. This would not impact a servicer's ability to rely on paragraph 
(f)(1)(ii) or (iii) to make the first notice or filing.
    The Bureau solicits comments on every aspect of the proposed 
revisions to Sec.  1024.41(f). The Bureau also seeks comments on 
specific issues relating to the proposed revisions, as discussed below.

Potential Exemptions

    The Bureau believes that it may be appropriate to adopt exemptions 
that would allow a servicer to make the first notice or filing before 
December 31, 2021, in certain circumstances where the special pre-
foreclosure review period is unlikely to benefit borrowers or 
servicers. The Bureau solicits comments on two specific potential 
exemptions.
    First, the Bureau believes that it may be appropriate to allow a 
servicer to make the first notice or filing before December 31, 2021, 
if the servicer has completed a loss mitigation review of the borrower 
and the borrower is not eligible for any non-foreclosure option or the 
borrower has declined all available options. As noted above, the 
purpose of the special pre-foreclosure review period is to ensure that 
borrowers and servicers have adequate time before foreclosure referral 
to offer and consider foreclosure avoidance options when volume may be 
historically high. The Bureau believes that these purposes may still be 
achieved if is a servicer is permitted to make the first notice or 
filing before December 31, 2021, because the borrower has been fully 
evaluated for all available loss mitigation options and the borrower 
either does not qualify for any non-foreclosure options or declines all 
of them.
    However, the Bureau is concerned that such an exemption could 
inadvertently prevent some borrowers from having an opportunity to 
meaningfully pursue foreclosure avoidance options before foreclosure 
referral. For example, the Bureau is concerned that such an exemption 
might not account for situations where a borrower's eligibility changes 
within a relatively short period of time, as may happen during this 
particular economic crisis, as certain businesses may begin to reopen 
or open more completely based on when different State and local 
jurisdictions make adjustments to their COVID-19-related restrictions.

[[Page 18865]]

Although Sec.  1024.41(i) only requires a servicer to review a single 
complete loss mitigation application during a delinquency, Sec.  
1024.38(b)(2)(v) requires the servicer to implement policies and 
procedures to achieve the objective of reviewing borrowers for loss 
mitigation options pursuant to requirements established by an owner or 
assignee of a mortgage loan. As noted in the 2013 RESPA Servicing Final 
Rule, the Bureau understands from outreach that many owners or 
assignees of mortgage loans require servicers to consider material 
changes in financial circumstances in connection with evaluations of 
borrowers for loss mitigation options, and servicer policies and 
procedures must be designed to implement those requirements.\136\ Thus, 
although Sec.  1024.41(f) does not directly require a duplicative 
review if a borrower's financial circumstances change, the Bureau 
believes that any final rule should contemplate these concerns.
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    \136\ 2013 RESPA Servicing Final Rule, supra note 13, at 10836.
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    One approach to address this concern may be to limit any exemption 
such as that discussed above so that it only applies if the borrower 
has been evaluated for all available loss mitigation options after the 
effective date of this rule. This should help ensure that borrowers are 
not surprised to learn that they are no longer protected from 
foreclosure referral, while still allowing servicers to proceed with 
foreclosure if an extended review period will not benefit the borrower. 
The Bureau solicits comment on whether such an exemption should be 
finalized and whether the limitations discussed above would achieve the 
consumer protection purposes discussed herein.
    Second, the Bureau also believes that it may be appropriate to 
allow a servicer to proceed with foreclosure if the servicer has 
exercised reasonable diligence to contact the borrower and has been 
unable to reach the borrower. If the Bureau were to finalize such an 
exemption, any final rule could define reasonable diligence, such as by 
basing it on similar concepts in the Home Affordable Modification 
Program. For example, reasonable diligence could include multi-modal 
communication attempts, such as, over a period of 30 days: (1) Making a 
minimum of four telephone calls to the last known phone numbers of 
record, at different times of the day; and (2) sending two written 
notices to the last address of record by sending one letter via 
certified/express mail or via overnight delivery service with return 
receipt/delivery confirmation and one letter via regular mail.
    The Bureau believes that it may be possible to adopt such an 
exemption without undermining the purposes of the proposed special pre-
foreclosure review period because delaying the foreclosure referral for 
these borrowers may be unlikely to benefit them and making the first 
notice or filing could prompt communication. However, adopting this 
type of exemption could potentially lead to the exact harms this 
proposal seeks to limit, and some borrowers could be subject to dual 
tracking or foreclosure without being given a meaningful opportunity to 
consider foreclosure avoidance options. In particular, the Bureau is 
concerned that the same borrower-related concerns discussed above could 
also increase the likelihood that a borrower does not respond to 
servicer outreach. For example, a borrower who does not have an FHA 
mortgage loan may initially fail to respond to their servicer because 
they falsely believe that FHA's extended deadlines for first notice or 
filing apply to them. Borrowers may also fail to respond because they 
believe that physical limitations associated with the COVID-19 
emergency would prevent them from obtaining the documents necessary to 
complete a loss mitigation application.
    If the Bureau were to adopt this exemption, the Bureau would likely 
limit its scope so that it only applies if the servicer engages in 
reasonable diligence after the effective date of any final rule. Absent 
such a limitation, the concerns discussed herein may be exacerbated if 
servicers could proceed with foreclosure because the borrower failed to 
respond to servicer outreach before the effective date of this rule. 
The Bureau solicits comment on whether such an exemption would be 
appropriate, whether the exemption should only apply if reasonable 
diligence occurs after the effective date of this rule, and whether any 
such exemption should be further tailored to address these or other 
concerns.

Length of the Special COVID-19 Emergency Pre-Foreclosure Review

    The Bureau is proposing generally to prohibit a servicer from 
making the first notice or filing until a date certain--December 31, 
2021. The Bureau expects that ending the prohibition on December 31, 
2021, may address the concerns discussed above in several ways. As 
explained above, the Bureau expects that a large number of borrowers 
who are currently in a forbearance program will be required to exit the 
program between September 1, 2021, and November 30, 2021.\137\ This may 
result in an unprecedented number of borrowers who need to be evaluated 
for other loss mitigation options at roughly the same time.
---------------------------------------------------------------------------

    \137\ Black Jan. 2021 Report, supra note 36.
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    The proposed December 31, 2021 date certain is intended to give all 
delinquent borrowers additional time before foreclosure referral to 
pursue foreclosure avoidance options during the period of time when 
they are most likely to need additional assistance from their servicers 
and may face difficulties obtaining information necessary to complete 
applications. It is also intended to give servicers a reprieve from any 
investor mandates to proceed with foreclosure during the period when 
default servicing activity may be at unprecedented levels so that 
servicers can ensure they can operate in compliance with all legal and 
contractual requirements, including evolving rules adopted to respond 
to the current crisis, and correct any errors before they result in 
irremediable borrower harm.
    The Bureau expects that ending the special pre-foreclosure review 
period on December 31, 2021, as opposed to a different date, will 
appropriately address these concerns because the volume of new 
borrowers needing default servicing assistance, especially after an 
extended forbearance, should significantly reduce after that date (most 
borrowers in forbearance will have been required to exit by the end of 
November). Thus, the Bureau expects that the December 31, 2021 date 
certain should give many borrowers who did not apply for loss 
mitigation earlier, or who only considered temporary options, 
sufficient time to meaningfully pursue foreclosure avoidance options 
after exiting extended forbearance and foreclosure moratoria periods 
and before foreclosure referral. In addition, the December 31, 2021 
date should allow sufficient time for servicers to identify potential 
procedural problems (e.g., inadequate staff training) and fix them 
before making an erroneous first notice or filing instead of 
discovering them after foreclosure referral has already occurred. 
Further, to the extent that borrowers faced physical barriers to 
meaningful pursuit of foreclosure avoidance options, the Bureau hopes 
that those barriers will be reduced by December 31, 2021. Thus, fewer 
borrowers should be seeking loss mitigation by January 2022 and those 
who are should face fewer potential obstacles to applying for a loss 
mitigation option by that time as well.

[[Page 18866]]

    The Bureau solicits comment on the potential benefits and 
implementation challenges associated with the proposed date certain 
approach. The Bureau also solicits comment on whether the proposed date 
certain--December 31, 2021--is the appropriate date. In particular, the 
Bureau seeks comment on whether the date certain should instead account 
for potential changes to foreclosure moratoria or forbearance program 
terms. For example, an alternative approach could tie the date certain 
to the last-announced forbearance extension made by FHFA or FHA so that 
the special pre-foreclosure review period ends a specified number of 
days after the last extension of forbearance programs or foreclosure 
moratoria.

Potential Alternative Approaches

    The Bureau is proposing to end the special pre-foreclosure review 
period on a date certain rather than other alternatives because it 
believes the date certain approach may help to (1) ease compliance for 
the industry and (2) protect all delinquent borrowers who may need 
additional time to consider foreclosure alternatives before the 
initiation of foreclosure, regardless of whether they entered into a 
forbearance program or were delinquent before the crisis began. The 
Bureau currently believes that it would be more difficult for servicers 
to implement other potential interventions that the Bureau has 
considered thus far because compliance for those options would 
necessarily be tied to the facts of each loan and could overlap with 
other procedures that servicers already have in place. In addition, 
some other approaches may not provide protections for all borrowers who 
may need additional time to consider foreclosure avoidance options 
before the initiation of foreclosure.
    However, the Bureau is seriously considering alternative 
interventions because it is also concerned about potential 
disadvantages to the proposed date certain approach that may not exist 
for other interventions. For example, the Bureau is concerned that the 
proposed date certain approach could unnecessarily increase costs to 
borrowers for whom foreclosure is not avoidable and reduce the equity 
that they have in their homes, while simultaneously increasing costs to 
servicers, which could exacerbate liquidity and reserve concerns. The 
proposed date certain approach without certain exceptions also would 
provide, at best, limited benefits to a delinquent borrower who never 
communicates with their servicer during this time, and it would not 
provide any protection to a borrower who is referred to foreclosure 
before the effective date of the rule.
    The proposed approach also could encourage some servicers to make 
the first notice or filing before any final rule becomes effective. The 
Bureau notes that, consistent with the April 1, 2021 Bulletin 
``Supervision and Enforcement Priorities Regarding Housing 
Insecurity,'' it will be paying particular attention to heightened 
risks to consumers needing loss mitigation assistance in the coming 
months as the COVID-19 foreclosure moratoria and forbearances end.\138\ 
In particular, as noted in the Compliance Bulletin, the Bureau intends 
to look at a servicer's overall effectiveness at helping consumers 
manage loss mitigation, along with other relevant factors, when using 
its discretion to address violations of Federal consumer financial law 
in supervisory and enforcement matters.
---------------------------------------------------------------------------

    \138\ See Supervision & Enforcement Housing Report, supra note 
75.
---------------------------------------------------------------------------

    Further, although the proposed date certain approach is 
straightforward, it could nevertheless impose costs on servicers to 
update their systems and add another layer of complexity to default 
servicing. The Bureau is also concerned that new State or Federal 
legislation or changes to investor requirements after issuance of this 
proposal could necessitate adjustments to the date specified or other 
amendments to the proposed provisions. This could render the proposal 
less effective and increase complexity.
    The Bureau seeks comment on the potential limitations of the 
proposed date certain approach and on alternatives that could help to 
resolve these concerns. In particular, the Bureau requests comments on 
a ``grace period'' approach that would provide an additional 
foreclosure protection from the existing requirements starting when a 
borrower exits their forbearance program. Such an exemption could 
prohibit servicers from foreclosure referral until a certain number of 
days (e.g., 60 or 120 days) after a borrower exits their forbearance 
program. The Bureau has not proposed the grace period option, in part, 
because it currently believes the grace period option, which would 
require loan-specific analysis, would be more difficult for servicers 
to implement than the proposed date certain approach, which does not. 
The Bureau is also concerned that the grace period approach would not 
protect borrowers who never entered a forbearance program.
    The Bureau solicits comment on the potential benefits and 
implementation challenges associated with the alternative grace period 
approach, including whether such an approach would be more difficult to 
implement than the proposed approach. The Bureau also solicits comment 
on what may be an appropriate number of days for any such grace period 
if commenters believe that approach would be a preferable option.
    The Bureau has also considered an approach keyed to the length of 
delinquency, such as temporarily extending the number of days a 
borrower must be delinquent before the servicer may make the first 
notice or filing. However, the Bureau is currently concerned that such 
an approach would provide shorter (or possibly no) protection for 
borrowers with delinquencies that began before the crisis because they 
could become eligible for foreclosure referral immediately or soon 
after exiting forbearance. The Bureau is also currently concerned that 
such an approach would also require a fact-specific analysis for each 
delinquent loan, which would add another layer of complexity for 
servicers to implement. The Bureau seeks comments on whether this 
approach may be preferable to the proposed date certain approach.
    Finally, the Bureau specifically seeks comment on whether the 
extended review period should end on a date that is based on when a 
borrower's delinquency begins or forbearance period ends, whichever 
occurs last. The Bureau believes this approach could ensure that a 
borrower, regardless of the specific facts and circumstances, has a 
meaningful opportunity to consider foreclosure avoidance options. 
However, the Bureau is currently concerned that this approach could be 
much more operationally complex and could increase the risk of error. 
The Bureau seeks comments on whether this approach may be preferable to 
the proposed date certain approach.

Scope of the Special Pre-Foreclosure Review Period

    If adopted, the special pre-foreclosure review period would apply 
to all delinquent loans that are secured by the borrower's principal 
residence, regardless of when the first delinquency occurred.
    The Bureau initially concludes that the proposal should apply to 
all delinquent loans, regardless of when the delinquency first 
occurred, because the potential consumer harms addressed by the rule 
would exist for all delinquent borrowers, regardless of when they first

[[Page 18867]]

became delinquent. All such borrowers may have faced similar 
unprecedented circumstances that rendered current protections 
insufficient to ensure meaningful review for foreclosure avoidance. For 
example, if servicers do not have the capacity to handle the 
anticipated surge in default servicing volume toward the end of 2021, 
all delinquent borrowers who may become eligible for foreclosure 
referral later this year would be affected--even if they were more than 
120 days delinquent before the crisis began. Further, borrowers could 
encounter difficulties submitting a complete loss mitigation 
application because of COVID-related issues, such as being unable to 
obtain required documentation that must be obtained in person, 
regardless of when they first became delinquent.
    The Bureau solicits comments on this aspect of the proposed rule, 
including whether borrowers would be sufficiently protected if the 
special pre-foreclosure review period only applied to borrowers who 
first became delinquent in 2020 or 2021 or entered a forbearance 
program before the effective date of any final rule.
    As noted in part I above, this proposal only applies to a mortgage 
loan that is secured by a property that is a borrower's principal 
residence.\139\ If the borrower has abandoned the property securing the 
loan, depending on the facts and circumstances and applicable law, the 
property may no longer be the borrower's principal residence.\140\
---------------------------------------------------------------------------

    \139\ 12 CFR 1024.30(c)(2).
    \140\ Stakeholders over the years have urged the Bureau to 
expressly exempt abandoned properties from the foreclosure 
restrictions in the rules. The Bureau has considered expressly 
exempting abandoned properties from the pre-foreclosure review 
period in Sec.  1024.41(f) but declined to do so, expressing 
concerns that such an exemption would require a fact-specific 
analysis and could be used to circumvent the 120-day prohibition for 
borrowers who are also delinquent. 78 FR 60381, 60406-07 (Oct. 1, 
2013); 81 FR 72160, 72913, 72915 (Oct. 19, 2016).
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Small Servicers

    The proposed special pre-foreclosure review requirements would 
generally apply to the same mortgage loans that are subject to the pre-
foreclosure review period in Sec.  1024.41(f)(1). However, unlike the 
pre-foreclosure review period in Sec.  1024.41(f)(1), the proposed 
special pre-foreclosure review period would not apply to small 
servicers. This is because small servicers are exempt from the 
requirements in Sec.  1024.41, except with respect to Sec.  
1024.41(f)(1),\141\ and the Bureau is proposing to add the special pre-
foreclosure review period to Sec.  1024.41(f)(3) instead of to Sec.  
1024.41(f)(1). As discussed in the 2013 RESPA Servicing Final Rule, the 
Bureau understands that small servicers are generally staffed using a 
``high touch'' model of customer service that is designed to ensure 
loan performance and a strong reputation in local communities.\142\ The 
Bureau also understands that small servicers generally only service 
loans they originated or hold on portfolio, such that they are less 
likely to be subject to investor requirements that would obligate them 
to move forward with foreclosure referral even if the servicer 
determines that further delaying foreclosure to give a borrower 
additional time to pursue foreclosure avoidance options is appropriate. 
As a result, the Bureau expects that the existing pre-foreclosure 
review period will sufficiently ensure that such borrowers have a 
meaningful opportunity to pursue foreclosure avoidance before the 
initiation of foreclosure.
---------------------------------------------------------------------------

    \141\ 12 CFR 1024.30(b)(1) and 1024.41(j).
    \142\ 2013 RESPA Servicing Final Rule, supra note 13, at 10843.
---------------------------------------------------------------------------

    The Bureau seeks comment on this proposed approach.

V. Proposed Effective Date

    The Bureau proposes that any final rule relating to this proposal 
take effect on or before August 31, 2021, and at least 30 days, or if 
it is a major rule, at least 60 days, after publication of a final rule 
in the Federal Register. As of the proposed effective date of the final 
rule, servicers would be subject to the proposed amendments for all 
actions taken on or after the effective date.
    As discussed more fully in part II, many of the protections 
available to homeowners as a result of measures to protect them from 
foreclosure during the COVID-19 emergency are ending in the coming 
months. The Bureau, therefore, anticipates working quickly to issue any 
final rule relating to this proposal as soon as possible after 
receiving and evaluating public comment, and at least 30 days before 
August 31, 2021. The Bureau requests comment on all aspects of this 
proposed effective date. The Bureau has heard concerns in the past that 
midweek effective dates can create operational challenges for mortgage 
servicers, who may prefer to have the weekend immediately before an 
effective date to update and test their systems. The Bureau seeks 
comment on whether there is a day of the week or time of the month that 
would best facilitate the implementation of the proposed changes.

VI. Dodd-Frank Act Section 1022(b) Analysis

A. Overview

    In developing the proposed rule, the Bureau has considered the 
proposed rule's potential benefits, costs, and impacts as required by 
section 1022(b)(2)(A) of the Dodd-Frank Act.\143\ The Bureau requests 
comment on the preliminary analysis presented below as well as 
submissions of additional data that could inform the Bureau's analysis 
of the benefits, costs, and impacts. In developing the proposed rule, 
the Bureau has consulted or offered to consult with the appropriate 
prudential regulators and other Federal agencies, including regarding 
consistency with any prudential, market, or systemic objectives 
administered by such agencies, as required by section 1022(b)(2)(B) of 
the Dodd-Frank Act.
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    \143\ Specifically, Sec.  1022(b)(2)(A) of the Dodd-Frank Act 
requires the Bureau to consider the potential benefits and costs of 
the regulation to consumers and covered persons, including the 
potential reduction of access by consumers to consumer financial 
products and services; the impact of proposed rules on insured 
depository institutions and insured credit unions with less than $10 
billion in total assets as described in Sec.  1026 of the Dodd-Frank 
Act; and the impact on consumers in rural areas.
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B. Data Limitations and Quantification of Benefits, Costs, and Impacts

    The discussion below relies on information that the Bureau has 
obtained from industry, other regulatory agencies, and publicly 
available sources, including reports published by the Bureau. These 
sources form the basis for the Bureau's consideration of the likely 
impacts of the proposed rule. The Bureau provides estimates, to the 
extent possible, of the potential benefits and costs to consumers and 
covered persons of this proposal given available data. However, as 
discussed further below, the data with which to quantify the potential 
costs, benefits, and impacts of the proposed rule are generally 
limited.
    In light of these data limitations, the analysis below generally 
includes a qualitative discussion of the benefits, costs, and impacts 
of the proposed rule. General economic principles and the Bureau's 
expertise in consumer financial markets, together with the limited data 
that are available, provide insight into these benefits, costs, and 
impacts. The Bureau requests additional data or studies that could help 
quantify the benefits and costs to consumers and covered persons of the 
proposed rule.

C. Baseline for Analysis

    In evaluating the benefits, costs, and impacts of the proposal, the 
Bureau

[[Page 18868]]

considers the impacts of this proposal against a baseline in which the 
Bureau takes no action. This baseline includes existing regulations and 
the current state of the market. Further, the baseline includes, but is 
not limited to, the CARES Act and any new or existing forbearances 
granted under the CARES Act and substantially similar programs.
    The baseline reflects the response and actions taken by the Bureau 
and other government agencies and industry in response to the COVID-19 
pandemic and related economic crisis, which may change. Protections for 
mortgage borrowers, such as forbearance programs, foreclosure 
moratoria, and other consumer protections and general guidance, have 
evolved since the CARES Act was signed into law on March 27, 2020. It 
is reasonable to believe that the state of protections for mortgage 
borrowers will continue to evolve. For purposes of evaluating the 
potential benefits, costs, and impacts of the proposal, the focus is on 
a baseline that reflects the current and existing state of protections 
for mortgage borrowers. Where possible, the analysis includes a 
discussion of how estimates might change in light of changes in the 
state of protections for mortgage borrowers.

D. Potential Benefits and Costs to Consumers and Covered Persons

    This section discusses the benefits and costs to consumers and 
covered persons of (1) the proposed special pre-foreclosure review 
period (proposed Sec.  1024.41(f)); (2) the proposed new exception to 
the complete application requirement (proposed Sec.  1024.41(c)); and 
(3) the proposed clarifications of the early intervention live contact 
and reasonable diligence requirements (proposed Sec. Sec.  1024.39(a) 
and 1024.41(b)(1)).
1. Prohibition on Foreclosure Referral
    The proposed amendments to Regulation X would temporarily establish 
a special pre-foreclosure review period that would generally prohibit 
servicers from making the first notice or filing required by applicable 
law for any judicial or non-judicial foreclosure process unless such 
first notice or filing is made after December 31, 2021. This 
restriction would be in addition to existing Sec.  1024.41(f)(1)(i), 
which prohibits a servicer from making the first notice or filing 
required by applicable law until a borrower's mortgage loan obligation 
is more than 120 days delinquent. The proposed amendment would not 
apply to small servicers.
Benefits and Costs to Consumers
    The proposed provision would provide benefits and costs to 
consumers by providing consumers additional time for meaningful review 
of loan modification and loss mitigation options that help the borrower 
prevent avoidable foreclosure. The benefits and costs of this 
additional time for review can be measured by actual avoidance of 
foreclosure.
    In the context of the COVID-19 pandemic and related economic 
crisis, a very large number of mortgage loans may be at risk of 
foreclosure. Generally, a servicer can initiate the foreclosure process 
once a borrower is more than 120 days delinquent, as long as no other 
limitations apply. In response to the current economic crisis, there 
are existing forbearance programs and foreclosure moratoria in place 
that prevent servicers from initiating the foreclosure process. As 
currently stands, Federal foreclosure moratoria are in effect until 
June 30, 2021. This means that some borrowers not in a forbearance plan 
may be at heightened risk of referral to foreclosure soon after the 
foreclosure moratoria end if they do not resolve their delinquency or 
reach a loss mitigation agreement with their servicer. Among borrowers 
in a forbearance plan, estimates indicate that a significant number of 
borrowers will have been in a forbearance program for 12 months in 
February (160,000) and March (600,000) of 2021.\144\ If these borrowers 
remain in a forbearance program for the maximum amount of time 
(currently 18 months), then the forbearance program will end in 
September 2021. Other borrowers who were part of the initial, large 
wave of forbearances that began in April through June of 2020 will see 
their 18-month period end in October or November of 2021. These loans 
may be considered more than 120 days delinquent for purposes of 
Regulation X even if the borrower entered into a forbearance program, 
allowing the servicer to initiate foreclosure proceedings for these 
borrowers as soon as the forbearance program ends in accordance with 
existing regulations.\145\ As proposed, the effective date of the 
proposed rule is expected to be August 31, 2021. Thus, the proposed 
rule should reduce foreclosure risk for the large number of borrowers 
who are expected to exit forbearance between September and November of 
2021.
---------------------------------------------------------------------------

    \144\ See Black Jan. 2021 Report, supra note 36 at 11.
    \145\ See supra note 61 and accompanying text.
---------------------------------------------------------------------------

    The primary benefit to consumers from this proposed provision would 
arise from a reduction in foreclosure and its associated costs. There 
are a number of ways a borrower who is delinquent on their mortgage may 
resolve the delinquency without foreclosure. The borrower may be able 
to prepay by either refinancing the loan or selling the property. The 
borrower may be able to become current without assistance from the 
servicer (``self-cure''). Or, the borrower may be able to work with the 
servicer to resolve the delinquency through a loan modification or 
other loss mitigation option. Resolving the delinquency in one of these 
ways, if possible, will generally be less costly to the borrower than 
foreclosure. Even after foreclosure is initiated, a borrower may be 
able to avoid a foreclosure sale by resolving their delinquency in one 
of these ways, although a foreclosure action is likely to impose 
additional costs and may make some of these resolutions harder to 
achieve. For example, a borrower may be less likely to obtain an 
affordable loan modification if the administrative costs of foreclosure 
are added to the existing unpaid balance of the loan.\146\ By providing 
borrowers with additional time before foreclosure can be initiated, the 
proposed provision would give borrowers a better opportunity to avoid 
foreclosure altogether.
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    \146\ In addition, the Bureau has noted in the past that 
consumers may be confused if they receive foreclosure communications 
while loss mitigation reviews are ongoing, and that such confusion 
potentially may lead to failures by borrowers to complete loss 
mitigation processes, or impede borrowers' ability to identify 
errors committed by servicers reviewing applications for loss 
mitigation options. 2013 RESPA Servicing Final Rule, supra note 13, 
at 10832.
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    To quantify the benefit of the proposed provision from a reduction 
in foreclosures sales, the Bureau would need to estimate (1) the 
average benefit to consumers, in dollar terms, of preventing a single 
foreclosure and (2) the number of foreclosures that would be prevented 
by the proposed provision. Given data currently available to the Bureau 
and information publicly accessible, a reliable estimate of these 
figures is difficult due to the significant uncertainty in economic 
conditions, evolving state of government policies, and elevated levels 
of forbearance and delinquency. Below, the Bureau outlines available 
evidence on the average benefit to preventing foreclosure and the 
number of foreclosures that could be prevented under the proposed 
provision.
    Importantly, the Bureau notes that any evidence used in the 
estimation of the benefits to borrowers of avoiding foreclosure, 
generally, comes from earlier time periods that differ in many

[[Page 18869]]

and significant ways from the current economic crisis. In the decade 
preceding the current crisis, the economy was not in distress. There 
was significant economic growth that included rising house prices, low 
rates of mortgage delinquency and forbearance, and falling interest 
rates. The current economic crisis also differs in substantive ways 
compared to the last recession from 2008 to 2009. In particular, 
housing markets have remained strong throughout the crisis. House 
prices have increased almost 7 percent year-over-year as of January 
2021, whereas house prices plummeted between 2008 and 2009.\147\ These 
differences make the available data a less reliable guide to likely 
near-term trends and generate substantial uncertainty in the 
quantification of the benefits of avoiding foreclosure for borrowers. 
The Bureau must make a number of assumptions to provide reasonable 
estimates of the benefit to consumers of the proposed provision, any of 
which can lead to significant under or overestimation of the benefits. 
The Bureau requests comment on all of the assumptions made to quantify 
the benefit to consumers, including comment on any available data that 
can be used in the quantification.
---------------------------------------------------------------------------

    \147\ See Am. Enterprise Inst., National Home Price Appreciation 
Index (Jan. 2021), https://www.aei.org/wp-content/uploads/2021/03/HPA-infographic-Jan.-2021-FINAL.pdf?x91208.
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    Estimates of the cost of foreclosure to consumers are large and 
include both significant monetary and non-monetary costs, as well as 
costs to both the borrower and non-borrowers. The Department of Housing 
and Urban Development (HUD) estimated in 2010 that a borrower's average 
out-of-pocket cost from a completed foreclosure was $10,300, or $12,500 
in 2021 dollars.\148\ This figure is likely an underestimate of the 
average borrower benefit of avoiding foreclosure. First, this estimate 
relies on data from before the 2000s, which may be difficult to 
generalize to the current period. Second, there are non-monetary costs 
to the borrower of foreclosure that are not included in the estimate. 
These may include but are not limited to, increased housing 
instability, reduced homeownership, financial distress (including 
increased delinquency on other debts),\149\ and adverse medical 
conditions.\150\ Although the Bureau is not aware of evidence that 
would permit quantification of such borrower costs, they may be larger 
on average than the out-of-pocket costs. Third, there may be non-
borrower costs that are unaccounted for, which can affect both 
individual consumers or families and the greater community. For 
example, research using data from earlier periods has found that 
foreclosure sales reduce the sale price of neighboring homes by 1 to 
1.6 percent.\151\ The HUD study referenced above estimates the average 
effect of foreclosure on neighboring house values at $14,531 based on 
research from 2008 or earlier. Therefore, the Bureau believes that 
$12,500 is likely a significant underestimate of the average benefit to 
preventing foreclosure.
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    \148\ This estimate from HUD is based on a number of assumptions 
and circumstances that may not apply to all borrowers who experience 
a foreclosure sale or those that remediate through non-foreclosures 
options. U.S. Dep't of Hous. and Urban Dev., Economic Impact 
Analysis of the FHA Refinance Program for Borrowers in Negative 
Equity Positions (2010), https://www.hud.gov/sites/documents/IA-REFINANCENEGATIVEEQUITY.PDF. Adjustment for inflation uses the 
change in the Consumer Price Index for All Urban Consumers (CPI-U) 
U.S. city average series for all items, not seasonally adjusted, 
from January 2010 to February 2021. U.S. Bureau of Labor Statistics, 
Consumer Price Index, https://www.bls.gov/cpi/.
    \149\ Rebecca Diamond et al., The Effect of Foreclosures on 
Homeowners, Tenants, and Landlords, (Nat'l Bureau of Econ. Res., 
Working Paper No. 27358, 2020), https://www.nber.org/papers/w27358.
    \150\ One study estimated that, on average, a single foreclosure 
is associated with an increase in urgent medical care costs of 
$1,974. The authors indicate that a significant portion of this cost 
may be attributed to distressed homeowners although some may be due 
to externalities imposed on the general public. See Janet Currie et 
al., Is there a link between foreclosure and health? 7 a.m. Econ. 
Rev. 63 (2015), https://www.aeaweb.org/articles?id=10.1257/pol.20120325.
    \151\ See, e.g., Elliott Anenberg et al., Estimates of the Size 
and Source of Price Declines Due to Nearby Foreclosures, 104 a.m. 
Econ. Rev. 2527 (2014), https://www.aeaweb.org/articles?id=10.1257/aer.104.8.2527; Kristopher Gerardi et al., Foreclosure 
Externalities: New Evidence, 87. J. of Urban Econ. 42 (2015), 
https://www.sciencedirect.com/science/article/pii/S0094119015000170.
---------------------------------------------------------------------------

    Furthermore, during the COVID-19 pandemic and associated economic 
crisis, the cost of foreclosure for some borrowers may be even larger 
than the expected average cost of foreclosure more generally. Housing 
insecurity presents health risks during the pandemic that would 
otherwise be absent and that could continue to be present even if 
foreclosure is not completed for months or years.\152\ In addition, 
searching for new housing may be unusually difficult as a result of the 
pandemic and associated restrictions. Recent analysis has shown that 
the pandemic has had disproportionate economic impacts on communities 
of color. For example, Black and Hispanic homeowners were more than two 
times as likely to be behind on housing payments as of December 
2020.\153\ The benefit to avoiding foreclosure for these arguably 
``marginal'' borrowers may be significantly larger compared to the 
average borrower.
---------------------------------------------------------------------------

    \152\ See, e.g., Nrupen Bhavsar et al., Housing Precarity and 
the COVID-19 Pandemic: Impacts of Utility Disconnection and Eviction 
Moratoria on Infections and Deaths Across US Counties, (Nat'l Bureau 
od Econ. Res., Working Paper No. 28394, 2021), https://www.nber.org/papers/w28394.
    \153\ Housing Insecurity Report, supra note 11.
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    The total benefit to borrowers of delaying foreclosure also depends 
on the number of foreclosures that would be prevented by the proposed 
provision; in other words, the difference in the total foreclosures 
between what would occur under the baseline and what would occur under 
the proposed delay. To estimate this, the first step is estimating the 
number of loans that will be more than 120 days delinquent as of the 
effective date of the proposed rule, currently, August 31, 2021, or 
that will become 120 days delinquent before the delay period expires. 
The second step is to estimate what share of these loans would end in a 
foreclosure sale, and the third step is to estimate how that share 
would be affected by the proposed provision.
    As of January 2021, there were an estimated 2.1 million loans that 
were at least 90 days delinquent, the large majority of which were in 
forbearance programs.\154\ An unknown number of borrowers whose loans 
are now delinquent may be able to resume payments at the end of a 
forbearance period or otherwise bring their loans current before the 
proposed rule's effective date. One estimate based on current trends 
and assuming the share of loans in delinquency decreases by less than 3 
percent per month, is that 1.7 million loans will be at least 90 days 
delinquent as of September 2021.\155\ However, many of these loans are 
delinquent because borrowers have been taking advantage of forbearance 
programs, and some borrowers in that situation may be able to resume 
payments under their existing mortgage contract at the end of the 
forbearance. Given the uncertainty about the rate at which loans will 
exit forbearance or delinquency from now until the proposed effective 
date, a reasonable approach is to consider a range with respect to the 
share of loans remaining in forbearance or delinquency based on the 
current trends. For purposes of illustrating an approach to quantifying 
the benefits to consumers, the discussion below assumes that as of 
August 31, 2021, all of the remaining loans will be considered 120 days

[[Page 18870]]

delinquent under Regulation X and not in a forbearance plan.
---------------------------------------------------------------------------

    \154\ See Black Jan. 2021 Report, supra note 36.
    \155\ Id.
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    Furthermore, the Bureau assumes that the distribution of 
performance outcomes as of August 31, 2021, is the same for borrowers 
who would exit a forbearance program and for borrowers with delinquent 
loans and never in a forbearance program. The distribution of outcomes 
for these two groups may depend, for example, on the borrower's loan 
type and the level of equity the borrower has. If the rate of growth in 
recovery over time is lower for borrowers with delinquent loans and not 
in a forbearance program, these borrowers will have a higher incidence 
of foreclosure. Estimates from February 2021 show that the number of 
loans in forbearance programs (2.7 million) is significantly larger 
than the number of borrowers who are seriously delinquent and with 
loans that are not in a forbearance program (242,000).\156\ Given the 
difference in the size of the two groups, changes in the incidence of 
foreclosure among borrowers who are delinquent and not in a forbearance 
program will have a relatively smaller effect on any estimate of the 
total benefit to borrowers from avoiding foreclosure. The Bureau 
requests comment on the assumption that the distribution of performance 
outcomes for borrowers who exit a forbearance plan are similar to 
borrowers with delinquent loans and not in a forbearance program, in 
particular any data available to measure the differences in the 
financial circumstances of these two groups.
---------------------------------------------------------------------------

    \156\ See Black Jan. 2021 Report, supra note 36. It is possible 
for a borrower to be delinquent for purposes of Regulation X during 
a forbearance program. See supra note 61 and accompanying text.
---------------------------------------------------------------------------

    Most loans that become delinquent do not end with a foreclosure 
sale. The Bureau's 2013 RESPA Servicing Rule Assessment Report 
(Servicing Assessment Report) \157\ found that, for a range of loans 
that became 90 days delinquent from 2005 to 2014, approximately 18 to 
35 percent ended in a foreclosure sale within three years of the 
initial delinquency.\158\ Focusing on loans that become 60 days 
delinquent, the same report found that, 18 months after the initial 60-
day delinquency, between 8 and 18 percent of loans had ended in 
foreclosure sale over the period 2001 to 2016, with an additional 24 to 
48 percent remaining at some level of delinquency.\159\ An estimate of 
the rate at which delinquent loans end in foreclosure can be taken from 
this range albeit with uncertainty as to the extent to which these data 
can be generalized to the current period. For example, using values 
from 2009 might overestimate the number of foreclosures due to 
differences in house price growth and the resulting amount of equity 
borrowers have in their homes. All else equal, this difference might 
lead to a higher share of delinquent borrowers who prepay.
---------------------------------------------------------------------------

    \157\ See Servicing Rule Assessment Report, supra note 13.
    \158\ Id. at 69-70.
    \159\ Id. at 48.
---------------------------------------------------------------------------

    The Bureau outlines one approach to estimating the baseline number 
of foreclosures, albeit with significant uncertainty. First, the Bureau 
considers a range of between one-third and two-thirds of the number of 
loans that are in forbearance as of February 2021 will be more than 120 
days delinquent as of August 31, 2021, and unable to resume contractual 
payments at that time. This range allows for a lower and upper bound 
estimate that reflects the substantial uncertainty that exists in 
forecasting the state of the market and the state of financial 
circumstances of borrowers as of the effective date of the proposed 
rule. Next, the Bureau excludes 14 percent of these loans, reflecting 
an estimate of the share of loans serviced by small servicers to which 
the proposed rule would not apply.\160\ This leaves between roughly 
770,000 and 1.5 million loans at risk of an initial filing of 
foreclosure to which the proposed rule would apply.
---------------------------------------------------------------------------

    \160\ See Bureau of Consumer Fin. Prot., Data Point: Servicer 
Size in the Mortgage Market (Nov. 2019), https://files.consumerfinance.gov/f/documents/cfpb_2019-servicer-size-mortgage-market_report.pdf (estimating that, as of 2018, 
approximately 14 percent of mortgage loans were serviced by small 
servicers).
---------------------------------------------------------------------------

    The baseline number of such loans that will end with a foreclosure 
sale can be estimated using data from the Servicing Rule Assessment 
Report. Using data from 2016 (the latest year reported), 18 months 
after the initial 60-day delinquency, 8 percent of delinquent loans 
ended with a foreclosure sale and an additional 24 percent remained 
delinquent and had not been modified.\161\ Of the loans that remain 
delinquent without a loan modification, the Bureau expects a 
significant number of these loans will end with a foreclosure sale 
although the Bureau does not have data to identify the exact share. The 
Bureau assumes one-half of this group will end with a foreclosure sale, 
which is a significant share although not a majority of loans.\162\ 
Overall, this gives a baseline estimate of loans that will experience 
foreclosure sale of between roughly 155,000 and 310,000. The Bureau 
requests comment on the assumptions underlying this estimate, including 
discussion of any data available to predict the share of loans that 
will end with a foreclosure sale.
---------------------------------------------------------------------------

    \161\ Servicing Rule Assessment Report, supra note 13, at 48.
    \162\ A large share of foreclosures are not completed within the 
first 18 months of delinquency, so it is reasonable to assume that 
many loans that are still delinquent 18 months after an initial 60-
day delinquency will eventually end in foreclosure. See Servicing 
Rule Assessment Report, supra note 13, at 52-53.
---------------------------------------------------------------------------

    The next step is to estimate how the number of foreclosures would 
change under the proposal. The Bureau proposes that any final rule 
relating to this proposal would become effective on August 31, 2021, 
and requires servicers to delay initiation of foreclosure until after 
December 31, 2021. Because of uncertainty about the exact number of 
loans that will exit forbearance each month from September to December 
of 2021, the Bureau assumes that all remaining loans exit forbearance 
in September. This leads to a maximum four-month delay in the point at 
which servicers can initiate foreclosure for borrowers with loans that 
are more than 120 days delinquent between the effective date of the 
proposed rule and the end of the delay period. This approach also 
assumes that existing borrower protections do not change. If, for 
example, forbearance programs and foreclosure moratoria are extended, 
then the maximum delay period would be shorter and the number of 
foreclosures prevented would be smaller under the proposed rule.\163\ 
Similarly, if servicers would not immediately initiate foreclosure 
proceedings with the borrowers absent the rule, then the delay period 
as a result of the rule would be shorter and the number of foreclosures 
prevented would be reduced.\164\
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    \163\ An extension of forbearance programs or foreclosure 
moratoria would reduce the total number of months delay under the 
proposed rule. This would reduce the number of foreclosures 
prevented under the rule by the number of loans that self-cure, 
prepay, or enter into a loan modification during the time between 
the end of forbearance programs or foreclosure moratoria and 
December 31, 2021 under the current proposal. The number of loans 
that will self-cure, prepay, or enter into a loan modification 
during that period is uncertain given limited information on what 
the economic circumstances and financial status of borrowers will be 
at that time.
    \164\ If servicers delay initiating foreclosure, then the total 
number of foreclosures prevented under the proposed rule would fall 
by the number of loans that self-cure, prepay, or enter into a loan 
modification during that period of time. The number of loans that 
will self-cure, prepay, or enter into a loan modification during 
that period is uncertain given limited information on what the 
economic circumstances and financial status of borrowers will be at 
that time.
---------------------------------------------------------------------------

    Estimating how many foreclosures might be prevented by a four-month 
delay requires making strong assumptions about the additional

[[Page 18871]]

growth in the share of recovered loans over the additional four-month 
period, where recovered is defined as a self-cure or permanent loan 
modification. The data available to the Bureau do not provide direct 
evidence of how protecting this group of borrowers from initiation of 
foreclosure will affect the likelihood that their loans will ultimately 
end with a foreclosure sale. In particular, some factors from the 
current environment that are difficult to generalize using data from 
earlier periods are: First, borrowers with loans in a forbearance plan 
may be very different from borrowers with loans that are delinquent but 
not in a forbearance plan; second, among borrowers with loans in a 
forbearance plan, some borrowers have made no payments for 18 months 
while others have made partial or infrequent payments; and, third, 
borrowers with loans in a forbearance plan are unlikely to have 
arrearages due at the end of the forbearance period. Any of these 
differences across borrowers can significantly affect the growth in the 
share of recovered loans over time. The Bureau requests comment on this 
assumption, in particular on how the share of recovered loans will 
change over a four-month period.
    The Bureau provides some evidence on the rate at which delinquent 
loans may recover to estimate the total benefit to borrowers of the 
provision using information reported in the Servicing Assessment 
Report. Among borrowers who become 30 days delinquent in 2014: 60 
percent recover before their second month of delinquency, 80 percent 
recover by the 12th month of delinquency, and 85 percent recover by the 
24th month of delinquency.\165\ These patterns, first, show that most 
borrowers who become delinquent recover early in their delinquency. 
Second, the data show that the rate of change in recovery falls as the 
length of the delinquency increases. For example, after the initial 
month of delinquency, an additional 20 percent of borrowers recover by 
the 12th month of delinquency, and then an additional 5 percent of 
borrowers by the 24th month. On a monthly basis, the number of 
borrowers who recover increases by less than one percent per month 
during the second year.\166\ The Bureau notes that the above discussion 
is based on the recovery experience of loans that became 30 days 
delinquent. A smaller number of loans became more seriously delinquent. 
Relative to that smaller base, the share of loans recovering during 
later periods would be greater.
---------------------------------------------------------------------------

    \165\ See Servicing Rule Assessment Report, supra note 13, at 
85. The data used in this figure are publicly available loan 
performance data from Fannie Mae. See Fed. Nat'l Mortg. Ass'n, 
Fannie Mae Single-Family Loan Performance Data (Feb. 8, 2021), 
https://capitalmarkets.fanniemae.com/credit-risk-transfer/single-family-credit-risk-transfer/fannie-mae-single-family-loan-performance-data.
    \166\ The rate of change in borrowers who have recovered is 
calculated as: [(85 percent - 80 percent) / 80 percent] x 100 [ap] 6 
percent. This gives a monthly average increase in the share of loans 
that have recovered between the 12th and 24th month of delinquency 
of approximately 0.5 percent (6 percent 12 months).
---------------------------------------------------------------------------

    The proposed pre-foreclosure review period would provide borrowers 
additional time during which servicers cannot initiate foreclosure. 
This may increase the number of borrowers who are able to recover, in 
particular by ensuring more borrowers have the opportunity to pursue 
foreclosure avoidance options before a servicer makes the first notice 
or filing required for foreclosure. The size of this increase depends 
on how much of a difference the delay makes in borrowers' ability to 
recover. This, in turn, depends on factors such as the financial 
circumstances of borrowers as of the effective date, the number of 
foreclosures that servicers would in fact initiate, absent the rule, 
during the months after the effective date, and the effect of delaying 
foreclosure on borrowers' ability to obtain loss mitigation options or 
otherwise recover. The Bureau requests comment on the likelihood that 
borrowers coming out of forbearance will be able to recover in the 
months shortly after forbearance ends and how a delay in initiation of 
foreclosure would affect their ability to recover.
    For purposes of illustrating potential benefits of the proposed 
rule, suppose that the increase in the number of borrowers who are 
ultimately able to recover as a result of the delay is 0.5 percent per 
month of delay, which is similar to the monthly rate at which the 
number of borrowers who have recovered grows during the second year 
after a 30-day delinquency, as discussed above. Assuming the full four-
month delay, the additional share of loans that recover could then be 
estimated at about 2 percent of the initial group of delinquent 
loans.\167\ The remaining distribution of outcomes (foreclosure, 
prepay, and delinquent without loan modification) are estimated based 
on a constant relative share across groups.\168\ This means that 7.9 
percent of delinquent loans will end with a foreclosure sale within 18 
months. Similar to under the baseline, the Bureau also assumes that 
one-half of loans that are delinquent and not in a loan modification 
will end with a foreclosure sale after more than 18 months (meaning an 
additional 11.8 percent of delinquent loans would end with a 
foreclosure sale). This generates an estimate of foreclosure sales 
under the proposed rule of between roughly 152,000 and 304,000, or a 
reduction of between approximately 2,600 and 5,300 foreclosures.
---------------------------------------------------------------------------

    \167\ The extent of the delay depends on when a loan exits 
forbearance. If the exact number of loans exiting forbearance each 
month was known, then one could multiply the number of loans exiting 
forbearance each month by the month-adjusted expected recovery rate. 
For example, loans that exit in October might have an average 
recovery rate of 1.5 percent (0.5 percent x 3 months) and loans that 
exit in November might have an average expected recovery rate of 1.0 
percent (0.5 percent x 2 months), all else equal. Then, the number 
of recovered loans can be calculated by summing across months.
    \168\ More specifically, the Bureau assumes that the number of 
loans that either self-cure or are modified increases by 2 percent, 
and that other outcomes decrease proportionately. For loans that 
became 60 days delinquent in 2016, the Bureau estimated that about 
46 percent either cured or were modified within 18 months, about 8 
percent had ended in foreclosure, about 24 percent remained 
delinquent, and about 22 percent had prepaid. See Servicing Rule 
Assessment Report, supra note 13, at 48. A 2 percent increase in 
recovery would mean that the share of loans that recover increases 
to 47 percent (46 percent x 1.02) given the additional four-month 
delay. The assumption of a constant relative share across groups 
means that an additional recovery reduces the number of foreclosures 
by 0.15, the number of prepaid by 0.41, and the number of delinquent 
loans without loan modification by 0.44. An increase in the share of 
loans that cure or are modified from 46 to 47 percent implies a 
reduction in the share that end in foreclosure by 18 months to about 
7.9 percent, and the share that remain delinquent at 18 months to 
about 23.6 percent.
---------------------------------------------------------------------------

    The Bureau believes that an assumed increase in the likelihood of 
recovery of 2 percent may significantly overestimate or underestimate 
the actual effect of the proposed rule on whether loans recover or end 
with a foreclosure sale. The discussion above relies on data from 
between 2014 and 2016, which was not a period of economic distress as 
described earlier. In the current period compared to 2014 and 2016, the 
level of delinquency is higher and changes in the incidence of recovery 
over time may be slower. On the other hand, significant house price 
growth and higher levels of home equity may make it more likely the 
borrowers can avoid foreclosure if borrowers have better options for 
selling or refinancing their homes than in 2014 and 2017. The Bureau 
requests comment on the extent to which the increase in the rate of 
recovery used for the above estimates is reasonable, including any data 
that can shed light on this assumption.
    Finally, an illustration of the potential total benefit to 
borrowers of avoiding

[[Page 18872]]

foreclosure sales as a result of the proposed provision can be 
calculated by taking the difference in the number of foreclosure sales 
under the baseline compared to under the proposed rule and multiplying 
that difference by the per-borrower cost of foreclosure. Based on a per 
foreclosure cost to the borrower of $12,500, the benefit to borrowers 
of avoiding foreclosure under the proposed rule is estimated at between 
$33 million and $66 million. The estimate is based on a number of 
assumptions and represents one approach to quantifying the total 
benefits to borrowers.
    The above estimate of the benefit to borrowers of avoiding 
foreclosure likely underestimates the true value of the benefit. As 
discussed above, there is evidence that borrowers incur significant 
non-monetary costs that are not accounted for in the above estimates. 
Furthermore, there may be non-borrower benefits, such as benefits to 
neighbors and communities from reduced foreclosures, that are 
unaccounted for. Therefore, estimates of the total benefit to 
consumers, which includes the benefit to borrowers and non-borrowers 
are expected to be larger than the reported estimates.
    Some borrowers would benefit from the proposed provision even if 
they would not have experienced a foreclosure sale under the baseline. 
Many borrowers are able to cure their delinquency or otherwise avoid a 
foreclosure sale after the servicer has initiated the foreclosure 
process. Even though these borrowers do not lose their homes to 
foreclosure, they may incur foreclosure-related costs, such as legal or 
administrative costs, from the early stages of the foreclosure process. 
The proposed provision could mean that some borrowers who would have 
cured their delinquency after foreclosure is initiated are instead able 
to cure their delinquency before foreclosure is initiated, meaning that 
they are able to avoid such foreclosure-related costs. The Bureau does 
not have data that would permit it to estimate the extent of this 
benefit of the proposed rule, which would likely vary according to 
State foreclosure laws and the borrower's specific situation. The 
Bureau requests comments on this benefit to consumers, including data 
or other information that could help quantify the benefit.
    The proposed provision may create costs for some borrowers if it 
delays their engagement in the loan modification and loss mitigation 
process. For some borrowers, notification of foreclosure process 
initiation may provide the impetus to engage with the servicer to 
discuss options for avoiding foreclosure. For these borrowers, delaying 
the initiation of foreclosure may delay their engagement in determining 
a next step for resolving the delinquency on the loan, whether it be 
through repayment, loan modification, foreclosure, or other 
alternatives. This delay may put the borrower in a worse position 
because the additional delay can increase unpaid amounts and thereby 
reduce options to avoid foreclosure. The Bureau does not have data that 
would permit it to estimate the extent of this cost of the proposed 
rule. The Bureau requests comments on this cost to consumers, including 
data or other information that could help quantify the cost.
Benefits and Costs to Covered Persons
    The proposed provision would impose new costs on servicers and 
investors by delaying the date at which foreclosure can be initiated, 
which would prolong the ongoing costs of servicing non-performing loans 
and delay the point at which servicers are able to complete the 
foreclosure and sell the property. These costs would apply to 
foreclosures that the proposed rule would not prevent. As further 
discussed below, the costs could be mitigated somewhat by a reduction 
in foreclosure-related costs in cases where the delay in initiating 
foreclosure permits borrowers to avoid entering into foreclosure 
altogether.
    As discussed above, the Bureau does not have data to quantify the 
number of loans that will ultimately enter foreclosure or the number 
that will end with a foreclosure sale, but, as discussed above, past 
experience and the large number of loans currently in a nonpayment 
status suggest that as many as 155,000 and 310,000 loans that would be 
subject to the proposed pre-foreclosure review period could ultimately 
end in foreclosure. An additional number of loans are likely to enter 
the foreclosure process but not end in foreclosure because the borrower 
is able to recover or prepay the loan.
    By preventing servicers from initiating foreclosure for most 
delinquent loans until after December 31, 2021, the proposal could 
delay many foreclosures from being initiated by up to four months. The 
delay could be shorter for loans subject to a forbearance that extends 
past August 31, 2021, including some loans subject to the CARES Act 
that entered into forbearance later than March 2020 and are extended to 
a total of up to 18 months. The delay could also be reduced to the 
extent that servicers would not actually initiate foreclosure for all 
borrowers who are more than 120 days delinquent and whose loans are not 
in forbearance in the period between September and December 2021.\169\ 
For foreclosures that are eventually completed, a delay in the 
initiation of foreclosure would be expected, all else equal, to lead to 
an equivalent delay in the foreclosure's completion.
---------------------------------------------------------------------------

    \169\ Even absent the proposed provision, servicers may be 
delayed in initiating foreclosure because the attorneys and other 
service providers that support foreclosure actions may not have 
capacity to handle the anticipated number of delinquent loans, 
particularly given that the long foreclosure moratoria have eroded 
capacity.
---------------------------------------------------------------------------

    Any delay in completing foreclosure will mean additional costs to 
service the loan before completing foreclosure. This includes, for 
example, the costs of mailing statements, providing required 
disclosures, and responding to borrower requests. For loans that are 
seriously delinquent, servicers may be required by investors to conduct 
frequent property inspections to determine if properties are occupied 
and may incur costs to provide upkeep for vacant properties. MBA data 
report that the annual cost of servicing performing loans in 2017 was 
$156 (or $13 per month) and the annual cost of servicing nonperforming 
loans was $2,135 (or approximately $178 per month).\170\ Some costs of 
servicing delinquent loans would be ongoing each month, including costs 
of complying with certain of the Bureau's servicing rules. However, 
many of the average costs of servicing a delinquent loan likely reflect 
one-time costs, such as the costs of paying counsel to complete 
particular steps in the foreclosure process, which likely would not 
increase as a result of a delay. In light of this, the additional 
servicing costs associated with a delay are likely to be well below 
$178 per month for each loan.
---------------------------------------------------------------------------

    \170\ Mortg. Bankers Ass'n, Servicing Operations Study and Forum 
for Prime and Specialty Servicers (Dec. 2018), https://www.mba.org/news-research-and-resources/research-and-economics/single-family-research/servicing-operations-study-and-forum-for-prime-and-specialty-servicers.
---------------------------------------------------------------------------

    In addition, some mortgage servicers are obligated to make some 
principal and interest payments to investors, even if borrowers are not 
making payments. Servicers may also be obligated to make escrowed real 
estate tax and insurance payments to local taxing authorities and 
insurance companies. The proposal would extend the period of time that 
servicers must continue making such advances for loans on which they 
are not receiving payment. Servicers may incur additional costs to 
maintain the liquid reserves necessary to advance these funds.
    When the servicer does not advance principal and interest payments 
to

[[Page 18873]]

investors, including cases in which a loan's owner is servicing loans 
on its own behalf, a delay will also impose costs on investors by 
delaying their receipt of proceeds from foreclosure sales and 
preventing them from investing those funds and earning an investment 
return during the time by which a foreclosure sale is delayed. These 
costs depend on the length of any delay, the amount of funds that the 
investor stands to recover through a foreclosure sale, and the 
investor's opportunity cost of funds. For example, the average unpaid 
principal balance of mortgage loans in forbearance as of February 2021 
was reported to be approximately $200,000.\171\ Assuming that investors 
would invest foreclosure sale proceeds in short-term U.S. Treasury 
bills, using the six-month U.S. Treasury rate of approximately 0.06 
percent in March 2021, the cost of delaying receipt of $200,000 by four 
months would be approximately $40. Assuming instead that investors 
would invest foreclosure sale proceeds at the Prime rate, 3.25 percent 
in March 2021, the cost of delaying receipt of $200,000 by four months 
would be approximately $2,170.
---------------------------------------------------------------------------

    \171\ As of February 2021, there were an estimated 2.7 million 
loans in forbearance representing a total unpaid principle balance 
of $537 billion, for an average loan size of approximately $198,000. 
See Black Jan. 2021 Report, supra note 36, at 7.
---------------------------------------------------------------------------

    Servicers would also incur costs to ensure the proposed provision 
is not violated. The simplicity of the provision may mean the direct 
cost of developing systems to ensure compliance is not too great. 
However, servicers that seek to pursue foreclosure for properties that 
are not the borrower's principal residence (for example, when a 
property is vacant and appears to be abandoned) may incur additional 
costs to ensure that those properties are in fact not the borrower's 
principal residence so that they do not inadvertently violate the 
proposed provision. The Bureau understands that making such 
determinations can be difficult and is the source of significant 
perceived compliance risk given the possibility of incorrectly 
concluding that the property is no longer a borrower's principal 
residence.\172\
---------------------------------------------------------------------------

    \172\ Servicing Rule Assessment Report, supra note 13, at 173.
---------------------------------------------------------------------------

    The costs to servicers described above may be mitigated somewhat by 
a reduction in foreclosure-related costs, to the extent that the 
additional time for borrowers to be considered for loss mitigation 
options prevents some foreclosures from being initiated. Often, a 
borrower who is able to obtain a loss mitigation option in the months 
before foreclosure would otherwise be initiated would also be able to 
obtain that option shortly after foreclosure is initiated. In such 
cases, a delay in initiating foreclosure could mean servicers avoid the 
costs of initiating and then terminating, the foreclosure process. For 
example, servicers may avoid certain costs, such as the cost of 
engaging local foreclosure counsel, that they generally incur during 
the initial stages of foreclosure and that they may not be able to pass 
on to borrowers. Even absent the proposed rule, servicers may choose to 
delay initiating foreclosure for loans that are more than 120 days 
delinquent, subject to investor requirements, if the probability of 
recovery is high enough that the benefit of waiting, and potentially 
avoiding foreclosure-related costs, outweighs the expected cost of 
delaying an eventual foreclosure sale. By requiring servicers to delay 
initiating foreclosure until after December 31, 2021, the proposed rule 
would cause servicers to delay foreclosure even when the net benefit of 
doing so is negative, and therefore any benefit servicers would receive 
from delayed foreclosures is expected to be smaller on average than the 
cost to servicers arising from the delay.
    The Bureau seeks comment on the discussion of the benefits and 
costs of the proposed provision for consumers and covered persons 
discussed above. In particular, the Bureau seeks comment on data and 
methodology for estimating the number of foreclosures that could be 
prevented by the proposed provision, the associated benefits to 
consumers, and the costs to covered persons associated with a delay in 
foreclosure sales.
Alternative Approach: Potential Exemptions to the Special Pre-
Foreclosure Review Period
    The Bureau has also considered an alternative in which servicers 
would be allowed to proceed with the foreclosure process during the 
special pre-foreclosure review period under certain circumstances. 
Those circumstances could include cases in which the servicer has 
determined that the borrower is not eligible for any loss mitigation 
options or if the borrower has declined all available options. They 
could also include cases in which the servicer has exercised reasonable 
diligence to contact the borrower and the servicer has been unable to 
reach the borrower. Reasonable diligence could potentially be defined 
to include multi-modal communication attempts, such as making certain 
numbers and types of communication attempts over a period of 30 days.
    Such an alternative could reduce the benefits of the rule for 
certain borrowers who would receive reduced protection from the pre-
foreclosure review period. In general, the benefits of the pre-
foreclosure review period would be lower for borrowers who the servicer 
has determined are not eligible for any loss mitigation options than 
they would be for other borrowers, because borrowers who have already 
been denied would be less likely to obtain a loss mitigation option 
even if afforded additional time. However, the alternative could 
prevent borrowers from benefiting from the proposed provision in 
situations where a borrower's eligibility changes within a relatively 
short period of time, as may happen during this particular economic 
crisis, as certain businesses may begin to reopen or open more 
completely based on when different State and local jurisdictions make 
adjustments to their COVID-19-related restrictions. The Bureau is not 
aware of data that could reasonably quantify the number of borrowers 
for whom such an exception would meaningfully reduce their benefits 
from the proposed provision.
    Similarly, the benefits of the proposed pre-foreclosure review 
period would likely be lower for borrowers whom the servicer is unable 
to reach. Where servicers are unable to reach a delinquent borrower, 
the borrower is less likely to apply for or be considered for a loss 
mitigation option. Moreover, the first notice or filing for foreclosure 
could prompt communication from some consumers who are otherwise 
unresponsive to servicer communication attempts. However, there may be 
some consumers whom the servicer cannot contact within a 30-day period 
but who would benefit from the proposed provision if they were to 
contact their servicer later in the pre-foreclosure review period. This 
might be especially likely because this particular crisis could create 
unique obstacles that prevent a borrower from contacting their servicer 
within the first 30 days after they exit their forbearance program. The 
Bureau is not aware of data that could reasonably quantify the number 
of borrowers for whom such an exception would meaningfully reduce their 
benefits from the proposed provision, or the number of borrowers for 
whom this alternative might provide a benefit if it were to permit a 
first notice or filing for foreclosure that prompts them to engage with 
their servicer regarding loss mitigation options.
    Servicers would generally benefit from these types of exceptions to 
the pre-foreclosure review period. To the extent that servicers have 
the option to

[[Page 18874]]

initiate the foreclosure process earlier, they will potentially benefit 
from a reduction in the delay of the overall foreclosure timeline. The 
exceptions described above may cover situations in which a loan is 
particularly likely to move to foreclosure, so may be the loans for 
which the benefit from an earlier initiation of foreclosure is 
greatest. The extent of such benefit depends on the number of loans 
that would be covered by these circumstances and the extent to which 
those loans are in fact loans for which the pre-foreclosure review 
period would not have increased the likelihood of finding a loss 
mitigation option.
    The Bureau requests comment on the benefits and costs to consumers 
and covered persons of this alternative, including data and other 
information that could help quantify those benefits and costs.
Alternative Approach: ``Grace Period'' Rather Than Date Certain
    The Bureau has considered an alternative to a pre-foreclosure 
review period, in which servicers would be prohibited from making the 
first notice or filing for foreclosure until a certain number of days 
(e.g., 60 or 120 days) after a borrower exits their forbearance 
program.
    Such an approach would provide additional benefits to some 
borrowers in forbearance programs compared to the proposed rule, while 
reducing the benefit to other borrowers who are delinquent but not in 
forbearance programs. For borrowers who are in a forbearance program 
that ends well after the effective date of the proposed rule, this 
alternative approach would provide a longer period than in the proposed 
rule during which the borrower would be protected from the initiation 
of foreclosure. For example, a borrower whose forbearance ends on 
November 30, 2021, would be protected from initiation of foreclosure 
for approximately one month under the proposed rule, and approximately 
four months under this alternative. A large share of the borrowers 
currently in forbearance programs entered into forbearance after April 
2020 and could extend their forbearances until November 2021 or later, 
and borrowers continue to be eligible to enter into forbearance 
programs. Although some of these borrowers may not in fact extend their 
forbearances to the maximum allowable extent, many would receive a 
longer protection from foreclosure under the alternative, which could 
provide them with a greater opportunity to work with servicers to 
obtain an alternative to foreclosure.
    The alternative would not provide protection for borrowers who do 
not enter into forbearance programs, meaning that borrowers who are or 
become delinquent and do not enter forbearance would not receive any 
benefit from the alternative beyond the existing prohibition on 
initiating foreclosures until the borrower has been delinquent for more 
than 120 days.
    For servicers, the alternative approach would, like the proposed 
provision, delay foreclosure for many of the affected borrowers. The 
cost of delay, on a per-loan and per-month basis, would not be 
appreciably different under the alternative than under the proposed 
provision, but the number of foreclosures delayed would likely differ. 
Whether the number of loans delayed, and the total cost of delay, are 
larger or smaller under the alternative than under the proposed 
provision depends on whether the effect of additional delay of loans in 
forbearance programs that expire after the beginning of the pre-
foreclosure review period is greater than the effect of eliminating the 
delay for loans that are not in forbearance programs but are more than 
120 days delinquent during the period that the proposed pre-foreclosure 
review period would be in effect.
    The alternative could be significantly more costly for servicers to 
implement because it would require servicers to track a new pre-
foreclosure review period for each loan exiting a forbearance program 
and to revise their compliance systems to ensure that they do not 
initiate foreclosure for loans that are within that pre-foreclosure 
review period. The alternative could require servicer systems to 
account for loan-specific fact patterns, such as cases in which a 
borrower's forbearance period expires but the borrower subsequently 
seeks to extend the forbearance period. This could introduce complexity 
that would make the alternative more costly to come into compliance 
with compared to the proposed provision, which would apply to all 
covered loans until a certain date. The Bureau does not have data to 
estimate such additional costs from the proposal.
    The Bureau requests comment on the benefits and costs to consumers 
and covered persons of the alternative, including data and other 
information that could help quantify those benefits and costs.
2. Evaluation of Loss Mitigation Applications
    Proposed Sec.  1024.41(c)(2)(vi) would extend certain exceptions 
from Sec.  1024.41(c)(2)(i)'s general requirement to evaluate only a 
complete loss mitigation application to certain streamlined loan 
modifications offered to borrowers affected by a COVID-19-related 
hardship, such as certain modifications offered through the GSEs' Flex 
Modification Programs, FHA's COVID-19 Owner-Occupant Loan Modification, 
and other comparable programs. Once a borrower accepts an offer made 
under proposed Sec.  1024.41(c)(2)(vi), for any loss mitigation 
application the borrower submitted before that offer, a servicer would 
no longer be required to comply with Sec.  1024.41(b)(1)'s requirements 
regarding reasonable diligence to collect a complete loss mitigation 
application, and a servicer would also no longer be required to comply 
with Sec.  1024.41(b)(2)'s evaluation and notice requirements. A 
servicer would be required to immediately resume reasonable diligence 
efforts as required under Sec.  1024.41(b)(1) with regard to any 
incomplete loss mitigation application a borrower submitted before the 
servicer's offer of a trial loan modification plan if the borrower 
fails to perform under a trial loan modification plan offered pursuant 
to proposed Sec.  1024.41(c)(2)(vi)(A) or if the borrower requests 
further assistance.
Benefits and Costs to Consumers
    The proposed exception may benefit borrowers to the extent that 
they may be able to receive a loan modification more quickly, or may be 
more likely to obtain a loan modification at all, without having to 
submit a complete loss mitigation application. Where the exception to 
the complete application requirement applies, it will generally result 
in a reduction in the time necessary to gather required documents and 
information. In some cases, if borrowers would not otherwise complete a 
loss mitigation application and could not otherwise obtain a different 
loss mitigation option, the proposed provision could enable borrowers 
to obtain a loan modification in the first place.\173\ For some 
borrowers, a loan modification may be their only opportunity to become 
or remain current and avoid foreclosure. Thus, for some borrowers who 
obtain a

[[Page 18875]]

loan modification under the proposed exception, the benefit of the 
provision would be the value of obtaining a loan modification or 
obtaining a loan modification more quickly, potentially preventing 
delinquency fees and foreclosure.
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    \173\ Under existing Sec.  1024.41(c), servicers may under some 
circumstances evaluate an incomplete loss mitigation application and 
offer a borrower a loss mitigation option based on the incomplete 
application if the application has remained incomplete for a 
significant period of time. Sec.  1024.41(c)(2)(ii). By providing 
additional conditions under which servicers could offer certain loss 
mitigation options based on an incomplete application, the proposed 
provision may increase the likelihood that a borrower is able to 
qualify for a loss mitigation option after submitting an incomplete 
application.
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    As discussed above in part II, as of February 2021 2.7 million 
borrowers had mortgage loans that were in a forbearance program. Of 
these, an estimated 14 percent are serviced by small servicers, leaving 
approximately 2.3 million who would be covered by the proposed rule. 
Many of these borrowers may recover before the proposed rule's 
effective date, however the large number and the ongoing economic 
crisis suggest that many borrowers will be in distress at that time. 
The Bureau does not have data to estimate the number of distressed 
borrowers who, as of the proposed rule's effective date, would not be 
able to complete a loss mitigation application if they were required to 
complete the application to receive a loan modification offer. However, 
the Bureau believes that in the present circumstances that percentage 
could be substantial due to limitations in servicer capacity and the 
challenges some borrowers face in dealing with the social and economic 
effects of the COVID-19 pandemic and related economic crisis. As 
discussed above in part II, if borrowers who are currently in an 
eligible forbearance program request an extension to the maximum time 
offered by the government agencies, those loans that were placed in a 
forbearance program early in the pandemic (March and April 2020) will 
reach the end of their forbearance period in September and October of 
2021. Black Knight data suggest there could be an estimated 800,000 
borrowers exiting their forbearance programs after 18 months of 
forborne payments in September and October of 2021.\174\ Although some 
fraction of the borrowers with loans in these forbearance programs may 
be able to resume contractual payments at the end of the forbearance 
period, many may not be able to do so and may seek to modify their 
loans. Processing complete loss mitigation applications for all these 
borrowers in a short period of time would likely strain many servicers' 
resources.\175\ This might lead to more borrowers who have incomplete 
applications that never reach completion and who could therefore not be 
considered for a loan modification under the baseline compared to what 
might occur under standard market conditions. The Bureau also does not 
have data available to predict how many borrowers with loans currently 
in a forbearance or a delinquency would experience foreclosure but for 
a loan modification offered under the proposed exception in the 
proposed rule.
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    \174\ Black Jan. 2021 Report, supra note 36, at 9. An estimated 
14 percent of all loans are serviced by small servicers, and if that 
percentage applies to these loans, then an estimated 690,000 loans 
subject to the proposed rule would exit forbearance in these months.
    \175\ Servicers have reported challenges in customer-facing 
staff capacity during the pandemic. See Caroline Patane, Servicers 
report biggest challenges implementing COVID-19 assistance programs, 
Fed. Nat'l Mortg. Ass'n, Perspectives Blog (Jan. 12, 2020), https://www.fanniemae.com/research-and-insights/perspectives/servicers-report-biggest-challenges-implementing-covid-19-assistance-programs. 
Such challenges could become even more significant if a large number 
of borrowers seek foreclosure avoidance options during a short 
period of time after forbearances end.
---------------------------------------------------------------------------

    The proposed provision might create costs for borrowers if it 
prevents them from considering, and applying for, loss mitigation 
options that they would prefer to a streamlined loan modification. 
Borrowers who are considered for a streamlined loan modification after 
submitting an incomplete application may not be presented with other 
loss mitigation options that might be offered if they were to submit a 
complete application. In the 2013 RESPA Servicing Final Rule, the 
Bureau explained its view that borrowers would benefit from the 
complete application requirement, in part because borrowers would 
generally be better able to choose among available loss mitigation 
options if they are presented simultaneously. The Bureau acknowledges 
that borrowers accepting an offer made under proposed Sec.  
1024.41(c)(2)(vi) would be prevented from considering loss mitigation 
options that they may prefer to a streamlined loan modification in 
connection with an incomplete loss mitigation application submitted 
before the offer. However, if a borrower is interested in and eligible 
for another form of loss mitigation besides a streamlined loan 
modification, under the proposal a borrower who received a streamlined 
loan modification after evaluation of an incomplete application would 
still retain the ability under Sec.  1024.41 to submit a complete loss 
mitigation application and receive an evaluation for all available 
options after the loan modification is in place.
    The Bureau requests comments on the benefits to consumers of the 
proposed provision, including comment on the proposed eligibility 
criteria the proposed exception, whether those criteria will affect the 
types of modifications offered to consumers, and potential effects on 
consumers as a result.
Benefits and Costs to Covered Persons
    Servicers would benefit from the reduction in burden from the 
requirement to process complete loss mitigation applications for 
streamlined loan modifications that are eligible for the exception. 
Given the number of loans that are currently delinquent, and in 
particular the number of such loans in a forbearance program that will 
end during a short window of time, this benefit could be substantial. 
Without the proposed provision, in each case, the servicers would 
further need to exercise reasonable diligence to collect the 
documentation needed for a complete loss mitigation application, 
evaluate the complete application, and inform the borrower of the 
outcome of the application for all available options. The Bureau 
understands that the process of conducting this evaluation and 
communicating the decision to consumers can require considerable staff 
time, including time spent talking to consumers to explain the outcome 
of the evaluation for all options.\176\ This could make the cost of 
evaluating borrowers for all available options particularly acute in 
light of staffing challenges servicers may face during the COVID-19 
pandemic and associated economic crisis and the large number of 
borrowers who may be seeking loss mitigation at the same time.
---------------------------------------------------------------------------

    \176\ Servicing Rule Assessment Report, supra note 13, at 155-
156.
---------------------------------------------------------------------------

    In addition to the reduced costs associated with evaluation for 
streamlined loan modifications, the proposed provision may reduce 
servicer costs when evaluating borrowers for other loss mitigation 
options, by freeing resources that can be used to work with borrowers 
who may not qualify for streamlined loan modifications or for whom 
streamlined loan modifications may not be the borrower's preferred 
option. Many servicers are likely to need to process a large number of 
applications in a short period of time while complying with the 
timelines and other requirements of the servicing rules. This may place 
strain on servicer resources that lead to additional costs, such as the 
need to pay overtime wages or to hire and train additional staff to 
process loss mitigation applications. The proposed provision would 
reduce this strain and could thereby reduce overall servicing costs.
    The Bureau does not have data to quantify the reduction in costs to 
servicers from the proposed provision. The Bureau understands that 
working

[[Page 18876]]

with borrowers to complete applications and to communicate decisions on 
complete applications often requires significant one-on-one 
communication between servicer personnel and borrowers. Even a modest 
reduction in staff time needed for such communication, given the large 
numbers of borrowers who may be seeking loan modifications, could lead 
to substantial cost savings.
    The Bureau seeks comment on the discussion of the benefits and 
costs of the proposed provision for consumers and covered persons 
discussed above. In particular, the Bureau seeks comment on, and data 
or studies that are informative of, potential effects of the proposal 
on borrowers' ability to obtain a loss mitigation option that best 
suits their circumstances as well as potential benefits and costs to 
servicers.
3. Live Contact and Reasonable Diligence Requirements
    Proposed Sec.  1024.39(e) would temporarily require servicers to 
provide additional information to certain borrowers during live 
contacts established under existing requirements. In general, proposed 
Sec.  1024.39(e)(1) would require servicers to ask whether borrowers 
who are not in a forbearance program at the time of the live contact 
are experiencing a COVID-19-related hardship and if so, to list and 
briefly describe available forbearance programs to those borrowers and 
the actions a borrower must take to be evaluated. In general, proposed 
Sec.  1024.39(e)(2) would require that, for borrowers who are in a 
forbearance program at the time of live contact, servicers must provide 
specific information about the borrower's current forbearance program 
and list and briefly describe available post-forbearance loss 
mitigation options during the last required live contact made just 
before the end of the forbearance period. The proposal would not 
require servicers to make good faith efforts to establish live contact 
with a borrower beyond those already required by Sec.  1024.39(a).
    In conjunction with proposed Sec.  1024.39(e)(2), the proposal 
would also add a new comment 41(b)1-4.iv, which states that if the 
borrower is in a short term payment forbearance program made available 
to borrowers experiencing a financial hardship due, directly or 
indirectly, to the COVID-19 emergency that was offered based on 
evaluation of an incomplete application, a servicer must contact the 
borrower no later than 30 days before the end of the forbearance period 
to determine if the borrower wishes to complete the loss mitigation 
application and proceed with a full loss mitigation evaluation. If the 
borrower requests further assistance, the servicer should exercise 
reasonable diligence to complete the application before the end of the 
forbearance period. The servicer must also continue to exercise 
reasonable diligence to complete the loss mitigation application before 
the end of forbearance. Comment 41(b)(1)-4.iii already requires 
servicers to take these steps before the end of the short-term payment 
forbearance program offered based on the evaluation of an incomplete 
application, but does not specify how soon before the end of the 
forbearance program the servicer must make these contacts.
Benefits and Costs to Consumers and Covered Persons
    Proposed Sec.  1024.39(e)(1) would benefit borrowers who are 
eligible for a forbearance program but not currently in one, by 
potentially making it more likely that such borrowers are able to take 
advantage of such programs. Although most borrowers who have missed 
mortgage payments are in forbearance programs, a significant number of 
delinquent borrowers are not. Research has found that some borrowers 
are not aware of the availability of forbearance or misunderstand the 
terms of forbearance.\177\ Similarly, proposed Sec.  1024.39(e)(2), 
together with proposed comment 41(b)1-4.iv, would benefit borrowers who 
are delinquent and are nearing the end of a forbearance period by 
making it more likely that they are aware of their options at the end 
of the forbearance period in time to take the action most appropriate 
for their circumstances.
---------------------------------------------------------------------------

    \177\ For example, recent survey evidence finds that among 
borrowers who reported needing forbearance but had not entered 
forbearance, the fact that they had not entered forbearance was 
explained by factors including a lack of understanding about how 
forbearance plans work or whether the borrower would qualify, or a 
lack of understanding about how to request forbearance. See Lauren 
Lambie-Hanson et al., Recent Data on Mortgage Forbearance: Borrower 
Uptake and Understanding of Lender Accommodations, Fed. Reserve Bank 
of Phila. (Mar. 2021), https://www.philadelphiafed.org/consumer-finance/mortgage-markets/recent-data-on-mortgage-forbearance-borrower-uptake-and-understanding-of-lender-accommodations.
---------------------------------------------------------------------------

    For both proposed provisions, the extent of the benefit would 
depend to a large degree on whether servicers are already taking the 
actions that would be required by the proposed provision. The Bureau 
understands that many servicers already have a practice of informing 
borrowers about the availability of general or specific forbearance 
programs, and options when exiting forbearance programs, as part of 
live contact communications.\178\ The Bureau is not aware of how many 
servicers provide general as opposed to specific information about 
forbearance programs or post-forbearance options that are available to 
a particular borrower. The Bureau does not have data that could be used 
to quantify the number of borrowers who would benefit from the proposed 
provision. As discussed above, an estimated 2.7 million borrowers were 
in forbearance programs as of January 2021 and an estimated 242,000 
borrowers had loans that were seriously delinquent and not in a 
forbearance program. Although some fraction of the borrowers with loans 
in a forbearance program may be able to resume contractual payments at 
the end of the forbearance period, many may benefit from more specific 
information about the options available to them.
---------------------------------------------------------------------------

    \178\ For example, Fannie Mae requires servicers to begin 
attempts to contact the borrower no later than 30 days prior to the 
expiration of the forbearance plan term to, among other things, 
determine the reason for the delinquency and educate the borrower on 
the availability of workout options, as appropriate. Fed. Nat'l 
Mortg. Ass'n, Lender Letter (LL-2021-02) (Feb. 25, 2021), https://singlefamily.fanniemae.com/media/24891/display. Servicers that are 
already complying with such guidelines may already be providing many 
of the benefits, and incurring many of the costs, that would 
otherwise be generated by the proposed provision.
---------------------------------------------------------------------------

    The costs to covered persons of complying with the proposed 
provision would also depend on the extent to which servicers are 
already taking the actions required by the proposed provision. 
Servicers that do not currently take these actions would need to revise 
call scripts and make similar changes to their procedures when 
conducting live contact communications.\179\ Even servicers that do 
currently take actions that comply with the proposed provisions would 
likely incur one-time costs to review policies and procedures and 
potentially make changes to ensure compliance with the proposal. The 
Bureau does not have data to determine the extent of such one-time 
costs. Although the changes are limited, the short timeframe to 
implement the changes, and the fact that they would be required at a 
time when servicers are faced with a wide array of challenges related 
to the pandemic, would tend to make any changes more costly.\180\
---------------------------------------------------------------------------

    \179\ Servicers should already have access to the information 
they would need to provide under the proposed provision, because 
servicers are required to have policies and procedures to maintain 
and communicate such information to borrowers under 12 CFR 
1024.40(b)(1)(i) and 1024.38(b)(2)(i).
    \180\ One recent survey of mortgage servicing executives found 
that they identified adapting to investor policy changes as the 
biggest challenge in implementing COVID-19 assistance programs. See 
Caroline Patane, Servicers report biggest challenges implementing 
COVID-19 assistance programs, Fed. Nat'l Mortg. Ass'n, Perspectives 
Blog (Jan. 12, 2020), https://www.fanniemae.com/research-and-insights/perspectives/servicers-report-biggest-challenges-implementing-covid-19-assistance-programs.

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[[Page 18877]]

    The Bureau seeks comment on the discussion of the benefits and 
costs of the proposed provisions for consumers and covered persons 
discussed above. In particular, the Bureau seeks data or studies that 
provide information on the extent to which the proposed provisions 
could benefit consumers by providing more timely information about 
their options, as well as on the potential costs to servicers of 
complying with the proposed provisions.

E. Potential Specific Impacts of the Proposed Rule

Insured Depository Institutions and Credit Unions With $10 Billion or 
Less in Total Assets, As Described in Section 1026
    The Bureau believes that a large majority of depository 
institutions and credit unions with $10 billion or less in total assets 
that are engaged in servicing mortgage loans qualify as ``small 
servicers'' for purposes of Regulation X because they service 5,000 or 
fewer loans, all of which they or an affiliate own or originated. In 
the past, the Bureau has estimated that more than 95 percent of insured 
depositories and credit unions with $10 billion or less in total assets 
service 5,000 mortgage loans or fewer.\181\ The Bureau believes that 
servicers that service loans that they neither own nor originated tend 
to service more than 5,000 loans, given the returns to scale in 
servicing technology. Small servicers would be exempt from the proposed 
rule and would therefore not be directly affected by the proposed rule.
---------------------------------------------------------------------------

    \181\ 81 FR 72160 (Oct. 19, 2016).
---------------------------------------------------------------------------

    With respect to servicers that are not small servicers, the Bureau 
believes that the consideration of benefits and costs of covered 
persons presented above would generally describe the impacts of the 
proposed rule on depository institutions and credit unions with $10 
billion or less in total assets that are engaged in servicing mortgage 
loans.
Impact of the Proposed Provisions on Consumer Access to Credit
    Restrictions on servicers' ability to foreclose on mortgage loans 
could, in theory, reduce the expected return to mortgage lending and 
cause lenders to increase interest rates or reduce access to mortgage 
credit, particularly for loans with a higher estimated risk of default. 
The temporary nature of the proposed rule means that it is unlikely to 
have long-term effects on access to mortgage credit. In the short run, 
the Bureau cannot rule out the possibility that the proposed rule would 
have the effect of increasing mortgage interest rates or delaying 
access to credit for some borrowers, particularly for borrowers with 
lower credit scores who may have a higher likelihood of default in the 
first few months of the loan term. The Bureau does not have a way of 
quantifying any such effect but notes that it would be limited to the 
period before the delay period expires. The exemption of small 
servicers from the proposed rule will help maintain consumer access to 
credit through these providers.
    The Bureau requests comment on the effects of the proposed rule on 
consumer access to credit, including any data, research results, and 
other factual information that would help quantify any impact of the 
proposed rule on consumer access to credit.
Impact of the Proposed Provisions on Consumers in Rural Areas
    Consumers in rural areas may experience benefits from the proposed 
rule that are different in certain respects from the benefits 
experienced by consumers in general. Consumers in rural areas may be 
more likely to obtain mortgages from small local banks and credit 
unions that either service the loans in portfolio or sell the loans and 
retain the servicing rights. These servicers may be small servicers 
that would be exempt from the proposed provisions, although they may 
already provide most of the benefits to consumers that the proposed 
rule is designed to provide.
    The Bureau will further consider the impact of the proposed rule on 
consumers in rural areas. The Bureau, therefore, asks interested 
parties to provide data, research results, and other factual 
information on the impact of the proposed rule on consumers in rural 
areas.

VII. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct an initial regulatory flexibility analysis (IRFA) and a 
final regulatory flexibility analysis of any rule subject to notice-
and-comment rulemaking requirements, unless the agency certifies that 
the rule will not have a significant economic impact on a substantial 
number of small entities.\182\ The Bureau also is subject to certain 
additional procedures under the RFA involving the convening of a panel 
to consult with small business representatives before proposing a rule 
for which an IRFA is required.\183\
---------------------------------------------------------------------------

    \182\ 5 U.S.C. 601 et seq.
    \183\ 5 U.S.C. 609.
---------------------------------------------------------------------------

    The proposed rule would not apply to entities that are ``small 
servicers'' for purposes of the Regulation X: Generally, servicers that 
service 5,000 or fewer mortgage loans, all of which the servicer or 
affiliates own or originated. A large majority of small entities that 
service mortgage loans are small servicers and would therefore not be 
directly affected by the proposed rule. Although some servicers that 
are small entities may service more than 5,000 loans and not qualify as 
small servicers for that reason, the Bureau has previously estimated 
that approximately 99 percent of small-entity servicers service 5,000 
loans or fewer. The Bureau does not have data to indicate whether these 
institutions service loans that they do not own and did not originate. 
However, as discussed in the preamble to the 2013 RESPA Servicing Final 
Rule, the Bureau believes that a servicer that services 5,000 loans or 
fewer is unlikely to service loans that it did not originate because a 
servicer that services loans for others is likely to see servicing as a 
stand-alone line of business and would likely need to service 
substantially more than 5,000 loans to justify its investment in 
servicing activities.\184\ Therefore, the Bureau has concluded that the 
proposed rule would not have an effect on a substantial number of small 
entities.
---------------------------------------------------------------------------

    \184\ 2013 RESPA Servicing Final Rule, supra note 13, at 10866. 
For example, one industry participant estimated that most servicers 
would need a portfolio of 175,000 to 200,000 loans to be profitable. 
Bonnie Sinnock, Servicers Search for `Goldilocks' Size for Max 
Profits, Am. Banker (Sept. 10, 2015), https://www.americanbanker.com/news/servicers-search-for-goldilocks-size-for-max-profits.
---------------------------------------------------------------------------

    Accordingly, the Acting Director hereby certifies that this 
proposal, if adopted, would not have a significant economic impact on a 
substantial number of small entities. Thus, neither an IRFA nor a small 
business review panel is required for this proposal. The Bureau 
requests comment on the analysis above and requests any relevant data.

VIII. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA), Federal agencies 
are generally required to seek the Office of Management and Budget's 
(OMB's) approval for information collection requirements prior to 
implementation. The collections of information related to Regulation X 
have been previously reviewed and approved by OMB and assigned OMB 
Control number 3170-0016. Under the PRA, the Bureau may

[[Page 18878]]

not conduct or sponsor and, notwithstanding any other provision of law, 
a person is not required to respond to an information collection unless 
the information collection displays a valid control number assigned by 
OMB.
    The Bureau has determined that this proposed rule does not impose 
any new or revise any existing recordkeeping, reporting, or disclosure 
requirements on covered entities or members of the public that would be 
collections of information requiring approval by the Office of 
Management and Budget under the Paperwork Reduction Act.
    The Bureau has a continuing interest in the public's opinions 
regarding this determination. At any time, comments regarding this 
determination may be sent to: The Bureau of Consumer Financial 
Protection (Attention: PRA Office), 1700 G Street NW, Washington, DC 
20552, or by email to [email protected].

IX. List of Subjects in 12 CFR Part 1024

    Banks, banking, Condominiums, Consumer protection, Credit unions, 
Housing, Mortgage insurance, Mortgages, National banks, Reporting and 
recordkeeping requirements, Savings associations.

X. Authority and Issuance

    For the reasons set forth in the preamble, the Bureau proposes to 
amend Regulation X, 12 CFR part 1024, as set forth below:

PART 1024--REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)

0
1. The authority citation for part 1024 continues to read as follows:

    Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5532, 
5581.

Subpart C--Mortgage Servicing

0
2. Amend Sec.  1024.31 by adding, in alphabetical order, a definition 
of ``COVID-19-related hardship'' to read as follows:


Sec.  1024.31  Definitions.

* * * * *
    COVID-19-related hardship means a financial hardship due, directly 
or indirectly, to the COVID-19 emergency as defined in the Coronavirus 
Economic Stabilization Act, section 4022(a)(1) (15 U.S.C. 9056(a)(1)).
* * * * *
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3. Section 1024.39 is amended by revising paragraph (a) and adding 
paragraph (e) to read as follows:


Sec.  1024.39  Early intervention requirements for certain borrowers.

    (a) Live Contact. Except as otherwise provided in this section, a 
servicer shall establish or make good faith efforts to establish live 
contact with a delinquent borrower no later than the 36th day of a 
borrower's 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 with a borrower, the servicer shall 
inform the borrower about the availability of loss mitigation options, 
if appropriate, and take the actions described in paragraph 39(e) of 
this section, if applicable.
* * * * *
    (e) Temporary COVID-19 Related Live Contact. Until August 31, 2022, 
in complying with the requirements described in paragraph 39(a), 
promptly after establishing live contact with a borrower, the servicer 
shall take the following actions:
    (1) Borrowers not in forbearance programs at the time of live 
contact. If the borrower is not in a forbearance program at the time 
the servicer establishes live contact and the owner or assignee of the 
borrower's mortgage loan makes a forbearance program available through 
the servicer to borrowers experiencing a COVID-19-related hardship, the 
servicer must ask the borrower whether the borrower is experiencing a 
COVID-19-related hardship. If the borrower indicates that the borrower 
is experiencing a COVID-19-related hardship, the servicer shall list 
and briefly describe to the borrower any such forbearance programs made 
available and the actions the borrower must take to be evaluated for 
such forbearance programs.
    (2) Borrowers in forbearance programs at the time of live contact. 
If the borrower is in a forbearance program made available to borrowers 
experiencing a COVID-19-related hardship, during the last live contact 
made pursuant to paragraph 39(a) of this section that occurs prior to 
the end of the forbearance period, the servicer must inform the 
borrower of the following information:
    (i) The date the borrower's current forbearance program ends; and
    (ii) A list and brief description of each of the types of 
forbearance extension, repayment options, and other loss mitigation 
options made available by the owner or assignee of the borrower's 
mortgage loan to resolve the borrower's delinquency at the end of the 
forbearance program, and the actions the borrower must take to be 
evaluated for such loss mitigation options.
0
4. Section 1024.41 is amended by:
0
a. Revising paragraphs (c)(2)(i), and (c)(2)(v)(A)(1);
0
b. Adding paragraph (c)(2)(vi);
0
c. Revising paragraph (f)(1)(i); and
0
d. Adding paragraph (f)(3).
    The additions and revisions read as follows:


Sec.  1024.41  Loss mitigation procedures.

* * * * *
    (c) * * *
    (2) * * * (i) In general. Except as set forth in paragraphs 
(c)(2)(ii), (iii), (v), and (vi) of this section, a servicer shall not 
evade 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 upon an evaluation of any 
information provided by a borrower in connection with an incomplete 
loss mitigation application.
* * * * *
    (v) * * * (A) * * *
    (1) The loss mitigation option permits the borrower to delay paying 
covered amounts until the mortgage loan is refinanced, the mortgaged 
property is sold, the term of the mortgage loan ends, or, for a 
mortgage loan insured by the Federal Housing Administration, the 
mortgage insurance terminates. For purposes of this paragraph 
(c)(2)(v)(A)(1), ``covered amounts'' includes, without limitation, all 
principal and interest payments forborne under a payment forbearance 
program made available to borrowers experiencing a COVID-19-related 
hardship, including a payment forbearance program made pursuant to the 
Coronavirus Economic Stabilization Act, section 4022 (15 U.S.C. 9056); 
it also includes, without limitation, all other principal and interest 
payments that are due and unpaid by a borrower experiencing a COVID-19-
related hardship. For purposes of this paragraph (c)(2)(v)(A)(1), ``the 
term of the mortgage loan'' means the term of the mortgage loan 
according to the obligation between the parties in effect when the 
borrower is offered the loss mitigation option.
* * * * *
    (vi) Certain COVID-19-related loan modification options. (A) 
Notwithstanding paragraph (c)(2)(i) of this section, a servicer may 
offer a borrower a loan modification based upon evaluation of an 
incomplete application, provided that all of the following criteria are 
met:
    (1) The loan modification extends the term of the loan by no more 
than 480 months from the date the loan modification is effective and 
does not

[[Page 18879]]

cause the borrower's monthly required principal and interest payment to 
increase.
    (2) Any amounts that the borrower may delay paying until the 
mortgage loan is refinanced, the mortgaged property is sold, or the 
loan modification matures, do not accrue interest; the servicer does 
not charge any fee in connection with the loan modification, and the 
servicer waives all existing late charges, penalties, stop payment 
fees, or similar charges promptly upon the borrower's acceptance of the 
loan modification.
    (3) The loan modification is made available to borrowers 
experiencing a COVID-19-related hardship.
    (4) Either the borrower's acceptance of an offer pursuant to 
paragraph (c)(2)(vi)(A) of this section ends any preexisting 
delinquency on the mortgage loan or the loan modification offered 
pursuant to paragraph (c)(2)(vi)(A) of this section is designed to end 
any preexisting delinquency on the mortgage loan upon the borrower 
satisfying the servicer's requirements for completing a trial loan 
modification plan and accepting a permanent loan modification.
    (B) Once the borrower accepts an offer made pursuant to paragraph 
(c)(2)(vi)(A) of this section, the servicer is not required to comply 
with paragraph (b)(1) or (2) of this section with regard to any loss 
mitigation application the borrower submitted prior to the servicer's 
offer of the loan modification described in paragraph (c)(2)(vi)(A) of 
this section. However, if the borrower fails to perform under a trial 
loan modification plan offered pursuant to paragraph (c)(2)(vi)(A) of 
this section or requests further assistance, the servicer must 
immediately resume reasonable diligence efforts as required under 
paragraph (b)(1) of this section with regard to any loss mitigation 
application the borrower submitted prior to the servicer's offer of the 
trial loan modification plan.
* * * * *
    (f) * * * (1) * * * (i) A borrower's mortgage loan obligation is 
more than 120 days delinquent and paragraph (f)(3) does not apply;
* * * * *
    (3) Special COVID-19 Emergency pre-foreclosure review requirements. 
A servicer shall not rely on paragraph (f)(1)(i) to make the first 
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process until after December 31, 2021.
* * * * *
0
5. In Supplement I to Part 1024 under Subpart C--Mortgage Servicing:
0
a. Under Sec.  1024.39--Early intervention requirements for certain 
borrowers, 39(a) Live contact, revise ``39(a) Live contact''; and
0
b. Under Sec.  1024.41--Loss mitigation procedures, 41(b)(1) Complete 
loss mitigation application, revise ``41(b)(1) Complete loss mitigation 
application''.
    The revisions read as follows:

Supplement I to Part 1024--Official Interpretations

* * * * *
    Subpart C--Mortgage Servicing
* * * * *

Sec.  1024.39--Early Intervention Requirements for Certain 
Borrowers

39(a) Live Contact

    1. Delinquency. Section 1024.39 requires a servicer to establish 
or attempt to establish live contact no later than the 36th day of a 
borrower's delinquency. This provision is illustrated as follows:
    i. Assume a mortgage loan obligation with a monthly billing 
cycle and monthly payments of $2,000 representing principal, 
interest, and escrow due on the first of each month.
    A. The borrower fails to make a payment of $2,000 on, and makes 
no payment during the 36-day period after, January 1. The servicer 
must establish or make good faith efforts to establish live contact 
not later than 36 days after January 1--i.e., on or before February 
6.
    B. The borrower makes no payments during the period January 1 
through April 1, although payments of $2,000 each on January 1, 
February 1, and March 1 are due. Assuming it is not a leap year; the 
borrower is 90 days delinquent as of April 1. The servicer may time 
its attempts to establish live contact such that a single attempt 
will meet the requirements of Sec.  1024.39(a) for two missed 
payments. To illustrate, the servicer complies with Sec.  1024.39(a) 
if the servicer makes a good faith effort to establish live contact 
with the borrower, for example, on February 5 and again on March 25. 
The February 5 attempt meets the requirements of Sec.  1024.39(a) 
for both the January 1 and February 1 missed payments. The March 25 
attempt meets the requirements of Sec.  1024.39(a) for the March 1 
missed payment.
    ii. A borrower who is performing as agreed under a loss 
mitigation option designed to bring the borrower current on a 
previously missed payment is not delinquent for purposes of Sec.  
1024.39.
    iii. During the 60-day period beginning on the effective date of 
transfer of the servicing of any mortgage loan, a borrower is not 
delinquent for purposes of Sec.  1024.39 if the transferee servicer 
learns that the borrower has made a timely payment that has been 
misdirected to the transferor servicer and the transferee servicer 
documents its files accordingly. See Sec.  1024.33(c)(1) and comment 
33(c)(1)-2.
    iv. A servicer need not establish live contact with a borrower 
unless the borrower is delinquent during the 36 days after a payment 
due date. If the borrower satisfies a payment in full before the end 
of the 36-day period, the servicer need not establish live contact 
with the borrower. For example, if a borrower misses a January 1 due 
date but makes that payment on February 1, a servicer need not 
establish or make good faith efforts to establish live contact by 
February 6.
    2. Establishing live contact. Live contact provides servicers an 
opportunity to discuss the circumstances of a borrower's 
delinquency. Live contact with a borrower includes speaking on the 
telephone or conducting an in-person meeting with the borrower but 
not leaving a recorded phone message. A servicer may rely on live 
contact established at the borrower's initiative to satisfy the live 
contact requirement in Sec.  1024.39(a). Servicers may also combine 
contacts made pursuant to Sec.  1024.39(a) with contacts made with 
borrowers for other reasons, for instance, by telling borrowers on 
collection calls that loss mitigation options may be available.
    3. Good faith efforts. Good faith efforts to establish live 
contact consist of reasonable steps, under the circumstances, to 
reach a borrower and may include telephoning the borrower on more 
than one occasion or sending written or electronic communication 
encouraging the borrower to establish live contact with the 
servicer. The length of a borrower's delinquency, as well as a 
borrower's failure to respond to a servicer's repeated attempts at 
communication pursuant to Sec.  1024.39(a), are relevant 
circumstances to consider. For example, whereas ``good faith 
efforts'' to establish live contact with regard to a borrower with 
two consecutive missed payments might require a telephone call, 
``good faith efforts'' to establish live contact with regard to an 
unresponsive borrower with six or more consecutive missed payments 
might require no more than including a sentence requesting that the 
borrower contact the servicer with regard to the delinquencies in 
the periodic statement or in an electronic communication. Comment 
39(a)-6 discusses the relationship between live contact and the loss 
mitigation procedures set forth in Sec.  1024.41.
    4. Promptly inform if appropriate.
    i. Servicer's determination. Except as provided in Sec.  
1024.39(e), it is within a servicer's reasonable discretion to 
determine whether informing a borrower about the availability of 
loss mitigation options is appropriate under the circumstances. The 
following examples demonstrate when a servicer has made a reasonable 
determination regarding the appropriateness of providing information 
about loss mitigation options.
    A. A servicer provides information about the availability of 
loss mitigation options to a borrower who notifies a servicer during 
live contact of a material adverse change in the borrower's 
financial circumstances that is likely to cause the borrower to 
experience a long-term delinquency for which loss mitigation options 
may be available.
    B. A servicer does not provide information about the 
availability of loss mitigation options to a borrower who has missed 
a January 1 payment and notified the servicer that full late payment 
will be transmitted to the servicer by February 15.
    ii. Promptly inform. If appropriate, a servicer may inform 
borrowers about the

[[Page 18880]]

availability of loss mitigation options orally, in writing, or 
through electronic communication, but the servicer must provide such 
information promptly after the servicer establishes live contact. 
Except as provided in Sec.  1024.39(e), a servicer need not notify a 
borrower about any particular loss mitigation options at this time; 
if appropriate, a servicer need only inform borrowers generally that 
loss mitigation options may be available. If appropriate, a servicer 
may satisfy the requirement in Sec.  1024.39(a) to inform a borrower 
about loss mitigation options by providing the written notice 
required by Sec.  1024.39(b)(1), but the servicer must provide such 
notice promptly after the servicer establishes live contact.
    5. Borrower's representative. Section 1024.39 does not prohibit 
a servicer from satisfying its requirements by establishing live 
contact with and, if applicable, providing information about loss 
mitigation options to a person authorized by the borrower to 
communicate with the servicer on the borrower's behalf. A servicer 
may undertake reasonable procedures to determine if a person that 
claims to be an agent of a borrower has authority from the borrower 
to act on the borrower's behalf, for example, by requiring a person 
that claims to be an agent of the borrower to provide documentation 
from the borrower stating that the purported agent is acting on the 
borrower's behalf.
    6. Relationship between live contact and loss mitigation 
procedures. If the servicer has established and is maintaining 
ongoing contact with the borrower under the loss mitigation 
procedures under Sec.  1024.41, including during the borrower's 
completion of a loss mitigation application or the servicer's 
evaluation of the borrower's complete loss mitigation application, 
or if the servicer has sent the borrower a notice pursuant to Sec.  
1024.41(c)(1)(ii) that the borrower is not eligible for any loss 
mitigation options, the servicer complies with Sec.  1024.39(a) and 
need not otherwise establish or make good faith efforts to establish 
live contact. A servicer must resume compliance with the 
requirements of Sec.  1024.39(a) for a borrower who becomes 
delinquent again after curing a prior delinquency.
* * * * *

Sec.  1024.41--Loss Mitigation Procedures

* * * * *

41(b)(1) Complete Loss Mitigation Application

    1. In general. A servicer has flexibility to establish its own 
application requirements and to decide the type and amount of 
information it will require from borrowers applying for loss 
mitigation options. In the course of gathering documents and 
information from a borrower to complete a loss mitigation 
application, a servicer may stop collecting documents and 
information for a particular loss mitigation option after receiving 
information confirming that, pursuant to any requirements 
established by the owner or assignee of the borrower's mortgage 
loan, the borrower is ineligible for that option. A servicer may not 
stop collecting documents and information for any loss mitigation 
option based solely upon the borrower's stated preference but may 
stop collecting documents and information for any loss mitigation 
option based on the borrower's stated preference in conjunction with 
other information, as prescribed by any requirements established by 
the owner or assignee. A servicer must continue to exercise 
reasonable diligence to obtain documents and information from the 
borrower that the servicer requires to evaluate the borrower as to 
all other loss mitigation options available to the borrower. For 
example:
    i. Assume a particular loss mitigation option is only available 
for borrowers whose mortgage loans were originated before a specific 
date. Once a servicer receives documents or information confirming 
that a mortgage loan was originated after that date, the servicer 
may stop collecting documents or information from the borrower that 
the servicer would use to evaluate the borrower for that loss 
mitigation option, but the servicer must continue its efforts to 
obtain documents and information from the borrower that the servicer 
requires to evaluate the borrower for all other available loss 
mitigation options.
    ii. Assume applicable requirements established by the owner or 
assignee of the mortgage loan provide that a borrower is ineligible 
for home retention loss mitigation options if the borrower states a 
preference for a short sale and provides evidence of another 
applicable hardship, such as military Permanent Change of Station 
orders or an employment transfer more than 50 miles away. If the 
borrower indicates a preference for a short sale or, more generally, 
not to retain the property, the servicer may not stop collecting 
documents and information from the borrower pertaining to available 
home retention options solely because the borrower has indicated 
such a preference, but the servicer may stop collecting such 
documents and information once the servicer receives information 
confirming that the borrower has an applicable hardship under 
requirements established by the owner or assignee, such as military 
Permanent Change of Station orders or employment transfer.
    2. When an inquiry or prequalification request becomes an 
application. A servicer is encouraged to provide borrowers with 
information about loss mitigation programs. If in giving information 
to the borrower, the borrower expresses an interest in applying for 
a loss mitigation option and provides information the servicer would 
evaluate in connection with a loss mitigation application, the 
borrower's inquiry or prequalification request has become a loss 
mitigation application. A loss mitigation application is considered 
expansively and includes any ``prequalification'' for a loss 
mitigation option. For example, if a borrower requests that a 
servicer determine if the borrower is ``prequalified'' for a loss 
mitigation program by evaluating the borrower against preliminary 
criteria to determine eligibility for a loss mitigation option, the 
request constitutes a loss mitigation application.
    3. Examples of inquiries that are not applications. The 
following examples illustrate situations in which only an inquiry 
has taken place and no loss mitigation application has been 
submitted:
    i. A borrower calls to ask about loss mitigation options and 
servicer personnel explain the loss mitigation options available to 
the borrower and the criteria for determining the borrower's 
eligibility for any such loss mitigation option. The borrower does 
not, however, provide any information that a servicer would consider 
for evaluating a loss mitigation application.
    ii. A borrower calls to ask about the process for applying for a 
loss mitigation option but the borrower does not provide any 
information that a servicer would consider for evaluating a loss 
mitigation application.
    4. Although a servicer has flexibility to establish its own 
requirements regarding the documents and information necessary for a 
loss mitigation application, the servicer must act with reasonable 
diligence to collect information needed to complete the application. 
A servicer must request information necessary to make a loss 
mitigation application complete promptly after receiving the loss 
mitigation application. Reasonable diligence for purposes of Sec.  
1024.41(b)(1) includes, without limitation, the following actions:
    i. A servicer requires additional information from the 
applicant, such as an address or a telephone number to verify 
employment; the servicer contacts the applicant promptly to obtain 
such information after receiving a loss mitigation application;
    ii. Servicing for a mortgage loan is transferred to a servicer 
and the borrower makes an incomplete loss mitigation application to 
the transferee servicer after the transfer; the transferee servicer 
reviews documents provided by the transferor servicer to determine 
if information required to make the loss mitigation application 
complete is contained within documents transferred by the transferor 
servicer to the servicer; and
    iii. A servicer offers a borrower a short-term payment 
forbearance program or a short-term repayment plan based on an 
evaluation of an incomplete loss mitigation application and provides 
the borrower the written notice pursuant to Sec.  
1024.41(c)(2)(iii). If the borrower remains in compliance with the 
short-term payment forbearance program or short-term repayment plan, 
and the borrower does not request further assistance, the servicer 
may suspend reasonable diligence efforts until near the end of the 
payment forbearance program or repayment plan. However, if the 
borrower fails to comply with the program or plan or requests 
further assistance, the servicer must immediately resume reasonable 
diligence efforts. Near the end of a short-term payment forbearance 
program offered based on an evaluation of an incomplete loss 
mitigation application pursuant to Sec.  1024.41(c)(2)(iii), and 
prior to the end of the forbearance period, if the borrower remains 
delinquent, a servicer must contact the borrower to determine if the 
borrower wishes to complete the loss mitigation application and 
proceed with a full loss mitigation evaluation.
    iv. If the borrower is in a short term payment forbearance 
program made available

[[Page 18881]]

to borrowers experiencing a COVID-19-related hardship, including a 
payment forbearance program made pursuant to the Coronavirus 
Economic Stability Act, section 4022 (15 U.S.C. 9056), that was 
offered to the borrower based on evaluation of an incomplete 
application, a servicer must contact the borrower no later than 30 
days before the end of the forbearance period to determine if the 
borrower wishes to complete the loss mitigation application and 
proceed with a full loss mitigation evaluation. If the borrower 
requests further assistance, the servicer must exercise reasonable 
diligence to complete the application before the end of the 
forbearance period.
    5. Information not in the borrower's control. A loss mitigation 
application is complete when a borrower provides all information 
required from the borrower notwithstanding that additional 
information may be required by a servicer that is not in the control 
of a borrower. For example, if a servicer requires a consumer report 
for a loss mitigation evaluation, a loss mitigation application is 
considered complete if a borrower has submitted all information 
required from the borrower without regard to whether a servicer has 
obtained a consumer report that a servicer has requested from a 
consumer reporting agency.
* * * * *

    Dated: April 2, 2021.
David Uejio,
Acting Director, Bureau of Consumer Financial Protection.
[FR Doc. 2021-07236 Filed 4-7-21; 8:45 am]
BILLING CODE 4810-AM-P