As the COVID-19 pandemic continues to threaten the health of the nation, the preventive measures required to control its spread have imposed equal challenges to the health of the economy. The closing of non-essential businesses and requirements to shelter in place have cost many Americans their jobs and their ability to meet their financial obligations.
The CARES Act, which was signed into law on March 27, 2020, provides relief to many Americans, including those who can no longer make their mortgage payments. Mortgage forbearance may be a necessary step in the current environment; however, it does impose additional burdens on mortgage servicers who are charged with the significant responsibility of ensuring such forbearance is properly granted in a timely manner. Even with all of their resources operating normally this would be a challenging task, but mortgage servicers are also struggling with staffing constraints and a work force that is very likely remote.
The regulatory agencies appear to understand this predicament and on April 3 issued a Joint Statement to provide some needed guidance. This article explains the required forbearance available to mortgage borrowers under the CARES Act and provides information about the relief offered to financial institutions and mortgage servicers under the Joint Statement.
Under the CARES Act, borrowers with “federally backed mortgage loans” facing hardships related to COVID -19 are eligible for mortgage payment forbearance, regardless of whether they are delinquent. Generally speaking, a federally backed mortgage loan is any loan secured by a first or subordinate lien on a one-to-four family dwelling that is secured or guaranteed by a government agency (i.e., Federal Housing Administration [FHA], Department of Veterans Affairs [VA], United States Department of Agriculture [USDA], or any loan guarantees for Indian or Native Hawaiian housing) or that is purchased or securitized by either Fannie Mae or Freddie Mac. Borrowers need only submit requests to their mortgage servicers and affirm they are experiencing a hardship due to the COVID-19 emergency. In response, a mortgage servicer must provide a CARES Act forbearance that allows the borrower to defer mortgage payments for up to 180 days. A mortgage servicer is prohibited from requiring any additional information from the borrower before granting the forbearance. A borrower may request an additional 180-day forbearance which must be granted as long as it is requested before the end of the initial forbearance period.
The granting of forbearance and other loss mitigation activities impacting residential borrowers is regulated by the Consumer Financial Protection Bureau’s (CFPB) Regulation X. Regulation X establishes a rigid framework under which borrowers must generally submit complete loss mitigation applications and mortgage servicers must provide various required notices and comply with multiple procedural requirements. The CARES Act forbearance, although a recent statutory creation, is still subject to the requirements of Regulation X.
To ease regulatory burden, the Joint Statement communicates that the agencies do not intend to take supervisory or enforcement action against servicers for non-compliance with various provisions of Regulation X. This includes the requirement to provide the acknowledgment notice, required by Section 1024.41(b) of Regulation X, within five days of receiving an incomplete loss mitigation application. By definition, a CARES Act forbearance request is an incomplete application under Regulation X and would require the acknowledgement notice within five days if not for the Joint Statement. Servicers must still provide the acknowledgement notice before the end of the forbearance period.
Relief from the five-day acknowledgement notice will have a direct positive impact on the ability of a servicer to manage the flood of CARES Act forbearance requests it is likely to receive. The agencies also indicate they do not intend to take supervisory or enforcement action against servicers for the following delays, so long as servicers are making good-faith efforts to provide these notices and take the related actions within a reasonable time:
- Delays in sending the notices and taking the actions described in Sections 1024.41(b)-(d), (h)(4), and (k) of Regulation X, all of which relate to the loss mitigation process
- Delays in establishing or making attempts to establish live contact with delinquent borrowers, as required by Section 1024.39(a) of Regulation X
- Delays in providing delinquent borrowers with the early intervention notices required by Section 1024.39(b) of Regulation X, and
- Delays in sending the annual escrow account statements required by Section 1024.17(i) of Regulation X
All of the regulatory relief mentioned above is effective from April 3, 2020, until further notice. Mortgage servicers looking for additional information about the relief measures established in the Joint Statement should review the Frequently Asked Questions (FAQs) issued by the CFPB on April 3. The FAQs further clarify the relief provided within the Joint Statement and also address the flexibility already incorporated into certain Regulation X and Regulation Z mortgage servicing provisions.
Mortgage servicers will very likely experience significant compliance and operational challenges in the coming months due to the COVID-19 emergency. The flexibility granted by the Joint Statement and set forth in other regulatory notifications will hopefully improve mortgage servicers capacity to implement CARES Act forbearance and otherwise assist struggling borrowers. Mortgage servicers should continue to pay close attention to forthcoming regulatory guidance to stay current on any new requirements and take advantage of any further relief that is offered.
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