[Federal Register Volume 86, Number 123 (Wednesday, June 30, 2021)]
[Rules and Regulations]
[Pages 34848-34903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13964]



[[Page 34847]]

Vol. 86

Wednesday,

No. 123

June 30, 2021

Part II





Department of Consumer Financial Protection





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12 CFR Part 1024





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

Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / 
Rules and Regulations

[[Page 34848]]


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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: Final rule; official interpretation.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
issuing this final rule to amend Regulation X to assist mortgage 
borrowers affected by the COVID-19 emergency. The final rule 
establishes temporary procedural safeguards to help ensure that 
borrowers have a meaningful opportunity to be reviewed for loss 
mitigation before the servicer can make the first notice or filing 
required for foreclosure on certain mortgages. In addition, the final 
rule 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 is also finalizing certain temporary amendments to the early 
intervention and reasonable diligence obligations that Regulation X 
imposes on mortgage servicers.

DATES: This final rule is effective on August 31, 2021.

FOR FURTHER INFORMATION CONTACT: Elizabeth Spring, Program Manager, 
Office of Mortgage Markets; Willie Williams, Paralegal; Angela Fox 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 
<a href="/cdn-cgi/l/email-protection#c98a8f998b9688aaaaacbabaa0aba0a5a0bdb089aaafb9abe7aea6bf"><span class="__cf_email__" data-cfemail="10535640524f5173737563637972797c79646950737660723e777f66">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

    To provide relief for mortgage borrowers facing financial hardship 
due to the COVID-19 pandemic, the Bureau is finalizing amendments to 
Regulation X's mortgage servicing rules.\1\ As described in more detail 
in part II, the COVID-19 pandemic has had a devastating economic impact 
in the United States, making it difficult for some borrowers to stay 
current on their mortgage payments. To help struggling borrowers, 
various Federal and State protections have been established throughout 
the last 16 months, including the forbearances made available by the 
Coronavirus Aid, Relief, and Economic Security Act (CARES Act) \2\ and 
various Federal and State foreclosure moratoria.\3\ These protections 
will begin to phase out over the summer. A large number of borrowers 
remain seriously delinquent and will be at risk of foreclosure 
initiation this fall. This final rule will help ensure a smooth and 
orderly transition as the other Federal and State protections end by 
providing borrowers with a meaningful opportunity to explore ways to 
resume making payments and avoid foreclosure. This final rule will also 
help promote housing security by preventing avoidable foreclosures and 
keeping borrowers on the path to wealth creation through homeownership. 
The Bureau recognizes that some foreclosures are unavoidable and that 
not every borrower will be able to stay in their home indefinitely.
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    \1\ This final rule finalizes the proposed amendments to 
Regulation X that the Bureau issued on April 5, 2021, with revisions 
as discussed herein. 86 FR 18840 (Apr. 9, 2021).
    \2\ The Coronavirus Aid, Relief, and Economic Security Act, 
Public Law 116-136, 134 Stat. 281 (2020) (CARES Act).
    \3\ Id.
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    Borrowers who are in forbearance, or behind on their mortgages and 
not in forbearance, are disproportionately Black and Hispanic, just as 
those workers whose re-employment continues to lag are 
disproportionately Black and Hispanic.\4\ Black and Hispanic borrowers 
also are disproportionately likely to have less equity in their homes. 
Thus, Black and Hispanic borrowers, and the communities in which they 
live, are especially likely to benefit from this rule.\5\ As 
homeownership plays the primary role in wealth creation in the United 
States,\6\ a wave of foreclosures due to the current crisis may have a 
lasting impact on these borrowers' ability to maintain and accumulate 
wealth.
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    \5\ Bureau of Consumer Fin. Prot., Characteristics of Mortgage 
Borrowers During the COVID-19 Pandemic at 5 (May 2021), https://files.consumerfinance.gov/f/documents/cfpb_characteristics-mortgage-borrowers-during-covid-19-pandemic_report_2021-05.pdf (CFPB Mortgage 
Borrower Pandemic Report).
    \6\ Nat'l Ass'n of Home Builders, Homeownership Remains Primary 
Driver of Household Wealth, NAHB Now Blog (Feb. 18, 2021), https://nahbnow.com/2021/02/homeownership-remains-primary-driver-of-household-wealth/.
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    Since last spring when the CARES Act was passed, servicers placed 
over 7 million borrowers into forbearance programs.\7\ During this same 
period, servicers have adapted to rapidly changing guidance and 
transitioned their own workforces to remote work. The Bureau recognizes 
the effort that took, and the challenge that still lies before the 
industry. While forbearance numbers have continued to drop,\8\ those 
borrowers still in forbearance are increasingly many months, even more 
than a year, behind on their mortgage payments. At the same time, 
increasing numbers of borrowers are exiting forbearance while 
delinquent without loss mitigation in place.\9\ The ways servicers may 
have handled loss mitigation in the past, including the allocation of 
resources and communication methods used, may not be as effective in 
these unprecedented circumstances.
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    \7\ Black Knight Mortg. Monitor, April 2021 Report at 10 (Apr. 
2021), https://cdn.blackknightinc.com/wp-content/uploads/2021/06/BKI_MM_Apr2021_Report.pdf (Black Apr. 2021 Report).
    \8\ Id. at 7.
    \9\ Id. at 10.
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    The Bureau is concerned that a potentially historically high number 
of borrowers will seek assistance from their servicers at approximately 
the same time this fall, which could lead to delays and errors as 
servicers work to process a high volume of loss mitigation inquiries 
and applications. 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.

Final Rule

    To address these concerns, this final rule includes five key 
amendments to Regulation X, all of which encourage borrowers and 
servicers to work together to facilitate review for foreclosure 
avoidance options. First, to help ensure that borrowers have a 
meaningful opportunity to be reviewed for loss mitigation, this final 
rule establishes temporary special COVID-19 procedural safeguards that 
must be met for certain mortgages before the servicer can make the 
first notice or filing required by applicable law for any judicial or 
non-judicial foreclosure process because of a delinquency. This 
requirement generally is applicable only if (1) the borrower's mortgage 
loan obligation became more than 120 days

[[Page 34849]]

delinquent on or after March 1, 2020, and (2) the statute of 
limitations applicable to the foreclosure action being taken in the 
laws of the State or municipality where the property securing the 
mortgage loan is located expires on or after January 1, 2022. This 
provision expires on January 1, 2022, meaning that the procedural 
safeguards are not applicable if a servicer makes the first notice or 
filing required by applicable law for any judicial or non-judicial 
foreclosure process on or after January 1, 2022. A procedural safeguard 
has been met, and the servicer may proceed with foreclosure, if: (1) 
The borrower submitted a completed loss mitigation application and 
Sec.  1024.41(f)(2) permits the servicer to make the first notice or 
filing; (2) the property securing the mortgage loan is abandoned under 
State or municipal law; or (3) the servicer has conducted specified 
outreach and the borrower is unresponsive.
    Second, the final rule permits servicers to offer certain 
streamlined loan modification options made available to borrowers with 
COVID-19-related hardships based on the evaluation of an incomplete 
loss mitigation application. Eligible loan modifications must satisfy 
certain criteria that aim to establish sufficient safeguards to help 
ensure that a borrower is not harmed if the borrower chooses to accept 
an offer of an eligible loan modification based on the evaluation of an 
incomplete application. First, to be eligible, 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. 
Second, if the loan modification permits the borrower to delay paying 
certain amounts until the mortgage loan is refinanced, the mortgaged 
property is sold, the loan modification matures, or, for a mortgage 
loan insured by the Federal Housing Administration (FHA), the mortgage 
insurance terminates, those amounts must not accrue interest. Third, 
the loan modification must be made available to borrowers experiencing 
a COVID-19-related hardship. Fourth, 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. Finally, 
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 that were incurred on or after March 
1, 2020, promptly upon the borrower's acceptance of the loan 
modification. If the borrower accepts an offer made pursuant to this 
new exception, the final rule excludes 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 
acknowledgement notice required by Sec.  1024.41(b)(2). However, if the 
borrower fails to perform under a trial loan modification plan offered 
pursuant to the proposed new exception or requests further assistance, 
the final rule requires 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 and to provide the borrower with the acknowledgement notice 
required by Sec.  1024.41(b)(2) with regard to the most recent loss 
mitigation application the borrower submitted prior to the offer that 
the servicer made under the new exception, unless the servicer has 
already provided that notice to the borrower.
    Third, the final rule amends the early intervention obligations to 
help ensure that servicers communicate timely and accurate information 
to borrowers about their loss mitigation options during the current 
crisis. In general, the final rule requires servicers to discuss 
specific additional COVID-19-related information during live contact 
with borrowers established under existing Sec.  1024.39(a) in two 
circumstances: (1) If the borrower is not in a forbearance program and 
(2) if the borrower is near the end of a forbearance program made 
available to borrowers experiencing a COVID-19-related hardship. 
Specifically, 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 inform the 
borrower that forbearance programs are available for borrowers 
experiencing such a hardship. Unless the borrower states they are not 
interested, the servicer must also list and briefly describe to the 
borrower those forbearance programs made available at that time and the 
actions the borrower must take to be evaluated. The servicer must also 
identify at least one way that the borrower can find contact 
information for homeownership counseling services, such as referencing 
the borrower's periodic statement. If the borrower is in a forbearance 
program made available to borrowers experiencing a COVID-19-related 
hardship, then during the live contact made pursuant to Sec.  
1024.39(a) that occurs at least 10 days and no more than 45 days before 
the scheduled end of the forbearance program, the servicer must provide 
certain information to the borrower. The servicer must inform the 
borrower of the date the borrower's current forbearance program is 
scheduled to end. 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 at that time, and 
the actions the borrower must take to be evaluated for such loss 
mitigation options. Finally, the servicer must identify at least one 
way that the borrower can find contact information for homeownership 
counseling services, such as referencing the borrower's periodic 
statement. This provision is temporary and will end on October 1, 2022.
    Fourth, the final rule clarifies 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 final rule specifies that a servicer must contact the 
borrower no later than 30 days before the end of the forbearance period 
if the borrower remains delinquent 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 final rule defines COVID-19-related hardship to mean a 
financial hardship due, directly or indirectly, to the national 
emergency for the COVID-19 pandemic declared in Proclamation 9994 on 
March 13, 2020 (beginning on March 1, 2020) and continued on February 
24, 2021, in accordance with section 202(d) of the National Emergencies 
Act (50 U.S.C.1622(d)).

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II. Background

A. The Bureau's Regulation X Mortgage Servicing Rules

    In January 2013, the Bureau issued a final mortgage servicing rule 
to implement the Real Estate Settlement Procedures Act of 1974 (RESPA) 
(2013 RESPA Servicing Final Rule),\10\ and included these rules in 
Regulation X.\11\ The Bureau later clarified and revised Regulation X's 
servicing rules through several additional notice-and-comment 
rulemakings.\12\ 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.\13\ 
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.\14\ Many servicers lacked 
the infrastructure, trained staff, controls, and procedures needed to 
manage effectively the flood of delinquent mortgages they were 
obligated to handle.\15\ 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.\16\
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    \10\ Real Estate Settlement Procedures Act of 1974, Public Law 
93-533, 88 Stat. 1724 (codified as amended at 12 U.S.C. 2601 et 
seq.).
    \11\ 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).
    \12\ 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).
    \13\ See generally 2013 RESPA Servicing Final Rule, supra note 
11, at 10699-701.
    \14\ See 2013 RESPA Servicing Rule Assessment Report, supra note 
11, at 37-60.
    \15\ 2013 RESPA Servicing Final Rule, supra note 11, at 10700.
    \16\ 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 \17\ and requiring certain communication efforts with 
delinquent borrowers.\18\ 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.\19\ 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.\20\ These requirements are discussed more fully in the 
section-by-section analysis in part IV.
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    \17\ 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).
    \18\ 12 CFR 1024.39.
    \19\ 12 CFR 1024.41(f) through (g).
    \20\ 12 CFR 1024.41(f)(1)(i).
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    The Bureau published an assessment of the 2013 RESPA Servicing 
Final Rule in 2019.\21\ The assessment analyzed the effects of the rule 
on borrowers and servicers. Among other things, the assessment 
concluded that loans that became delinquent were less likely to proceed 
to a foreclosure sale during the months after the rule's effective date 
compared to months before the effective date.\22\ Moreover, the 
assessment found that delinquent borrowers were somewhat more likely 
than they were pre-rule to start applying for loss mitigation earlier 
in delinquency.\23\ Also, the assessment found that loans that became 
delinquent were more likely to recover from delinquency (that is, to 
return to current status, including through a modification of the loan 
terms) after the rule's effective date.\24\ The assessment also 
determined that the rule's general prohibition on initiating 
foreclosure within the first 120 days of delinquency prevented rather 
than delayed foreclosures.\25\ Finally, the assessment also found that 
servicing costs increased substantially between 2008 and 2013.\26\
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    \21\ 2013 RESPA Servicing Rule Assessment Report, supra note 11.
    \22\ Id. at 9.
    \23\ Id. at 11.
    \24\ Id. at 8.
    \25\ Id. at 12.
    \26\ Id. at 8.
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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.\27\ 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.\28\ The June 2020 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.\29\ 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 FHA, the 
mortgage insurance terminates.
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    \27\ 86 FR 11599 (Feb. 26, 2021).
    \28\ 85 FR 39055 (June 30, 2020).
    \29\ 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. Under the 
CARES Act, a borrower with a federally backed loan may request a 180-
day forbearance that may be extended for another 180

[[Page 34851]]

days at the request of the borrower if the borrower attests to having a 
COVID-related financial hardship. Servicers must grant these 
forbearance programs to 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. Through its mortgage market monitoring throughout the 
pandemic, the Bureau understands that servicers of mortgage loans that 
are not federally backed offer similar forbearance programs to 
borrowers affected by the COVID-19 emergency.
    In February of 2021, FHA, the Federal Housing Finance Agency 
(FHFA), Department of Agriculture (USDA), and Department of Veterans 
Affairs (VA) announced they were expanding their forbearance programs 
beyond the minimum required by the CARES Act. 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.\30\ In addition 
to the expansion of the programs, on June 24, 2021, FHA, USDA, and VA 
extended the period for borrowers to be approved for a forbearance 
program from their mortgage servicer through the end of September.\31\ 
FHFA has not announced a deadline to request initial forbearance for 
loans purchased or securitized by the GSEs. To date, data on borrowers 
reentering or requesting forbearance suggests borrower are still using 
these programs.
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    \30\ 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.
    \31\ The Bureau recognizes that the government agencies may 
adjust their programs further in the coming months, and the Bureau 
will continue to coordinate with the agencies.
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    While forbearance has been a resource for many borrowers, not all 
borrowers will be able to recover from such severe delinquency. As 
discussed more fully in part VII, historical data suggests that many 
borrowers with who are delinquent a year or longer have trouble 
resuming payments successfully and are more likely to experience 
foreclosure than borrowers with shorter delinquencies. Additionally, 
long-term forbearance can erode equity, which may make selling the home 
as an alternative to foreclosure less viable. The risks of extended 
forbearance and severe delinquency are more pronounced in some 
communities. For example, Bureau research found that, during the 
pandemic, mortgage forbearance and delinquency rates have been 
significantly more common in communities of color and lower-income 
areas.\32\ Since homeownership rates vary significantly by race and 
ethnicity, if borrowers of these communities are not able to recover 
and 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. For example, 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.\33\ Given the racial 
inequities in homeownership and disproportionately higher mortgage 
forbearance and delinquency in communities of color and lower income 
areas, the Bureau anticipates that these communities are especially 
likely to benefit from the protections of this rule.
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    \32\ CFPB Mortgage Borrower Pandemic Report, supra note 5.
    \33\ 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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C. Borrowers With Loans in Forbearance

    There is a lot of uncertainty about the number of borrowers who 
will exit forbearance this fall. The volume of borrowers exiting 
forbearance programs is expected to fluctuate throughout the summer as 
borrowers' forbearance periods end and borrowers either exit 
forbearance or extend their forbearance for another three-month period. 
June 2021 presents a substantial period of potential exits of early 
forbearance entrants, who reached 15 months of forbearance in June. 
Black Knight estimates there could be slightly fewer than 400,000 exits 
in June if current trends continue.\34\ This will be the last review 
for exit or extension before the review in September for borrowers who 
entered forbearance in March of 2020 and who will reach the maximum 18 
months of forbearance that month. While a significant number of early 
entrants exited forbearance in the last 60 days,\35\ an estimated 
900,000 borrowers could still exit forbearance by the end of 2021.\36\ 
As a result, this fall, servicers may need to assist a significant 
number of borrowers with post-forbearance loss mitigation review. As of 
May 18, 2021, Black Knight reports 5 percent of borrowers remain past 
due on their mortgage but are in active loss mitigation.\37\ This 
number may also fluctuate as borrowers who remain in forbearance may 
not be able to cure their delinquency when they exit forbearance and 
many borrowers may need a more permanent reduction in their mortgage 
payment amount through a loan modification.
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    \34\ Id. at 8.
    \35\ An estimated 413,000 borrowers exited forbearance in May. 
Id. at 9.
    \36\ Id.
    \37\ Black Apr. 2021 Report, supra note 7, at 10.
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    As of May 25, 2021, forbearance program starts hit their highest 
level in several weeks.\38\ The increase in forbearance program starts 
can be attributed to elevated volume of borrowers who were previously 
in forbearance during the COVID-19 emergency reentering or restarting 
forbearance.\39\ A similar scenario was observed after a spike in exits 
in early October 2020 as restart activity increased then as well. This 
was when the first wave of forbearance entrants reached their six-month 
review for extension and removal.\40\ There was also a slight increase 
in new forbearance plan starts. This may be an indication that many 
borrowers continue to experience mortgage payment uncertainty.
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    \38\ Andy Walden, Forbearance Volumes Increase Again Moderate 
Opportunity for Additional Improvement in June, Black Knight Mortg. 
Monitor Blog (May 28, 2021), https://www.blackknightinc.com/blog-posts/forbearance-volumes-increase-again-moderate-opportunity-for-additional-improvement-in-early-june/?utm_term=Forbearance%20Volumes%20Increase%20Again%2C%20Moderate%20Opportunity%20for%20Additional%20Improvement%20in%20Early%20June&utm_campaign=An%20Update%20from%20Vision%20%5Cu2013%20Black%20Knight%27s%20Blog&utm_content=email&utm_source=Act-On_Software&utm_medium=RSS%20Email (Black May 2021 Blog).
    \39\ A borrower that ``restarts'' a forbearance program is a 
borrower whose loan was previously in forbearance, who formally 
exited the forbearance program, arranged to pay-off any delinquent 
amounts, but ultimately reentered into a forbearance program.
    \40\ Black Apr. 2021 Report, supra note 7, at 8.
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D. Post-Forbearance Options for Borrowers Affected by the COVID-19 
Emergency

    Since the beginning of the COVID-19 emergency, investors and 
servicers have implemented several post-forbearance repayment options 
and other loss mitigation options to assist borrowers experiencing a 
COVID-19-related

[[Page 34852]]

hardship. For example, servicers have offered borrowers repayment 
plans, payment deferral programs or partial claims programs, and loan 
modification programs. There are additional options for borrowers who 
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.

E. Loans Exiting Forbearance

    As of April 2021, there were 1.9 million borrowers 90 days or more 
delinquent on their mortgage payments.\41\ Of those borrowers, 90 
percent are either in forbearance or are involved in other loss 
mitigation discussions with their servicers.\42\ This includes loans 
that reentered or restarted forbearance previously. For loans that 
became seriously delinquent after the COVID-19 emergency, 97 percent of 
these loans are either in forbearance programs or other loss mitigation 
options.\43\
---------------------------------------------------------------------------

    \41\ Black Apr. 2021 Report, supra note 7, at 5.
    \42\ Id.
    \43\ Id.
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    While the industry seems to have recovered from the peak periods of 
forbearance, many factors in the market suggest that overall risk is 
still elevated. Since January 2020,\44\ there have been approximately 
7.2 million loans that have entered a forbearance program.\45\ Of the 
subset of loans that that exited forbearance and have either cured or 
received a workout solution, such as loss mitigation, approximately 3.3 
million borrowers are reperforming as of May 2021.\46\ Another 1.2 
million have paid-off their mortgage in full most likely through 
refinancing or selling their home.\47\ In addition, as of May 18, 2021, 
there were an estimated 365,000 borrowers who have exited forbearance 
and were in an active loss mitigation option.\48\ As the population of 
borrowers exiting after 18 months of forbearance (and possibly as many 
missed payments) grows, the Bureau expects the number of borrowers who 
will not be able to bring their mortgage current will also grow. Many 
of these borrowers will need to be evaluated for permanent loss 
mitigation, such as loan modifications, which can decrease their 
monthly payment, to avoid foreclosure. Also noted earlier, there is a 
high volume of borrowers who remain in prolonged forbearance that are 
FHA and VA borrowers. The programs offered by these borrowers may be 
more complicated to navigate or streamlined products may not be 
available resulting in the need for higher-touch communication with 
their servicer.
---------------------------------------------------------------------------

    \44\ Black Knight's Mortgage Monitoring forbearance data started 
January 2020. See Black Knights Mortg. Monitor, January 2021 Report 
(Jan. 2021), https://cdn.blackknightinc.com/wp-content/uploads/2021/03/BKI_MM_Jan2021_Report.pdf (Black Jan. 2021 Report).
    \45\ Supra note 7, at 10.
    \46\ Id.
    \47\ Id.
    \48\ Id.
---------------------------------------------------------------------------

    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 
on in the pandemic (March and April 2020) will reach the end of their 
maximum 18-month forbearance period in September and October of 2021. 
Black Knight data suggested as of mid-March, there would be an 
estimated 475,000 programs on track to remain active and reach their 
18-month expirations at the end of September, with another 275,000 at 
the end of October.\49\ However, due to recent forbearance exits, those 
estimates have now fallen to approximately 385,000 and 225,000.\50\ 
These numbers are expected to fluctuate depending on exit volume of 
early forbearance entrants, especially near the end of June 2021 during 
the 15-month review. However, even with the recent exits, there could 
be nearly 900,000 borrowers exiting forbearance by the end of the 
year.\51\ This could pose challenges for servicers.
---------------------------------------------------------------------------

    \49\ Id. at 9.
    \50\ Id.
    \51\ Id.
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    This potentially historically high volume of borrowers exiting 
forbearance within a short period of time could strain servicer 
capacity, possibly resulting in delays or errors in processing loss 
mitigation requests. It remains unclear how many borrowers in a 
forbearance program will exit forbearance at 15 months in June rather 
than exercising any additional remaining 3-month extensions.
    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 period of time. This lack of 
historical precedent creates uncertainty. The Bureau anticipates that 
many borrowers who continue to be adversely affected by the COVID-19 
emergency will utilize the maximum allowable months of forbearance and 
most will exit in the fall.

F. Delinquent Loans Not in a Forbearance Program or Loss Mitigation

    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 in some type of loss mitigation.
    As of end of April 2021, there were an estimated 158,000 seriously 
delinquent borrowers who were delinquent before the pandemic started 
and are not in a forbearance program. There are another 33,000 
borrowers who became seriously delinquent after the pandemic began and 
had not entered a forbearance program and were not in active loss 
mitigation.\52\
---------------------------------------------------------------------------

    \52\ Id. at 11.
---------------------------------------------------------------------------

    In addition, as of May 18, 2021, there were 168,000 forbearance 
program exits by borrowers who are not yet in loss mitigation and 
remain delinquent.\53\ However, more than an estimated 110,000 of those 
loans were already delinquent before the COVID-19 emergency.\54\
---------------------------------------------------------------------------

    \53\ Id. at 10.
    \54\ Id.
---------------------------------------------------------------------------

G. Loans at Heightened Risk of Avoidable Foreclosure

    Since the CARES Act took effect in March of 2020, various Federal 
and State foreclosure moratoria have been established. As of June 24, 
2021, FHFA, FHA, VA, and USDA had emergency foreclosure moratoria in 
effect until July 31, 2021.\55\ Most foreclosure proceedings have been 
halted as a result of the moratoria, and therefore foreclosures are at 
historic lows.\56\ In April 2021, there were 3,700 foreclosures 
initiated and the

[[Page 34853]]

foreclosure inventory was down 26 percent from the same time last 
year.\57\
---------------------------------------------------------------------------

    \55\ See Press Release, The White House, FACT SHEET: Biden-
Harris Administration Announces Initiatives to Promote Housing 
Stability By Supporting Vulnerable Tenants and Preventing 
Foreclosures (June 24, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/24/fact-sheet-biden-harris-administration-announces-initiatives-to-promote-housing-stability-by-supporting-vulnerable-tenants-and-preventing-foreclosures/ (the 
Department of Housing and Urban Development (HUD), Department of 
VeteransAffairs (VA), and Department of Agriculture (USDA)--will 
extend their respective foreclosure moratorium for one, final month, 
until July 31, 2021). Furthermore, the Bureau recognizes that these 
government agencies may adjust their programs further in the coming 
months, and the Bureau will continue to coordinate with these 
agencies.
    \56\ 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/.
    \57\ Black Apr. 2021 Report, supra note 7, at 3.
---------------------------------------------------------------------------

    In addition, before the pandemic, foreclosure activity was at half 
the normal rate.\58\ Typically, about 1 percent of loans are in some 
stage of foreclosure annually.\59\ In early 2020, the foreclosure rate 
was below average at about 0.5 percent.\60\ In January 2020, there were 
about 245,000 loans in the foreclosure process when the pandemic 
started.
---------------------------------------------------------------------------

    \58\ Statista, Foreclosure rate in the United States from 2005-
2020, (Apr. 15, 2021), https://www.statista.com/statistics/798766/foreclosure-rate-usa/.
    \59\ Id.
    \60\ Id.
---------------------------------------------------------------------------

    Since the Federal and State moratoria have been in place, most of 
these borrowers have been protected but are at heightened risk of 
referral to foreclosure or foreclosure soon after the moratoria end if 
they do not resolve their delinquency or reach a loss mitigation 
agreement with their servicer. 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.\61\ Even where forbearance programs 
pause or defer payment obligations, they do not necessarily pause 
delinquency.\62\ 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 as a 
result of the COVID-emergency 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.
---------------------------------------------------------------------------

    \61\ 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).
    \62\ 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 (Updated June 16, 2020), 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).
---------------------------------------------------------------------------

    As of April 2021, there were still an estimated 1.9 million 
borrowers in forbearance programs who were more than 90 days behind on 
their mortgage payments.\63\ While the national delinquency rate fell 
to 4.66 percent in April, it remains about 1.5 percent above its pre-
pandemic level.\64\
---------------------------------------------------------------------------

    \63\ Supra note 7 (1.77 million 90-day delinquencies plus 153k 
active foreclosures).
    \64\ Id. at 3.
---------------------------------------------------------------------------

    The Bureau remains focused on borrowers who might be at heightened 
risk of avoidable foreclosure. The Bureau issued on May 4, 2021, a 
research brief titled, Characteristics of Mortgage Borrowers During the 
COVID-19 Pandemic, which showed that some borrowers and communities are 
more at risk than others. The data from the brief showed that borrowers 
in forbearance or delinquent are disproportionately Black and 
Hispanic.\65\ For example, 33 percent of borrowers in forbearance (and 
27 percent of delinquent borrowers) are Black or Hispanic, while only 
18 percent of the total population of mortgage borrowers are Black or 
Hispanic.\66\
---------------------------------------------------------------------------

    \65\ CFPB Mortgage Borrower Pandemic Report, supra note 5.
    \66\ Id.
---------------------------------------------------------------------------

    Forbearance and delinquency are significantly more common in 
communities of color (defined as majority minority census tracts) and 
lower-income communities (defined by census tract income 
quartiles).\67\ If borrowers are displaced from their homes as a result 
of avoidable foreclosure, it will make homeownership more unattainable 
in the future, thus potentially widening the wealth divide for this 
population of borrowers.
---------------------------------------------------------------------------

    \67\ Id.
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H. Borrower and Servicer Engagement During the Pandemic

    The Bureau is closely monitoring mortgage servicers to determine 
how they are working with borrowers to achieve positive outcomes for 
borrowers during the current crisis.
    Among other things, the Bureau has utilized its supervisory 
authority to obtain current information about servicer activities. For 
example, in May of 2020, the Bureau began conducting high-level 
Prioritized Assessments (PA) in response to the pandemic.\68\ The PAs 
were designed to obtain real-time information from an expanded group of 
supervised entities that operate in markets posing elevated risk of 
consumer harm due to pandemic-related issues. The Bureau, through its 
supervision program, analyzed pandemic-related market developments to 
determine where issues were most likely to pose risk to consumers. 
Supervision currently is conducting follow-up on the issues covered in 
the 2020 Prioritized Assessments as well as the current issues related 
to economic hardships consumers are facing in the ongoing pandemic. 
This work may be conducted as part of ongoing monitoring, in a 
supervisory inquiry apart from a scheduled examination, in a scheduled 
examination, or in some cases, through enforcement. For example, 
Supervision is reviewing instances where servicers did not implement 
the CARES Act properly, such as charging fees that are not charged if 
the borrower made all contractual payments on time, failing to process 
CARES Act forbearances where borrowers made proper requests for the 
forbearances, or failing to comply with the Fair Credit Reporting Act's 
requirements to report the credit obligation or account appropriately. 
Supervision is conducting oversight to ensure these servicers take 
timely action to reverse fees, provide full remediation to affected 
borrowers, and implement processes to promote compliance moving 
forward.
---------------------------------------------------------------------------

    \68\ 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.
---------------------------------------------------------------------------

    In March 2021, the volume of overall mortgage complaints to the 
Bureau increased to more than 3,400 complaints, the greatest monthly 
mortgage complaint volume since April 2018.\69\ Mortgage complaints 
mentioning forbearance or related terms peaked in April 2020. Since 
this initial spike and subsequent decrease in May and June 2020, the 
volume of mortgage forbearance complaints remained steady

[[Page 34854]]

until increasing again in March 2021. The number of borrowers selecting 
the struggling to pay mortgage issue increased in March and April 2020. 
That number decreased in the following months. It increased again in 
2021 but has only just regained pre-pandemic levels.\70\ The Bureau is 
continuing to monitor complaint data about mortgage servicers.
---------------------------------------------------------------------------

    \69\ Bureau of Consumer Fin. Prot., Complaint Bulletin: Mortgage 
forbearance issues described in consumer complaints (May 2021), 
https://files.consumerfinance.gov/f/documents/cfpb_mortgage-forbearance-issues_complaint-bulletin_2021-05.pdf.
    \70\ Id.
---------------------------------------------------------------------------

    The Bureau encourages servicers to use all available tools to reach 
struggling homeowners and to do so in advance of the end of the 
forbearance period and expects servicers to handle inquiries promptly, 
to evaluate income fairly, and to work with borrowers throughout the 
loss mitigation process.

III. Summary of the Rulemaking Process

    On April 5, 2021, the Bureau issued a proposed rule to encourage 
servicers and borrowers to work together on loss mitigation before the 
servicer can initiate the foreclosure process. The comment period 
closed on May 10, 2021.
    In response to the proposal, the Bureau received over 200 comments 
from individual consumers, consumer advocate commenters, State 
Attorneys General, industry, and others. Many commenters expressed 
general support for the proposed rule, articulating, for example, the 
importance of providing clear and consistent information to delinquent 
borrowers about all of their options. Some commenters expressed general 
support for the proposed rule and stated that they believed the 
proposal would give time for borrowers to recover economically and 
explore loss mitigation options to avoid foreclosure. Some commenters 
expressed concern about the proposal generally, citing, for example, 
the proposal's potential economic impact on the housing market and 
specific industries. The Bureau also received requests from commenters 
to alter, clarify, or remove specific provisions of the proposed rule, 
with some focusing on issues relating to current industry practices and 
capacity and some highlighting the need to ensure consumers have the 
best information and resources available to them at the most 
appropriate times. As discussed in more detail below, the Bureau has 
considered comments that address issues within the scope of the 
proposed rule in adopting this final rule.
    In addition, some commenters expressed the view that the statement 
that the Bureau, along with other Federal and State agencies, issued on 
April 3, 2020 (Joint Statement), and that announced certain supervisory 
and enforcement flexibility for mortgage servicers in light of the 
national emergency \71\ may undermine the proposed amendments and urged 
the Bureau to revoke the Joint Statement. The Joint Statement provides 
that the agencies do not intend to take supervisory or enforcement 
action against servicers for specified delays in sending certain 
notices and taking certain actions required by Regulation X. The Joint 
Statement merely expresses the agencies' intent regarding enforcement 
and supervision priorities and does not alter existing legal 
requirements, including a borrower's private right of action under 
Sec.  1024.41. The Bureau also issued FAQs on April 3, 2020 as a 
companion to the Joint Statement to provide mortgage servicers with 
enhanced clarity about existing flexibility in the mortgage servicing 
rules that they can use to help consumers during the COVID-19 
pandemic.\72\ Those FAQs state unequivocally that servicers must comply 
with Regulation X during the COVID-19 pandemic emergency.
---------------------------------------------------------------------------

    \71\ 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.
    \72\ 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.
---------------------------------------------------------------------------

    In addition, the Bureau recently released a Compliance Bulletin and 
Policy Guidance (Bulletin) announcing the Bureau's supervision and 
enforcement priorities regarding housing insecurity in light of 
heightened risks to consumers needing loss mitigation assistance in the 
coming months as the COVID-19 foreclosure moratoriums and forbearances 
end.\73\ The Bureau specified that the Bureau intends to continue to 
evaluate servicer activity consistent with the Joint Statement, 
provided servicers are demonstrating effectiveness in helping 
consumers, in accord with the Bulletin.\74\ The Bulletin makes clear 
that the Bureau intends to consider a servicer's overall effectiveness 
in communicating clearly with consumers, effectively managing borrower 
requests for assistance, promoting loss mitigation, and ultimately 
reducing avoidable foreclosures and foreclosure-related costs. It 
reiterates that the Bureau intends to hold mortgage servicers 
accountable for complying with Regulation X with the aim of ensuring 
that homeowners have the opportunity to be evaluated for loss 
mitigation before the initiation of foreclosure.
---------------------------------------------------------------------------

    \73\ 86 FR 17897 (Apr. 7, 2021).
    \74\ News Release, Bureau of Consumer Fin. Prot., CFPB 
Compliance Bulletin Warns Mortgage Servicers: Unprepared is 
Unacceptable (Apr. 21, 2021), https://www.consumerfinance.gov/about-us/newsroom/cfpb-compliance-bulletin-warns-mortgage-servicers-unprepared-is-unacceptable/.
---------------------------------------------------------------------------

    The Bureau believes that the flexibility provided in the Joint 
Statement and the clarity provided by the FAQs enable servicers to 
provide borrowers with timely assistance. The Bulletin reinforces the 
Bureau's expectation that all borrowers are treated fairly and have the 
opportunity to get the assistance they need. The Bureau believes that 
these statements of supervisory and enforcement policy are consistent 
with the final rule. The Bureau will continue to engage in supervisory 
and enforcement activity to ensure that mortgage servicers are meeting 
the Bureau's expectations regarding the provision of effective 
assistance to borrowers and prevention of avoidable foreclosures.

IV. Legal Authority

    The Bureau is finalizing this rule pursuant to its authority under 
RESPA and the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act),\75\ including the authorities, discussed below. The 
Bureau is issuing this final rule in reliance on the same authority 
relied on in adopting the relevant provisions of the 2013 RESPA 
Servicing Final Rule,\76\ as discussed in detail in the Legal Authority 
and Section-by-Section Analysis of the 2013 RESPA Servicing Final Rule.
---------------------------------------------------------------------------

    \75\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \76\ 2013 RESPA Servicing Final Rule, supra note 11.
---------------------------------------------------------------------------

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

[[Page 34855]]

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 
final 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. Such a large wave of borrowers could 
overwhelm servicers, potentially straining servicer capacity and 
resulting in delays or errors in processing loss mitigation 
requests.\77\ These strains on servicer capacity coupled with potential 
fiduciary obligations to foreclose could result in some servicers 
failing to meet required timeline and accuracy obligations as well as 
other obligations under the existing rule with resulting harm to 
borrowers.
---------------------------------------------------------------------------

    \77\ The Bureau recognizes that other Federal agencies may take 
steps to protect borrowers from avoidable foreclosures in the 
aftermath of the pandemic in light of the number of borrowers 
exiting forbearance and an associated increased need for loss 
mitigation assistance. The Bureau believes that these efforts would 
be focused on federally backed mortgage loans. In that event, the 
final rule may have less impact on those loans. Nevertheless, even 
in that circumstance, the Bureau believes that the rule is necessary 
to serve the purposes of RESPA with respect to private mortgage 
loans.
---------------------------------------------------------------------------

    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 
provide new procedural safeguards. The interventions aim to help 
borrowers understand their options and 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. 
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.
    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). Accordingly, in developing the final rule under Dodd-Frank Act 
section 1032(a), the Bureau has considered available studies, reports, 
and other evidence about consumer awareness, understanding of, and 
responses to disclosures or communications about the risks, costs, and 
benefits of consumer financial products or services.\78\
---------------------------------------------------------------------------

    \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 and 
solicited comment on available evidence. No commenters provided 
additional evidence. However, previous research demonstrates that 
prolonged or excessive stress can impair decision-making and may be 
associated with reduced cognitive control, including in financial 
contexts. See, e.g., Katrin Starcke & Matthias Brand, Effects of 
stress on decisions under uncertainty: A meta-analysis, 142 Psych. 
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. Psych. 
& 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, the 
Bureau's assessment of the 2013 RESPA Servicing Final Rule in 2019 
analyzed the effects of the early intervention disclosures and found 
that after the effective date of the early intervention 
requirements, delinquent borrowers were somewhat more likely than 
they were pre-Rule to start applying for loss mitigation earlier in 
delinquency. 2013 RESPA Servicing Rule Assessment Report, supra note 
11, at 113.
---------------------------------------------------------------------------

    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.

V. Section-by-Section Analysis

Section 1024.31 Definitions

COVID-19-Related Hardship
    The Bureau proposed to define a new term, ``a COVID-19-related 
hardship,'' for purposes of subpart C. The proposal defined 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.

[[Page 34856]]

9056(a)(1)). The Bureau solicited comment on this proposed definition.
    A few commenters, including some industry commenters and 
individuals, stated that the definition was too broad and would include 
individuals with hardships that commenters alleged were not due to the 
COVID-19 emergency. Others urged the Bureau to adopt a definition that 
more precisely detailed the amount of financial loss sufficient to 
constitute a financial hardship.
    The Bureau declines to narrow the definition as requested. The 
Bureau modeled this definition after section 4022 of the CARES Act, 
which established the forbearance program made available for borrowers 
with federally backed mortgages. Servicers have utilized this 
definition since March 23, 2020 when the CARES Act took effect and have 
experience with its application. A new more tailored definition would 
be harder for servicers to implement before the rule takes effect.
    The Bureau also received a suggestion during its interagency 
consultation process that the Bureau should tie the definition to the 
national emergency itself rather than the national emergency as defined 
in section 4022 of the CARES Act because the covered period of section 
4022 of the CARES Act is undefined and the reference to that section 
may cause confusion. In addition, the March 13, 2020 national emergency 
referenced in section 4022 of the CARES Act was continued on February 
24, 2021.\79\ Even though the CARES Act section referenced in the 
proposal refers to the national emergency declared on March 13, 2020, 
it is possible that the lack of clarity about the covered period in 
section 4022 itself may create confusion. The Bureau is revising the 
definition for clarity.
---------------------------------------------------------------------------

    \79\ Presidential Action, The White House, Notice on the 
Continuation of the National Emergency Concerning the Coronavirus 
Disease 2019 (COVID-19) Pandemic (Feb. 24, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/notice-on-the-continuation-of-the-national-emergency-concerning-the-coronavirus-disease-2019-covid-19-pandemic/.
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    For the reasons discussed above, the Bureau is finalizing the 
definition of COVID-19-related hardship to mean a financial hardship 
due, directly or indirectly, to the national emergency for the COVID-19 
pandemic declared in Proclamation 9994 on March 13, 2020 (beginning on 
March 1,2020) and continued on February 24, 2021, in accordance with 
section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)).

Section 1024.39 Early Intervention

39(a) Live Contact
    Currently, Sec.  1024.39(a) provides that a servicer must 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 about the availability of loss 
mitigation options, if appropriate.\81\ Current comment 39(a)-4.i 
clarifies that the servicer has the discretion to determine whether it 
is appropriate to inform the borrower of loss mitigation options.\82\ 
Current comment 39(a)-4.ii, in part, clarifies that 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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    As discussed below in the section-by-section analysis of Sec.  
1024.39(e), the Bureau proposed to add temporary additional early 
intervention live contact requirements for servicers to provide 
specific information about forbearances and loss mitigation options 
during the COVID-19 emergency. The Bureau proposed conforming 
amendments to Sec.  1024.39(a) and related comments 39(a)-4-i and -ii 
\85\ to incorporate references to proposed Sec.  1024.39(e).
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    \85\ 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 final 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.
---------------------------------------------------------------------------

    As discussed in more detail below and in the section-by-section 
analysis for Sec.  1024.39(e), generally the comments received on 
proposed Sec.  1024.39(a) supported the changes to Sec.  1024.39(a) and 
(e). Among those comments, the Bureau received a couple of comments 
specific to the proposed amendments to Sec.  1024.39(a). A consumer 
advocate commenter suggested the Bureau should include additional 
amendments to Sec.  1024.39(a) commentary to further the goals of and 
properly incorporate proposed Sec.  1024.39(e). The commenter 
encouraged the Bureau to amend comment 39(a)-3, which addresses good 
faith efforts to establish live contact, in light of proposed Sec.  
1024.39(e). They also encouraged the Bureau to further amend comment 
39(a)-4.ii, which clarifies when the servicer must promptly inform a 
borrower about the availability of loss mitigation options, to address 
when the written notice required under Sec.  1024.39(b)(2) may be an 
alternative for live contact during the period Sec.  1024.39(e) is 
effective. Additionally, an industry commenter discussed how Sec.  
1024.39(e) intersects with the guidance provided in existing comment 
39(a)-6, indicating that it felt the Bureau should not require Sec.  
1024.39(e) under the circumstances described in comment 39(a)-6.
    For the reasons discussed below, the Bureau is adopting the 
amendments to Sec.  1024.39(a) and commentary as proposed, with 
additional revisions to comments 39(a)-3 and 39(a)-6 to address certain 
suggestions raised by commenters or points of clarity, and to make 
certain conforming changes given the revisions to the foreclosure 
review period in Sec.  1024.41(f)(3). Currently, comment 39(a)-3 
clarifies that good faith efforts to establish live contact for 
purposes of Sec.  1024.39(a) consist of reasonable steps, under the 
circumstances, to reach a borrower. Those steps may depend on factors, 
such as the length of the borrower's delinquency, as well as the 
borrower's failure to respond to a servicer's repeated attempts at 
communication. The commentary provides examples illustrating these 
factors, including that good faith efforts to establish live contact 
with 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.
    Given the length of forbearance programs during the pandemic, the 
Bureau is revising comment 39(a)-3 to specify that if a borrower is in 
a

[[Page 34857]]

situation such that the additional live contact information is required 
under Sec.  1024.39(e) or if a servicer plans to rely on the temporary 
special COVID-19 loss mitigation procedural safeguards in Sec.  
1024.41(f)(3)(ii)(C)(1), servicers doing no more than including a 
sentence in written or electronic communications encouraging the 
borrower to establish live contact are not taking reasonable steps 
under the circumstances to make good faith efforts to establish live 
contact. When making good faith efforts to establish live contact with 
borrowers in the circumstances described in Sec.  1024.39(e), 
generally, reasonable steps to make good faith efforts to establish 
live contact must include telephoning the borrower on one or more 
occasion at a valid telephone number, although they can include sending 
written or electronic communications encouraging the borrower to 
establish live contact with the servicer, in addition to those 
telephone calls. While the Bureau believes that it should be apparent 
that if either Sec.  1024.39(e) or Sec.  1024.41(f)(3)(ii)(C) apply, 
these unique circumstances present factors that differ from the 
existing guidance in comment 39(a)-3 such that the example would not 
apply in those cases, the Bureau is persuaded that the revision is 
necessary to ensure clarity.
    The Bureau also believes this clarification as to good faith 
efforts is appropriate during the unique circumstances presented by the 
COVID-19 pandemic emergency. As discussed more fully in part II above, 
the Bureau estimates that a large number of borrowers will be more than 
a year behind on their mortgage payments, including those in 18-month 
forbearance programs, and many will have benefited from temporary 
foreclosure protections due to various State and Federal foreclosure 
moratoria. As explained in the proposal, to encourage these borrowers 
to obtain loss mitigation to prevent avoidable foreclosures and given 
the length of delinquency during these unique circumstances, the Bureau 
believes that additional efforts are necessary to reach borrowers at 
this time. Additionally, for the reasons discussed more fully in the 
section-by-section analysis of Sec.  1024.41(f)(3)(ii)(C), because 
compliance with Sec.  1024.39(a) during a certain timeframe is one of 
several temporary procedural safeguards that servicers may rely on to 
comply with the temporary special COVID-19 loss mitigation procedural 
safeguards in Sec.  1024.41(f)(3)(ii)(C), the Bureau has concluded that 
it must be explicitly clear that servicers are required to do more than 
provide a sentence encouraging unresponsive borrower contact to prove 
they have completed the temporary special COVID-19 loss mitigation 
procedural safeguards. To achieve the goals of Sec.  1024.39(e) 
discussed in the proposal to Regulation X and the goals of new Sec.  
1024.41(f)(3)(ii)(C), in these circumstances presented by the COVID-19 
pandemic, good faith efforts to establish live contact require a higher 
standard of conduct.
    For similar reasons, the Bureau is also amending comment 39(a)-6. 
As identified by a commenter, without revision, current comment 39(a)-6 
might be interpreted to allow for a lower standard of ongoing contact 
than is necessary to assist borrowers in these circumstances. Existing 
comment 39(a)-6 says, in part, that if the servicer has established and 
is maintaining ongoing contact with the borrower under the loss 
mitigation procedures under Sec.  1024.41, the servicer complies with 
Sec.  1024.39(a) and need not otherwise establish or make good faith 
efforts to establish live contact. The Bureau is revising this comment 
to add that if a borrower is in a situation such that the additional 
live contact information is required under Sec.  1024.39(e) or if a 
servicer plans to rely on the temporary special COVID-19 loss 
mitigation procedural safeguards in Sec.  1024.41(f)(3)(ii)(C)(1), then 
certain loss mitigation related communications alone are not enough for 
compliance with Sec.  1024.39(a). The Bureau is revising the comment to 
specify that, in these circumstances, the servicer is not maintaining 
ongoing contact with the borrower under the loss mitigation procedures 
under Sec.  1024.41 in a way that would comply with Sec.  1024.39(a) if 
the servicer has only sent the notices required by Sec.  
1024.41(b)(2)(i)(B) and Sec.  1024.41(c)(2)(iii) and has had no further 
ongoing contact with the borrower concerning the borrower's loss 
mitigation application.
    As discussed above, the Bureau believes this higher standard of 
conduct, which it notes some servicers are already holding themselves 
to, is necessary under the current circumstances presented by COVID-19 
emergency to help ensure that additional efforts are taken to reach 
delinquent borrowers, including those that are unresponsive. In line 
with the goals discussed in the proposal for Sec.  1024.39(e), the 
Bureau believes this revision will help clarify and ensure that 
borrowers in these circumstances are receiving ongoing communication 
about loss mitigation options, whether it be through live contact 
communications or through completion of a loss mitigation application 
and reasonable diligence requirements. The Bureau believes this 
revision will help to prevent instances where borrowers miss 
opportunities to submit loss mitigation applications because they only 
receive loss mitigation information at the beginning of their 
forbearance program, and no other contact until foreclosure is 
imminent. However, the Bureau is not removing this guidance altogether. 
As discussed by the commenter and explained in the 2014 RESPA Servicing 
Proposed Rule \86\, the Bureau believes when done properly, established 
and ongoing loss mitigation communication that is maintained can work 
as well as live contact to encourage and help borrowers file loss 
mitigation applications earlier in the forbearance program or 
delinquency, timing which is beneficial to both the servicer and the 
borrower under the current circumstances.
---------------------------------------------------------------------------

    \86\ 79 FR 74175, 74199-74200 (Dec. 15, 2014).
---------------------------------------------------------------------------

    The Bureau is not further revising comment 39(a)-4.ii as suggested 
by a consumer advocate commenter. Comment 39(a)-4.ii provides, in part, 
that, 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. The existing requirement in Sec.  1024.39(a) 
to inform a borrower about the availability of loss mitigation options 
that this comment references is separate from the new information 
requirements in Sec.  1024.39(e). Nothing in the existing rule would 
prevent compliance with both the option to inform these borrowers about 
the availability of loss mitigation options as provided in comment 
39(a)-4.ii and the requirement to provide these borrowers the specified 
additional information in Sec.  1024.39(e) promptly after establishing 
live contact.
39(e) Temporary COVID-19-Related Live Contact
    As discussed more fully above in the section-by-section analysis of 
Sec.  1024.39(a), currently, a servicer must 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.\87\ Promptly after establishing live contact, the servicer

[[Page 34858]]

must inform the borrower about the availability of loss mitigation 
options, if appropriate.\88\
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    \87\ 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).
    \88\ 12 CFR 1024.39(a).
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The Bureau's Proposal
    The Bureau proposed 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. These 
temporary requirements would have applied for one year after the 
effective date of the final rule. In general, proposed Sec.  
1024.39(e)(1) would have required servicers to ask whether borrowers 
not yet in a forbearance program at the time of the live contact were 
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, for 
borrowers in forbearance programs at the time of live contact, proposed 
Sec.  1024.39(e)(2) would have required servicers to 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 would need to take to be evaluated for such 
options during the last required live contact made before the end of 
the forbearance period. For the reasons discussed below, the Bureau is 
finalizing Sec.  1024.39(e) generally as proposed, with some revisions 
to address certain comments received, including revisions to the sunset 
date of this provision, adding a requirement to provide certain housing 
counselor information, revising the requirement that the servicer ask 
the borrower to assert a COVID-19-related hardship, and revising the 
applicable time period when the servicer must provide the additional 
information to borrowers who are in a forbearance program.
Comments Received
    In response to proposed Sec.  1024.39(e), the Bureau received 
comments from trade associations, financial institutions, consumer 
advocate commenters, government entities, and individuals. Some 
commenters opposed the provision entirely. A few industry commenters 
asserted the proposal was unnecessary, stating that servicers were 
already performing the proposed requirements and the proposal 
duplicated most GSE and FHA requirements. Additionally, a few industry 
commenters asserted that, instead of adding Sec.  1024.39(e), the 
Bureau should rely on existing Sec.  1024.39(a) requirements and 
provide COVID-19-specific examples in the commentary to explain how 
those provisions apply under the current circumstances.
    However, in general, a majority of commenters that addressed 
proposed Sec.  1024.39(e) supported the proposed amendments. Some 
industry commenters provided general support. Other commenters, 
industry and otherwise, supported proposed Sec.  1024.39(e) but 
requested certain revisions. Below is a discussion of comments received 
on the overall proposed requirements in Sec.  1024.39(e). See the 
section-by-section analyses of Sec.  1024.39(e)(1) and (2) for a 
discussion of comments received relating to each of those specific 
proposed provisions.
    Concerns about balancing borrower access to information and 
servicer discretion. Several commenters discussed how proposed Sec.  
1024.39(e) would affect the balance between borrower access to 
information as they make loss mitigation decisions and servicer 
discretion in how to facilitate borrower understanding and prevent 
confusion. Several industry commenters and trade groups expressed the 
desire that the Bureau continue to provide servicers with discretion as 
to which forbearance options and other loss mitigation options are 
listed and described to borrowers promptly after live contact is 
established, even as it applies to the information required under Sec.  
1024.39(e). The commenters expressed concern that if servicers provided 
information about all available forbearance options or other loss 
mitigation options, it may be overwhelming. Additionally, those 
commenters indicated that providing information about all available 
forbearance options and loss mitigation options may cause borrower 
frustration during the loss mitigation application process. For 
example, commenters asserted that, while certain loss mitigation 
options may be available, review processes, such as investor 
``waterfall'' requirements, may mean not all available options are 
offered to the borrower. Further, the commenters indicated eligibility 
and availability of forbearance options and other loss mitigation 
options may change after the live contact, particularly if the borrower 
is on the cusp of certain criteria, such as delinquency length, at the 
time of the live contact.
    In contrast, several consumer advocate commenters and an industry 
commenter indicated that borrowers would benefit from receiving a list 
and brief description of all available forbearance options and other 
loss mitigation options during early intervention and requested that 
the Bureau require additional information in some cases. For example, a 
couple of commenters asserted that, not only should servicers be 
required to provide all forbearance and loss mitigation options 
available to the borrower, they should also be required to provide all 
possible forbearance and loss mitigation options, regardless of 
availability to the borrower. The commenters that supported requiring 
servicers to provide all available forbearance options and other loss 
mitigation options during early intervention cited concerns that 
servicer staff may not be properly trained to accurately identify which 
loss mitigation options are appropriate for the borrower, and provided 
qualitative evidence of servicer staff providing inaccurate forbearance 
and other loss mitigation information. These commenters also indicated 
that unless borrowers receive information about all available loss 
mitigation options, if not all loss mitigation options, they may not 
have all necessary information to determine and advocate for the best 
loss mitigation solution for their particular situation.
    Both sets of comments reiterate concerns discussed in the section-
by-section analysis of proposed Sec.  1024.39(e). The Bureau is aware 
of evidence supporting assertions that some servicers are providing 
consistent and accurate information, but also evidence that some 
borrowers are not receiving consistent and accurate information as they 
seek loss mitigation assistance during the pandemic.\89\ The Bureau is 
not persuaded that providing the borrower with information on all 
possible loss mitigation options, regardless of whether those options 
are available to the borrower, is beneficial. The Bureau agrees that it 
is essential at this time to provide the borrower with as much loss 
mitigation information as possible to support borrowers in their 
decisions as to how to address their delinquency in a way that is best 
for their situation. Nevertheless, the Bureau believes providing all 
possible loss mitigation options, even those that are not applicable to 
the borrower, would increase borrower confusion.
---------------------------------------------------------------------------

    \89\ 86 FR 18840 at 18851 (Apr. 9, 2021).
---------------------------------------------------------------------------

    However, the Bureau is also not persuaded that allowing complete 
servicer discretion as to which, if any, specific loss mitigation 
options are discussed is sufficient in the current crisis. The concerns 
about servicers sometimes providing inconsistent and inaccurate 
information during this

[[Page 34859]]

critical period for loss mitigation assistance seem only more likely to 
continue or increase as the expected volume of borrowers needing the 
assistance increases. Further, the anticipated forthcoming expiration 
of many COVID-19-related programs may also contribute to these 
concerns, as fast-paced or frequent changes in loss mitigation program 
availability or criteria have been noted to cause some consistency and 
accuracy issues with some servicers. For these reasons, the Bureau 
concludes that the information required under final Sec.  1024.39(e)(1) 
and (2), as discussed in more detail in the section-by-section analyses 
of those provisions below, strikes the correct balance during of the 
pandemic.
    Require information in a written disclosure. Certain consumer 
advocate commenters, industry commenters, and State government 
commenters requested the Bureau consider requiring new written 
disclosures as part of the proposed early intervention amendments. A 
consumer advocate commenter and a State government group suggested the 
Bureau require the additional content in proposed Sec.  1024.39(e) to 
be provided in a written notice or added to the existing 45-day written 
notice requirements in Sec.  1024.39(b). An industry group and a State 
government group suggested that the Bureau add written pre-foreclosure 
notice requirements, similar to those in New York, Iowa, and 
Washington.
    The Bureau is not finalizing any new written disclosures or 
amendments to existing written disclosure requirements. Given the 
expedited timeframe and urgent necessity for this rulemaking, there is 
not sufficient time to complete consumer testing to help ensure any new 
or updated required disclosures would sufficiently assist borrowers, 
rather than contributing to any confusion. Additionally, the Bureau 
believes adding new written disclosure requirements at this time could 
be harmful to borrowers during the unique circumstances presented by 
the COVID-19 emergency, as servicers would need to spend time and 
resources implementing those disclosures, rather than focusing their 
time and resources on assisting borrowers quickly. Given the upcoming 
expected surge in borrowers exiting forbearance, the Bureau believes 
those resources are better spent assisting borrowers. The Bureau notes 
that nothing in the rule prevents servicers from listing and briefly 
describing specific loss mitigation options available to the borrower 
in the existing 45-day written notice or from adding any additional 
information to the notice.\90\ In addition, the rule does not prevent a 
servicer from following-up on its live contact with specific 
information in a written communication.\91\
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    \90\ Comment 39(b)(1)-1 states, in part, that a servicer may 
provide additional information that the servicer determines would be 
helpful.
    \91\ For example, comment 39(a)-4.ii states, in part, that a 
servicer may inform borrowers about the availability of loss 
mitigation options orally, in writing, or through electronic 
communication promptly after the servicer establishes live contact.
---------------------------------------------------------------------------

    Require provision of HUD homeownership counselors or counseling 
organizations list. Several consumer advocate commenters and State 
Attorneys General commenters suggested the Bureau should require 
servicers to provide information to borrowers about the Department of 
Housing and Urban Development (HUD) homeownership counseling as part of 
the additional information required by proposed Sec.  1024.39(e). 
Commenters stated that homeownership counselors are often able to 
assist borrowers that mistrust their servicer, or have difficulty 
understanding their options or how to submit a loss mitigation 
application.
    The Bureau is persuaded that some borrowers may benefit from 
homeownership counselor assistance during the pandemic. However, given 
commenter concerns about the amount of information required by Sec.  
1024.39(e) that servicers must convey promptly after establishing a 
live contact, the Bureau does not believe provision of detailed 
homeownership counselor contact information during the live contact 
would be beneficial to borrowers in these circumstances. Instead, the 
Bureau is persuaded that borrowers may benefit from a reference to 
where they can access homeownership counselor contact information. 
Thus, as discussed more fully in the section-by-section analyses of 
Sec.  1024.39(e)(1) and (2), the Bureau is adding a requirement that 
the servicer must identify at least one way that the borrower can find 
contact information for homeownership counseling services, such as 
referencing the borrower's periodic statement. Other examples servicers 
may choose to reference include, for example, the Bureau's website, 
HUD's website, or the 45-day written notice required by Sec.  
1024.39(b), but the servicer need only include one reference. By 
requiring that servicers identify at least one way that the borrower 
can find contact information for homeownership counseling services, the 
Bureau believes it will remind borrowers, especially those who believe 
they would benefit from homeownership counselor assistance, of where 
this information is located and how they may access it. Additionally, 
this requirement may help address concerns about servicer resource 
capacity, as discussed in the proposal, given that homeownership 
counselors can help answer borrower's questions regarding their loss 
mitigation options. The Bureau notes that servicers are already 
required to provide certain information about homeownership counseling 
to borrowers,\92\ and that servicers may comply with this provision by 
referencing existing disclosures, further minimizing servicer burden.
---------------------------------------------------------------------------

    \92\ See, e.g., 12 CFR 1026.41(d)(7)(v).
---------------------------------------------------------------------------

    Exempt federally backed mortgages. One industry trade group 
requested the Bureau exempt ``federally backed'' mortgage loans from 
proposed Sec.  1024.39(e). The commenter indicated that these mortgages 
are already subject to Federal investor or other Federal guarantor 
requirements that are similar to or more extensive than those proposed.
    The Bureau is not persuaded that exempting federally backed 
mortgages from the Sec.  1024.39(e) requirements is necessary. The 
Bureau believes final Sec.  1024.39(e) does not conflict with GSE or 
FHA requirements and does not add additional burdens on servicers of 
those loans. Further, the Bureau also believes exempting federally 
backed mortgages from this provision may add unnecessary implementation 
complexity that may affect the ability of servicers to provide critical 
assistance to borrowers at this time.
    Require translation for limited English proficiency borrowers. A 
consumer advocate commenter and a State Attorney General commenter 
advocated for adding a translation requirement to proposed Sec.  
1024.39(e) to assist limited English proficiency borrowers. The Bureau 
is not revising Sec.  1024.39(e) to require translation for limited 
English proficiency borrowers. In the interest of issuing the final 
rule on an expedited basis to bring relief as soon as possible to the 
largest number of borrowers, the Bureau did not undertake to 
incorporate a requirement to provide disclosures in languages other 
than English or to incorporate model forms in other languages. This 
does not mean the Bureau will or will not take that step in a future 
rulemaking. Additionally, Regulation X permits servicers to provide 
disclosures in languages other than English.\93\ The Bureau both 
permits and encourages servicers to ascertain the language preference 
of their borrowers, when done in a legal manner

[[Page 34860]]

and without violating the Equal Credit Opportunity Act or Regulation B, 
to be responsive to borrower needs during this critical time for 
borrower communication.\94\ The Bureau will be providing on its website 
a Spanish language translation of Appendix MS-4 of Regulation X that 
servicers may use, as permitted by applicable law.
---------------------------------------------------------------------------

    \93\ See 12 CFR 1024.32(a)(2).
    \94\ See Bureau of Fin. Prot., Statement Regarding the Provision 
of Financial Products and Services to Consumers with Limited English 
Proficiency (Jan. 13, 2021), https://www.consumerfinance.gov/rules-policy/notice-opportunities-comment/open-notices/statement-regarding-the-provision-of-financial-products-and-services-to-consumers-with-limited-english-proficiency/; 86 FR 6306 (Jan. 13, 
2021). See also 82 FR 55810 (Nov. 20, 2017).
---------------------------------------------------------------------------

    Electronic media use for live contacts. A consumer advocate 
commenter and State Attorney General commenter requested the Bureau 
provide guidance about which electronic communication media satisfy the 
live contact requirements. The Bureau has previously declined to 
require or explicitly permit certain methods of electronic media for 
required communications under the mortgage servicing rules, stating it 
believes it would be most effective to address the use of such media 
after further study and outreach to enable the Bureau to develop 
principles or standards that would be appropriate on an industry-wide 
basis.\95\ Similarly now, the Bureau is not finalizing language in the 
rule to discuss specific electronic media use for early intervention 
live contact requirements, but notes that certain electronic media, 
such as live chat functions, can, in certain circumstances, be compared 
to telephone or in-person conversations that are permitted as live 
contact under the rule.
---------------------------------------------------------------------------

    \95\ See, e.g., 78 FR 10695, 10745 (Feb. 14, 2013) (discussing 
the suggestion to require establishing electronic portals for intake 
of notices of error under Sec.  1024.35(c)).
---------------------------------------------------------------------------

    Sunset date. A few commenters discussed the sunset date for 
proposed Sec.  1024.39(e). These commenters generally supported having 
a sunset date. However, they differed about whether the proposed August 
31, 2022 sunset date was the appropriate choice. A government commenter 
and an industry commenter supported the existing sunset date, 
suggesting it was long enough, with one indicating it should not be 
shortened. Conversely, another industry commenter asserted the proposed 
sunset date conflicted with certain existing GSE requirements and 
requested the sunset date correlate with the emergency declaration or 
COVID-19-related forbearance program end dates. The Bureau also 
received a suggestion during its interagency consultation process to 
revise the sunset date to June 30, 2022, the anticipated end date of 
certain Federal COVID-19-related forbearance programs.
    The Bureau is persuaded a sunset date for Sec.  1024.39(e) is 
appropriate and provides servicers with certainty as to how long they 
are required to provide the additional information during live 
contacts. However, the Bureau is revising the sunset date to better 
align with the pandemic, rather than the effective date of this final 
rule. The Bureau is persuaded that aligning the sunset of Sec.  
1024.39(e) more closely to the pandemic is necessary to prevent 
conflicts between Sec.  1024.39(e) and pandemic-related investor or 
guarantor requirements, such as those related to additional 
communications and loss mitigation options.
    As such, Sec.  1024.39(e) will sunset on October 1, 2022. The 
Bureau anticipates that COVID-19-related forbearance programs will be 
offered through at least September 30, 2021, and anticipates that most 
borrowers utilizing the full 360 days offered under the CARES Act will 
exit forbearance by September 30, 2022. Once COVID-19-related 
forbearance programs expire and borrowers exit the applicable 
forbearance programs, the circumstances that warranted the additional 
information in Sec.  1024.39(e) will no longer apply. The Bureau 
anticipates that will occur sometime after September 30, 2022, but 
there is significant uncertainty about exactly when such programs will 
expire. Taking that uncertainty into consideration, to best ensure a 
sufficient period of coverage, the Bureau concludes that it is 
appropriate to extend the proposed sunset date. The Bureau notes that 
the final sunset date will align with the mandatory compliance date for 
the final rule titled Qualified Mortgage Definition under the Truth in 
Lending Act (Regulation Z): General QM Loan Definition (General QM 
Final Rule). The Bureau recently extended, that mandatory compliance 
date, in part, to preserve flexibility for consumers affected by the 
COVID-19 pandemic and its economic effects. As similarly noted in that 
rule, the Bureau will continue to monitor for any unanticipated effects 
of the COVID-19 pandemic on market conditions to determine if future 
changes are warranted.
    While commenters suggested the Bureau could tie the sunset date to 
the end of these loss mitigation programs, the Bureau believes that, 
because investors and guarantors may differ as to when their respective 
pandemic-related requirements will expire, it will simplify compliance 
for the requirements to sunset on a universal date. The Bureau believes 
this change to the sunset date will address comments indicating the 
proposed date conflicted with guidance from other agencies. 
Additionally, the Bureau believes this change will address commenter 
concerns that the provision should sunset with the circumstances of the 
pandemic. Further, the Bureau believes this time period is necessary to 
allow servicers to reach most borrowers. While, as discussed above in 
part II, the anticipated surge and largest amount of strain on servicer 
resources is expect to begin to decline after January 1, 2022, the 
volume of borrowers expected to exit forbearance each month will remain 
high beyond that date and the unique circumstances of the pandemic, 
including the unusually long delinquencies, will persist. The Bureau 
concludes the sunset date for Sec.  1024.39(e) must cover both the 
expiration of COVID-19-related forbearance programs, which would be 
relevant for the requirements for Sec.  1024.39(e)(1), and also 
borrowers exiting COVID-19-related forbearance programs who entered on 
the last possible day and utilized a full 12 months of forbearance, 
which would be relevant for the requirements in Sec.  1024.39(e)(2). To 
cover both groups of borrowers, and particularly to reach all borrowers 
exiting the relevant forbearance programs discussed in Sec.  
1024.39(e), the Bureau believes it is necessary to extend this 
provision beyond the anticipated surge of borrowers existing 
forbearance, unlike other provisions in this rule.
Final Rule
    As discussed in more detail in the section-by-section analyses of 
Sec.  1024.39(e)(1) and (2) below, the Bureau is finalizing Sec.  
1024.39(e) generally as proposed, with some revisions to address 
certain comments received, including revisions to the sunset date of 
this provision, adding a requirement to provide certain homeownership 
counseling information, revising the requirement that the servicer ask 
the borrower to assert a COVID-19-related hardship, and revising the 
applicable time period when the servicer must provide the additional 
information to borrowers who are in a forbearance program. The Bureau 
believes the addition of Sec.  1024.39(e) will help encourage and 
support borrowers in seeking available loss mitigation assistance 
during this unprecedented time. Section 1024.39(e) temporarily requires 
servicers to provide specific additional information to certain 
delinquent borrowers promptly after establishing live contact.

[[Page 34861]]

As revised, the requirements apply until October 1, 2022.
    The Bureau notes that this final rule does not change the scope of 
any current live contact requirements more generally under Sec.  
1024.39(a). Thus, the Bureau reiterates that Sec.  1024.39(e) does not 
apply if the borrower is current. The Bureau also notes that nothing in 
the rule prevents a servicer from providing additional information than 
what is required under the rule to borrowers about forbearance programs 
or other loss mitigation programs. For example, if the forbearance 
program may end soon after the live contact is established, has certain 
eligibility criteria, or is subject to investor ``waterfall'' review 
procedures, a servicer may choose to discuss that information with the 
borrower to attempt to prevent confusion.
    Additionally, both Sec.  1024.39(e)(1) and (2) require servicers to 
provide a list of forbearance programs or loss mitigation programs made 
available by the owner or assignee of the borrower's mortgage loan to 
borrowers experiencing a COVID-19-related hardship. The list of 
forbearance programs is limited to only those that are available at the 
time the live contact is established. The Bureau has added language to 
both sections to clarify this timing limitation. If a forbearance 
program or loss mitigation program is no longer available at the time 
of the live contact, the servicer need not include that forbearance 
program or loss mitigation program in the list.
    If a borrower's COVID-19-related hardship would not meet applicable 
eligibility criteria for a forbearance program or a loss mitigation 
program, the servicer also need not include that in the lists required 
by Sec.  1024.39(e)(1) or (2). However, the Bureau reiterates that the 
required information under Sec.  1024.39(e) is not limited to 
forbearance programs or loss mitigation programs specific to COVID-19 
or only available during the COVID-19 emergency. The servicer must 
provide information about COVID-19-specific programs, as well as any 
generally available programs where COVID-19-related hardships are 
sufficient to meet the hardship-related requirements for the program. 
Further, the servicer must inform the borrower about program options 
made available by the owner or assignee of the borrower's mortgage loan 
regardless of whether the option is available based on a complete loss 
mitigation application, an incomplete application, or no application, 
to the extent permitted by this rule. Finally, the existing rule 
provides guidance as to what constitutes a brief description and the 
steps the borrower must take to be evaluated for loss mitigation 
options.\96\
---------------------------------------------------------------------------

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

39(e)(1)
The Bureau's Proposal
    Proposed Sec.  1024.39(e)(1) would have temporarily required 
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) would have required that the servicer ask if the borrower 
is experiencing a COVID-19-related hardship. If the borrower indicated 
they were experiencing a COVID-19-related hardship, proposed Sec.  
1024.39(e)(1) would have required 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 
would need to take to be evaluated for such forbearance programs. For 
the reasons discussed below, the Bureau is finalizing Sec.  
1024.39(e)(1) generally as proposed, with some revisions to address 
certain comments received, including removing the requirement that the 
servicer ask whether the borrower is experiencing a COVID-19-related 
hardship, and adding a requirement to provide certain housing counselor 
information.
Comments Received
    Commenters generally supported proposed Sec.  1024.39(e)(1). One 
industry commenter opposed this provision overall, asserting servicers 
were already performing the requirements proposed in Sec.  
1024.39(e)(1) and that adding new regulatory requirements at this time 
will further strain servicer capacity. Of those that supported the 
proposal, commenters generally suggested certain scope and content 
revisions, discussed below.
    Scope. Several commenters discussed which borrowers would benefit 
from proposed Sec.  1024.39(e)(1) requirements. A consumer advocate 
commenter and an individual supported the proposed requirement that the 
servicer ask the borrower to assert a COVID-19-related hardship. A 
consumer advocate commenter suggested that the requirements should 
instead apply to all delinquent borrowers not yet in forbearance, not 
just those that assert a COVID-19-related hardship. This comment 
asserted that requiring Sec.  1024.39(e)(1) information for all such 
delinquent borrowers removes the onus from borrowers to identify 
whether their hardship qualifies as COVID-19-related. A few industry 
commenters asserted that servicers should have discretion to determine 
whether the borrower has a COVID-19-related hardship, rather than 
asking the borrower. Further, as discussed above in the section-by-
section analysis for the definition of COVID-19-Related Hardship in 
Sec.  1024.31, commenters expressed concern about servicer and borrower 
understanding of the term and ability to accurately implement its use.
    The Bureau is persuaded it should remove the requirement that 
servicers ask borrowers whether they are experiencing a COVID-19-
related hardship, and instead require servicers to provide certain 
information under Sec.  1024.39(e)(1) to delinquent borrowers during 
the period the provision is effective unless the borrower asserts they 
are not interested. The Bureau indicated in the proposal that it was 
considering expanding this provision to all delinquent borrowers not in 
forbearance at the time live contact is established. As mentioned by 
commenters and in the proposal, borrowers may not know or may be more 
hesitant to assert that their hardship qualifies as a COVID-19-related 
hardship. This seems particularly applicable to the borrowers that have 
not yet obtained forbearance assistance. As discussed in the proposal, 
the Bureau believes these borrowers may not yet have taken advantage of 
the offered forbearance programs because they may be more hesitant to 
assert hardship, may not fully trust their ability to receive 
assistance, or may not understand whether their hardship is COVID-19-
related. By removing the requirement that borrowers take action to 
receive the information, and instead requiring that borrowers take 
action to be excluded, the rule helps to ensure that borrowers are not 
missing beneficial information due to any misunderstanding or 
hesitancy, reducing the likelihood that target borrowers may miss this 
important information.
    However, the Bureau is also persuaded by commenters that some 
delinquent borrowers may not benefit from receipt of this information. 
Thus, the final rule continues to provide a method for borrower-
initiated exclusion. Unlike the proposal, the final rule will require 
borrowers to state that they are uninterested in receiving information 
about the available forbearance programs. In doing so, the

[[Page 34862]]

Bureau continues to narrow the applicability of the provision to those 
borrowers most likely to be experiencing a COVID-19-related hardship, 
without requiring borrowers who are uncertain or hesitant to opt-in to 
receiving this information. The Bureau believes borrowers who are 
certain they do not have a COVID-19-related hardship are likely to 
assert they do not need the additional information in Sec.  
1024.39(e)(1). Borrowers that are certain they have a COVID-19-related 
hardship or are unsure will likely not take such action, unless they 
are uninterested forbearance program assistance. For those borrowers 
that are unsure, the Bureau believes that receiving this information 
likely will clarify whether their hardship qualifies as COVID-19-
related and will be beneficial even if ultimately the borrower does not 
meet the required hardship criteria. Further, the Bureau does not 
believe that requiring an assertion to be excluded, rather than an 
assertion to be included, is likely to increase the probability of 
borrower confusion. As with the proposal, the information seems equally 
likely to be received by only those borrowers that may have a COVID-19-
related hardship.
    Content. A few consumer advocate commenters indicated the Bureau 
should expand Sec.  1024.39(e)(1) to require servicers to inform the 
borrower of all possible or available loss mitigation options, not just 
the available forbearance options. The commenters assert that while 
forbearance may be beneficial for some borrowers, some delinquent 
borrowers may have stabilized their income and may be ready for more 
permanent loss mitigation options. The commenters also assert, as 
discussed above in the section-by-section analysis for Sec.  
1024.39(e), that borrowers may benefit from the knowledge of all 
possible loss mitigation options, rather than those options only 
available to them.
    The Bureau is not persuaded that the current unique circumstances 
presented by the COVID-19 emergency warrant requiring servicers to 
inform delinquent borrowers who are not yet in a forbearance program 
about all possible or available loss mitigation options. First, the 
Bureau is not persuaded that it would be beneficial to expand the 
content discussed to include options beyond forbearance programs. The 
Bureau believes that forbearance programs at this time are beneficial 
to delinquent borrowers, given they can provide borrowers with 
additional time to recover from their hardships, develop a financial 
plan, and apply for permanent loss mitigation. Additionally, limiting 
the required information to just forbearance options first can help 
prevent borrowers not yet in forbearance from becoming overwhelmed with 
information, a concern noted by commenters as discussed above. Further, 
the content required by Sec.  1024.39(e)(1) does not replace the 
existing live contact requirements in Sec.  1024.39(a), which require 
that, promptly after establishing live contact with a borrower, the 
servicer must inform the borrower about the availability of loss 
mitigation options, if appropriate. Thus, in some cases, it may be 
appropriate for servicers to inform certain borrowers, such as those 
who indicate that they have resolved their hardship, about the 
availability of additional loss mitigation options in addition to the 
information required in Sec.  1024.39(e)(1). Second, the Bureau is not 
persuaded that the options discussed should be all possible options, 
whether or not available to the borrower through the owner or assignee 
of the mortgage. The potential for increased borrower confusion or 
frustration outweighs any potential benefit this knowledge may provide 
the borrower.
Final Rule
    For the reasons discussed in this section and in more detail below, 
the Bureau is finalizing Sec.  1024.39(e)(1) generally as proposed with 
some revisions to address certain comments received. The Bureau 
believes Sec.  1024.39(e)(1), as revised, will help encourage borrowers 
not yet in forbearance to work with their servicer under these unique 
circumstances and avoid unnecessary foreclosures.
    For the reasons discussed above, the Bureau is revising Sec.  
1024.39(e)(1) to remove the requirement that servicers ask borrowers 
whether they are experiencing a COVID-19-related hardship before being 
providing the additional forbearance program information. Instead, the 
Bureau is finalizing Sec.  1024.39(e)(1) such that all delinquent 
borrowers not yet in forbearance at the time live contact is 
established will receive notification that forbearance programs are 
available by the owner or assignee of the borrowers' mortgage loan to 
borrowers experiencing COVID-19-related hardships. To provide this 
information, the servicer need not use the exact language in the 
regulation, and may find a more plain-language method, such as 
informing the borrower that there are forbearance programs available if 
they are having difficulty making their payments because of COVID-19. 
Unless the borrower states they are not interested, servicers are then 
required to provide a list and brief description of such forbearance 
programs, as well as the actions the borrower must take to be evaluated 
for such forbearance programs. In addition to the guidance discussed 
above in the section-by-section analysis for Sec.  1024.39(e) more 
generally, the Bureau notes that particular to Sec.  1024.39(e)(1), the 
forbearance programs that servicers must identify also include more 
than just short-term forbearance programs as defined in the mortgage 
servicing rules.\97\ Additionally, as discussed above, the Bureau is 
also requiring servicers to identify at least one way that the borrower 
can find contact information for homeownership counseling services, 
such as referencing the borrower's periodic statement.
---------------------------------------------------------------------------

    \97\ Existing Sec.  1024.41(c)(2)(iii) and comment 
41(c)(2)(iii)-1 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.
---------------------------------------------------------------------------

39(e)(2)
The Bureau's Proposal
    Proposed Sec.  1024.39(e)(2) would have temporarily required 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, it 
would have required the servicer to provide the borrower with the date 
the borrower's current forbearance program ends. Second, it would have 
required the servicer 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. It also would have required the 
servicer 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 have required 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. For the reasons discussed below, the Bureau 
is finalizing Sec.  1024.39(e)(2) generally as proposed, with some 
revisions to address certain comments received, including revising the 
timing for when this information is provided, and adding a requirement 
to provide certain housing counselor information.

[[Page 34863]]

Comments Received
    Commenters generally supported proposed Sec.  1024.39(e)(2). One 
industry commenter opposed this provision overall, asserting servicers 
were already performing the requirements proposed in Sec.  
1024.39(e)(2), and that adding new regulatory requirements at this time 
will further strain servicer capacity. Of those that supported the 
proposal, commenters generally suggested certain scope, content, and 
timing revisions, discussed below.
    Scope. A few commenters discussed the scope of Sec.  1024.39(e)(2). 
One individual commenter suggested the requirements in Sec.  
1024.39(e)(2) should apply to all delinquent borrowers during the time 
period, rather than just those in forbearance programs made available 
to borrowers experiencing a COVID-19-related hardship at the time of 
the live contact. A couple of industry commenters suggested the Bureau 
should exempt borrowers that voluntarily exit the forbearance program 
early.
    The Bureau is not persuaded that the current pandemic warrants 
expanding the scope of Sec.  1024.39(e)(2) to all delinquent borrowers. 
Delinquent borrowers not yet in forbearance will receive additional 
information under this final rule, as provided in Sec.  1024.39(e)(1). 
As discussed above, the Bureau is persuaded that providing such 
borrowers with forbearance information first provides additional time 
for borrowers to then seek loss mitigation assistance and develop a 
financial plan. Further, the Bureau notes that the requirements in 
Sec.  1024.39(e) are in addition to the existing requirement in Sec.  
1024.39(a). Thus, even if a delinquent borrower is not in forbearance 
at the time live contact is established, if appropriate, a servicer is 
already required to inform the borrower about the availability of loss 
mitigation options.
    The Bureau is also not persuaded that an exemption from Sec.  
1024.39(e)(2) is necessary for borrowers that exit forbearance programs 
early. First, Sec.  1024.39(e)(2), and Sec.  1024.39(a) more broadly, 
only apply to delinquent borrowers. It seems likely that if a borrower 
is voluntarily exiting forbearance early, it is because the borrower 
has the ability to bring the account current and the hardship has 
ended. If the borrower was current at the time the forbearance was 
scheduled to end, Sec.  1024.39(e)(2), as revised, would not apply 
because Sec.  1024.39(a) would not apply. If, however, a borrower 
exited forbearance early but remained delinquent, the Bureau believes 
that borrower would still benefit from the loss mitigation information 
required by Sec.  1024.39(e)(2) and thus, it should still apply.
    Content. Several consumer advocate commenters requested the Bureau 
require servicers to provide information to borrowers about all 
possible loss mitigation options, not just those that are available. 
These commenters supported the Bureau in limiting servicer discretion. 
Some indicated borrowers benefit from receiving information about all 
possible loss mitigation options, even if not applicable, because it 
allows borrowers to better identify mistakes in information they 
receive. The commenters also asserted that available loss mitigation 
options should include those that the borrower is eligible for even if 
the investor ``waterfall'' requirements may prevent the borrower from 
being offered a particular option. Conversely, feedback during an 
interagency consultation and a few industry commenters expressed 
concern about requiring servicers to provide all loss mitigation 
options available to the borrower. These commenters cited concerns 
about borrower confusion. They indicated that providing options that 
may not be available after review of the loss mitigation application 
due to investor ``waterfall'' requirements and changes in borrower 
eligibility after the live contact may confuse borrowers or make them 
believe they were provided with inaccurate information. Some of these 
commenters requested that the Bureau give servicers discretion to 
determine which loss mitigation options are appropriate for discussion, 
rather than listing all available loss mitigation options, or allow 
generalized statements that loss mitigation options are available.
    As discussed in the proposed rule and above in the section-by-
section analysis for Sec.  1024.39(e), the Bureau believes that 
information about specific loss mitigation options is crucial for 
borrowers at this time. Additionally, the Bureau believes that 
providing all borrowers exiting forbearance with consistent information 
about loss mitigation options made available by the owner or assignee 
of their mortgage loan will address concerns about consistency and 
accuracy with respect to pandemic-related loss mitigation information.
    As discussed above, the Bureau is not persuaded it should expand 
the information provided to include all possible loss mitigation 
options or that it should allow servicers to exercise discretion about 
what information to share. As stated above, the Bureau is persuaded by 
the comments that the proposed approach appropriately balances 
providing the borrower transparency as to which loss mitigation options 
the borrower may reasonably expect to potentially be reviewed for, with 
the need to prevent borrower confusion. Because the options provided 
are only those that might be available to the borrower, rather than all 
options that the owner or assignee makes available to any borrowers, 
the Bureau believes this will sufficiently tailor the information to 
the borrower's particular situation. Additionally, because the rule 
requires only a brief description, as discussed further below, rather 
than a full review of the loss mitigation program, there will not be an 
overwhelming amount of information provided.
    With regard to concerns about investor waterfall requirements, the 
Bureau is not persuaded these concerns and the potential implications 
on borrower understanding justify eliminating the potential benefit of 
the provision of information about all of the types of forbearance 
extension, repayment options, and other loss mitigation options made 
available to the borrower by the owner or assignee of the borrower's 
mortgage loan at the time of the live contact. However, as noted above, 
if a servicer believes that a borrower may be confused by the 
investor's waterfall requirements and the impact they may have on the 
loss mitigation options offered to the borrower, nothing in the rule 
would prevent a servicer from providing additional information to 
assist the borrower in understanding how an evaluation ``waterfall'' 
may affect the loss mitigation options for which a borrower is reviewed 
and ultimately offered. The Bureau encourages this type of transparency 
in communications.
    ``Last live contact'' timing. Several commenters discussed the 
proposed requirement that servicers convey the information required by 
Sec.  1024.39(e)(2) during the last live contact made pursuant to 
existing Sec.  1024.39(a) that occurs before the end of the loan's 
forbearance program. These commenters supported proposed Sec.  
1024.39(e)(2) overall but suggested different timing than the ``last 
live contact.'' Several industry commenters suggested the Bureau 
require servicers to provide the information during the last live 
contact that is no later than 30 days before the scheduled end of the 
forbearance program, ensuring the information is not provided on the 
last day of the forbearance program and noting that the scheduled end 
date provides more

[[Page 34864]]

certainty for servicers. One industry commenter indicated that the last 
live contact is too late, and that the information should be provided 
earlier in the forbearance program. A few consumer advocate commenters 
suggested the Bureau should require that the contact occur 45 days 
before the end of forbearance. Further, some commenters suggested the 
last live contact should be tied to the scheduled end of forbearance 
programs, not the actual end date, citing that consumers may 
voluntarily leave programs early or may extend their forbearance 
program, effectively changing the actual end date.
    Additionally, a few commenters suggested that the information 
required under proposed Sec.  1024.39(e)(2) should be provided in more 
than one live contact. A few consumer advocate commenters suggested the 
information be provided during all live contacts established during the 
forbearance program. One consumer advocate suggested the information be 
provided during the live contact established at the start of the 
forbearance program, in addition to the last live contact. One State 
Attorney General commenter suggested the information be provided during 
the live contact that is established immediately after final rule 
issuance, as well as the last live contact.
    The Bureau is persuaded by the comments that it should revise Sec.  
1024.39(e)(2) to clarify when servicers must provide the information 
required by Sec.  1024.39(e)(2). First, the Bureau agrees with 
commenters that the timing should be tied to the scheduled end of the 
forbearance program, rather than the actual end date. As discussed 
above, the Bureau recognizes that some borrowers may extend their 
forbearance programs and others may voluntarily exit before the 
scheduled end date. The Bureau concludes that providing this 
information based on the scheduled end date is beneficial for borrowers 
that extend their forbearance program, so that they will receive this 
information each time they extend their forbearance program.
    Second, the Bureau declines to require servicers to provide the 
information required by Sec.  1024.39(e)(2) to borrowers earlier in the 
forbearance program or more than one time. As discussed in the 
proposal, the Bureau believes providing this information towards the 
end of forbearance programs better aligns with current borrower 
behavior patterns, given economic uncertainty and the impact 
foreclosure moratoria may have their sense of urgency, potentially 
increasing the effectiveness of the messaging.\98\ In addition, the 
Bureau is concerned that requiring this information too early before 
the scheduled end date of the forbearance program may not align with 
existing investor requirements, a timing misalignment which may require 
duplicated efforts by servicers to contact with borrowers, burdening 
servicers and potentially confusing borrowers. However, the Bureau 
agrees that the servicer should provide this information before the 
final day of the borrower's forbearance program. The Bureau does not 
believe it is necessary to require this information under Sec.  
1024.39(e)(2) in additional instances, such as at the beginning of 
forbearance programs or during the live contact established immediately 
after the effective date of this final rule. Most borrowers have 
already started the relevant forbearance programs, and for those yet to 
begin forbearance programs, servicers are already required under the 
servicing rules to provide a written notice to borrowers promptly after 
offering a borrower a short-term payment forbearance program based on 
the evaluation of an incomplete application.\99\ Additionally, the 
Bureau is concerned that requiring servicers to provide the additional 
information at the effective date for all accounts would overwhelm 
servicer capacity at a critical moment.
---------------------------------------------------------------------------

    \98\ 86 FR 18840, 18849-18850 (Apr. 9, 2021).
    \99\ 12 CFR 1024.41(c)(2)(iii) requires servicers promptly after 
offering a short-term payment forbearance program to provide 
borrowers with a written notice stating the specific payment terms 
and duration of the program, that the servicer offered the program 
based on an evaluation of an incomplete application, that other loss 
mitigation options may be available, and the borrower has the option 
to submit a complete loss mitigation application to receive an 
evaluation for all loss mitigation options available to the borrower 
regardless of whether the borrower accepts the program or plan. This 
requirement applies with respect to every such short-term payment 
forbearance program offered, including each successive program 
renewal or extension. See, e.g., 78 FR 60381, 60401 (Oct. 1, 2013) 
(noting that the rule does not preclude a servicer from offering 
multiple successive short-term payment forbearance programs).
---------------------------------------------------------------------------

    Thus, to balance the timing considerations, the Bureau is revising 
Sec.  1024.39(e)(2) to clarify that servicers must provide the 
additional information during the live contact that occurs at least 10 
days and no more than 45 days before the scheduled end of the 
forbearance program. The Bureau recognizes that this approach may mean 
that certain borrowers exiting forbearance near the effective date of 
this final rule could be missed. As a result, the Bureau is amending 
this provision to require servicers to provide the additional 
information during the first live contact made pursuant to Sec.  
1024.39(a) after August 31, 2021, if the scheduled end date of the 
forbearance program occurs between August 31, 2021 and September 10, 
2021. Additionally, see part VI for discussion of voluntary early 
compliance.
Final Rule
    For the reasons discussed in this section and in more detail below, 
the Bureau is finalizing Sec.  1024.39(e)(2) generally as proposed, 
with some revisions to address certain comments received. As revised, 
the Bureau concludes that Sec.  1024.39(e)(2) will help further the 
Bureau's goal to encourage borrowers to begin application for loss 
mitigation assistance before the end of the forbearance program.
    As discussed above, the Bureau is revising Sec.  1024.39(e)(2) to 
require that at least 10 and no more than 45 days before the scheduled 
end date of their current forbearance program, the servicer must 
provide the borrower a list and brief description of each of the types 
of forbearance extension, repayment options, and other loss mitigation 
options made available to the borrower at the time of the live contact, 
the actions the borrower must take to be evaluated for such loss 
mitigation options, and at least one way that the borrower can find 
contact information for homeownership counseling services, such as 
referencing the borrower's periodic statement. The loss mitigation 
options listed under Sec.  1024.39(e)(2) are not limited to a specific 
type of loss mitigation, as servicers must provide borrowers with 
information about all available loss mitigation types, such as 
forbearance extensions, repayment plans, loan modifications, short-
sales, and others.
    As revised, Sec.  1024.39(e)(2) requires this additional 
information be provided in the live contact established with the 
borrower at least 10 days and no more than 45 days before the scheduled 
end of the forbearance program. The Bureau is also revising Sec.  
1024.39(e)(2) to address a servicer's obligations with respect to 
forbearance programs scheduled to end within 10 days after the 
effective date of this final rule. If the scheduled end date of the 
forbearance program occurs between August 31, 2021 and September 10, 
2021, final Sec.  1024.39(e)(2) requires the servicer to provide the 
additional information during the first live contact made pursuant to 
Sec.  1024.39(a) after August 31, 2021.
    Finally, the Bureau notes that Sec.  1024.39(e)(2), as revised, 
works with the new reasonable diligence obligations in comment 
41(b)(1)-4.iv to ensure

[[Page 34865]]

borrowers that submit incomplete applications receive notification of 
loss mitigation options that would be available after their COVID-19-
related forbearance program ends.

Section 1024.41 Loss Mitigation Procedures

41(b) Receipt of a Loss Mitigation Application
41(b)(1) Complete 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). 
It also provides that reasonable diligence means servicers must contact 
the borrower before the short-term payment forbearance program ends 
(``the forbearance reasonable diligence contact''), but it does not 
specify when servicers must make the contact. Consequently, the Bureau 
proposed adding a new comment, comment 41(b)(1)-4.iv, to specify that, 
if the borrower is in a short-term payment forbearance program made 
available to borrowers experiencing a COVID-19-related hardship, 
servicers must make the forbearance reasonable diligence contact at 
least 30-days prior to the end of the short-term forbearance program. 
Additionally, the proposal specified that, if the borrower requests 
further assistance, the servicer must also exercise reasonable 
diligence to complete the loss mitigation application prior to the end 
of forbearance period. The Bureau solicited comment on the proposed 30-
day deadline for completing the forbearance reasonable diligence 
contact at the end of the forbearance and whether a different deadline 
was appropriate. The Bureau also solicited comment on whether to extend 
these requirements to all borrowers exiting short-term payment 
forbearance programs during a specified time period, instead of 
limiting it to borrowers in a short-term payment forbearance program 
made available to borrowers experiencing a COVID-19-related hardship.
    Overall, commenters generally supported the proposal. A few 
commenters, including consumer advocate commenters and an industry 
commenter, suggested a different deadline from the proposed 30-day 
deadline would be appropriate. The commenters suggested an earlier or 
later deadline. Specifically, the consumer advocate commenter indicated 
they believe the appropriate timing might depend on whether and how the 
Bureau finalizes proposed Sec.  1024.41(f). Under one scenario, they 
believed that 30 days was appropriate, but under another scenario they 
urged the Bureau to move the deadline to resume reasonable diligence to 
at least 60 days before the end of the forbearance program. The 
industry commenter encouraged the Bureau to adopt a later deadline, 
which would allow servicers to complete the forbearance reasonable 
diligence contact within 30 days before the end of the forbearance. 
This commenter expressed the belief that borrowers would be more 
responsive if servicers could complete the forbearance reasonable 
diligence contact right before the borrower's forbearance ends.
    The Bureau declines to revise the proposed 30-day deadline. The 30-
day deadline aligns with GSE Quality Right Party Contact (QRPC) 
guidelines. Servicers are required to establish QRPC at least 30 days 
before the end of the initial 12-month cumulative COVID-19 forbearance 
period, or at least 30 days prior to the end of any subsequent 
forbearance plan term extension.\100\ The Bureau aimed to make this 
requirement complementary to existing GSE guidelines and to avoid 
exacerbating confusion among servicers attempting to comply with 
multiple compliance obligations.
---------------------------------------------------------------------------

    \100\ The Fed. Nat'l Mortg. Ass'n, Lender Letter (LL-2021-02), 
at 6 (Feb. 25, 2021), https://singlefamily.fanniemae.com/media/24891/display; The Fed. Home Loan Mortg. Corp., COVID-19 Servicing: 
Guidance for Helping Impacted Borrowers, at 5 (May 1, 2021), https://sf.freddiemac.com/content/_assets/resources/pdf/ebooks/helpstartshere-servicing-ebook.pdf.
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    The Bureau also received comments from industry commenters on 
whether the Bureau should extend the reasonable diligence protections 
of proposed comment 41(b)(1)-4.iv to all borrowers exiting short-term 
payment forbearance programs during a specified time period or retain 
the proposed limitation that the comment applies only to borrowers in 
short-term payment forbearance programs made available to borrowers 
experiencing a COVID-19-related hardship. These commenters encouraged 
the Bureau to retain the proposed limitation. Commenters noted that the 
proposed comment's requirements mirror current practices and would not 
create an extra burden for servicers to implement. The commenters 
cautioned against imposing any additional reasonable diligence 
requirements, citing that many servicers are fatigued from constant 
policy changes. The Bureau did not receive any comments suggesting that 
the proposed provision should apply to all borrowers exiting short-term 
payment forbearance programs. The Bureau is finalizing the 
applicability of comment 41(b)(1)-4.iv as proposed.
    A few commenters, including industry commenters encouraged the 
Bureau to exclude servicers from the requirement to make the proposed 
forbearance reasonable diligence contact if the borrower voluntarily 
ends forbearance. To clarify that the reasonable diligence requirements 
included in new comment 41(b)(1)-4.iv mirror the scope of existing 
comment 41(b)(1)-4.iii and only apply if the borrower remains 
delinquent, the Bureau is adding the phrase ``if the borrower remains 
delinquent'' to proposed comment 41(b)(1)-4.iv. This language is in 
comment 41(b)(1)-4.iii but was inadvertently omitted from proposed 
comment 41(b)(1)-4.iv. The Bureau declines to exclude servicers from 
the forbearance reasonable diligence contact if the borrower 
voluntarily ends forbearance early. If a borrower voluntarily ends 
forbearance early and remains delinquent, the servicer must still make 
the forbearance reasonable diligence contact required by comment 
41(b)(1)-4.iv. If a borrower voluntarily ends forbearance early and is 
no longer delinquent, servicers need not make the forbearance 
reasonable diligence contact.
    Some industry commenters also urged the Bureau to eliminate the 
proposed requirement to exercise reasonable diligence to complete an 
application, stating that Sec.  1024.41(c)(2)(v), adopted in the June 
2020 IFR,\101\ and proposed Sec.  1024.41(c)(2)(vi) permit servicers to 
offer certain loss mitigation options based on the evaluation of an 
incomplete application. Commenters indicated that they believe 
borrowers will be confused if servicers contact borrowers to evaluate 
them for a payment deferral or loan modification based on an incomplete 
application, but then also contact them to inquire if they want to 
complete a loss mitigation application. The Bureau holds that while 
Sec.  1024.41(c)(2)(v) and new Sec.  1024.41(c)(2)(vi) empower 
servicers to offer deferral or loan modifications based on the 
evaluation of an incomplete application, a servicer is still required 
to exercise reasonable diligence to complete an application unless the 
borrower accepts the deferral or loan modification offer. There are 
benefits to borrowers of being fully evaluated for all available loss

[[Page 34866]]

mitigation options based on complete application, and certain 
protections under the rules apply only once the borrower completes an 
application. In addition, if a servicer believes that a borrower may be 
confused by the reasonable diligence outreach, a servicer may provide 
additional information to the borrower to help explain the application 
process. The Bureau encourages this type of transparency in 
communications. However, once the borrower accepts a deferral offer or 
loan modification offer based on that evaluation of an incomplete 
application, the servicer is not required to continue to exercise 
reasonable diligence to complete any loss mitigation application that 
the borrower submitted before the servicer's offer of the accepted loss 
mitigation option.
---------------------------------------------------------------------------

    \101\ 85 FR 39055 (June 30, 2020).
---------------------------------------------------------------------------

    A few commenters requested that the Bureau clarify the method of 
compliance for the outreach requirements in comment 41(b)(1)-4. 
Specifically, an industry commenter requested that the Bureau clarify 
whether the outreach requirements could be satisfied either orally or 
in writing. A consumer advocate commenter requested that the Bureau 
clarify that the outreach must be sent in writing. The Bureau clarifies 
that the forbearance reasonable diligence contact required by comment 
41(b)(1)-4.iv, like the forbearance reasonable diligence contact 
required by comment 41(b)(1)-4.iii can be oral or in writing. Servicers 
will likely find it beneficial to communicate their decisions in 
writing in some cases to prevent ambiguity and memorialize decisions. 
However, there may be circumstances where oral notification is 
advantageous due to time constraints, and the Bureau has concluded that 
the best approach is to allow the servicer to choose the appropriate 
mode of communication based on the particular facts and circumstances 
of each case.
    For the reasons discussed above, the Bureau is finalizing comment 
41(b)(1)-4.iv as proposed with a minor edit to clarify the provision 
applies only to delinquent borrowers. As finalized, comment 41(b)(1)-
4.iv explains that if the borrower is in a short-term payment 
forbearance program made available 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 if the 
borrower remains delinquent and 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.
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 proposed 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 also proposed to amend 1024.41(c)(2)(i) 
to reference the new proposed exception in Sec.  1024.41(c)(2)(vi). The 
Bureau did not receive any comments on the addition of this reference 
and, because the Bureau is adopting Sec.  1024.41(c)(2)(vi), the Bureau 
is finalizing the amendment to Sec.  1024.41(c)(2)(i) as proposed.
41(c)(2)(v) Certain COVID-19-Related Loss Mitigation Options
    Definition of a COVID-19-related hardship. 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.  1024.31, 
the Bureau proposed 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 proposed 
a conforming amendment to Sec.  1024.41(c)(2)(v) to utilize the 
proposed new term.
    As further explained in the section-by-section analysis of Sec.  
1024.31, the Bureau is revising the proposed definition of the term 
``COVID-19-related hardship'' for purposes of subpart C to refer in the 
final rule to the national emergency proclamation related to COVID-19, 
rather than to the COVID-19 emergency as defined in section 4022 of the 
CARES Act. The Bureau did not receive any comments on the conforming 
amendment in Sec.  1024.41(c)(2)(v), and is finalizing it as proposed. 
The Bureau does not intend for this conforming amendment to 
substantively change Sec.  1024.41(c)(2)(v).
    Escrow Issues. As the Bureau stated in the June 2020 IFR, Sec.  
1024.41(c)(2)(v)(A)(1) allows for some flexibility among loss 
mitigation options that may qualify for the exception. For example, 
although the loss mitigation options must defer all forborne or 
delinquent principal and interest payments under Sec.  
1024.41(c)(2)(v)(A)(1), the rule does not specify how servicers must 
treat any forborne or delinquent escrow amounts. A loss mitigation 
option would qualify for the exception if it defers repayment of escrow 
amounts, in addition to principal and interest payments, as long as it 
otherwise satisfies Sec.  1024.41(c)(2)(v)(A).
    The Bureau has received questions about whether servicers should 
issue a short-year annual escrow account statement under Sec.  
1024.17(i)(4) prior to offering a loss mitigation option under Sec.  
1024.41(c)(2)(v)(A). Regulation X does not require a short year 
statement prior to offering any loss mitigation option, but the Bureau 
strongly encourages servicers to conduct an escrow analysis and issue a 
short-year statement or annual statement, depending on the applicable 
timing. Doing so may help avoid unexpected potential escrow-related 
payment increases after the borrower has already agreed to a loss 
mitigation option, and can inform servicers of the information needed 
to provide a history of the escrow account, pursuant to Sec.  
1024.17(i)(2), after the loan becomes current.
    The Bureau has also received questions about how servicers may 
treat funds that they have advanced or plan to advance to cover escrow 
shortages in

[[Page 34867]]

this context. Assume a servicer performs an escrow analysis before 
offering a loss mitigation option to the borrower under Sec.  
1024.41(c)(2)(v)(A), and the analysis reveals a shortage. The Bureau 
has received questions about whether the servicer is permitted under 
Regulation X to advance funds to cover the shortage (for example, if a 
borrower is in a forbearance) and seek repayment of those advanced 
funds as part of the non-interest bearing deferred balance that is due 
when 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 FHA, the mortgage insurance terminates. Section 1024.17 has 
specific rules and procedures for the administration of escrow accounts 
associated with federally related mortgage loans, but it does not 
address the specific situation described in the question. Regulation X 
does not prohibit a servicer from seeking repayment of funds advanced 
to cover the shortage as described above. Section 1024.17 is intended 
to ensure that servicers do not require borrowers to deposit excessive 
amounts in an escrow account (generally limiting monthly payments to 1/
12th of the amount of the total anticipated disbursements, plus a 
cushion not to exceed 1/6th of those total anticipated disbursements, 
during the upcoming year). Loss mitigation programs such as those 
permitted under Sec.  1024.41(c)(2)(v)(A) give the borrower more time 
to repay forborne or delinquent amounts and does not specify how 
servicers must treat any forborne or delinquent escrow amounts. 
Regulation X does not prohibit the borrower and servicer from agreeing 
to a loss mitigation option that allows for the repayment of funds that 
a servicer has advanced or will advance to cover an escrow 
shortage.\102\
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    \102\ Additionally, when a borrower is more than 30 days 
delinquent, a servicer may recover a deficiency in the borrower's 
escrow account pursuant to the terms of the mortgage loan documents. 
Deficiencies exist when there is a negative balance in the 
borrower's escrow account, which can occur, for example, when a 
servicer advances funds for expenses such as taxes and insurance. 
See Sec.  1024.17(f)(4)(iii).
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41(c)(2)(vi) Certain COVID-19-Related Loan Modification Options
The Bureau's Proposal
    As discussed in more detail in the section-by-section analysis of 
Sec.  1024.41(c)(2)(i), 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. The Bureau proposed to add a new 
temporary exception to this anti-evasion requirement to permit 
servicers to offer certain loan modification options made available to 
borrowers with COVID-19-related hardships based on the evaluation of an 
incomplete application. The exception is temporary because the Bureau 
in this final rule is defining the term ``COVID-19-related hardship'' 
for purposes of subpart C to refer to a financial hardship due, 
directly or indirectly, to the national emergency for the COVID-19 
pandemic declared in Proclamation 9994 on March 13, 2020 (beginning on 
March 1, 2020) and continued on February 24, 2021. At some point after 
the national emergency ends, servicers will no longer make available 
loan modification options to borrowers with COVID-19-related hardships 
for purposes of subpart C.
    The proposal would have established eligibility criteria for the 
new exception in proposed Sec.  1024.41(c)(2)(vi)(A). Specifically, a 
loan modification eligible for the proposed new exception would have to 
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 and charges. 
For loan modifications to qualify under the proposed new exception, 
they would not be able to charge interest on amounts that the borrower 
may delay paying until the mortgage loan is refinanced, the mortgaged 
property is sold, or the loan modification matures. However, loan 
modifications that charge interest on amounts that are capitalized into 
a new modified term would qualify for the proposed new exception, as 
long as they otherwise satisfy all of the criteria in Sec.  
1024.41(c)(2)(vi)(A). To qualify for the proposed new exception, a loan 
modification also either (1) would have to cause any preexisting 
delinquency to end upon the borrower's acceptance of the offer or (2) 
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.
    Once the borrower accepts an offer made pursuant to proposed Sec.  
1024.41(c)(2)(vi)(A), the Bureau proposed to exclude servicers from the 
requirement to exercise reasonable diligence required by Sec.  
1024.41(b)(1) and to send the acknowledgement notice required by Sec.  
1024.41(b)(1). However, the proposal would have required the servicer 
to immediately resume reasonable diligence efforts required by Sec.  
1024.41(b)(1) if the borrower fails to perform under a trial loan 
modification plan offered pursuant to the proposed new exception or 
requests further assistance.
    The Bureau solicited comment on the proposed new exception. For the 
reasons discussed below, the Bureau is finalizing proposed Sec.  
1024.41(c)(2)(vi) largely as proposed, with some revisions to address 
certain comments received, including limiting the requirement to waive 
certain fees, as discussed in more detail below.
Comments Received
    General comments about the proposed exception. The vast majority of 
commenters, including industry, consumer advocate commenters, and 
individuals, expressed general support for proposed Sec.  
1024.41(c)(2)(vi). Most commenters who expressed support for proposed 
Sec.  1024.41(c)(2)(vi) also urged the Bureau to make certain revisions 
to the provision. In general, industry commenters requested that the 
Bureau provide additional flexibility, clarification, or both 
surrounding what loan modification options can qualify for the new 
anti-evasion exception and the regulatory relief provided to servicers 
after they offer these loan modifications. Consumer advocate commenters 
generally requested that the final rule require that servicers provide 
various additional disclosures and protections to borrowers who are 
evaluated for a loan modification option based on the evaluation of an 
incomplete application. The Bureau's responses to these comments are 
discussed further in this section and the section-by-section analyses 
below.
    A few individuals and a few industry commenters expressed 
opposition to the proposed new exception overall for a variety of 
reasons and suggested removing it entirely or replacing it with various 
alternatives. The Bureau concludes that it is 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'').\103\ These programs will

[[Page 34868]]

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.
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    \103\ A loan modification that a servicer offers based upon the 
evaluation of an incomplete loss mitigation application can qualify 
for the exception in Sec.  1024.41(c)(2)(vi) even if the servicer 
collects information, such as information to verify income, from a 
borrower. Section 1024.41(b)(1) defines a complete loss mitigation 
application as 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. If a servicer collects a complete loss 
mitigation application, the servicer is required to comply with all 
of the provisions of Sec.  1024.41 relating to the receipt of 
complete loss mitigation applications, such as a written notice of 
determination, the right to an appeal, and dual tracking 
protections. If a servicer collects information that does not 
constitute a complete loss mitigation application, the servicer is 
prohibited from making an offer for a loss mitigation option by 
Sec.  1024.41(c)(2)(ii), unless one of the exceptions listed in 
Sec.  1024.41(c)(2)(ii) through (vi) applies.
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    Additional disclosures and protections. Some consumer advocate 
commenters urged the Bureau to provide additional disclosures and 
protections in connection with the evaluation of a streamlined loan 
modification option under proposed Sec.  1024.41(c)(2)(vi). A few of 
these commenters urged the Bureau to include additional requirements 
for eligible loan modifications, including, for example, requiring 
certain written notices, denial notices, the right to appeal a 
decision, dual tracking protections, and simultaneous evaluation for 
all available streamlined loan modification options. One of these 
commenters also urged the Bureau to prohibit a servicer from requiring 
a borrower to give up the option of obtaining a streamlined loan 
modification if the borrower completes a loss mitigation application. 
This commenter expressed concern that borrowers would be negatively 
affected by not knowing the options for which they had been reviewed 
if, for example, they had been denied for an option on the basis of 
inaccurate information. A group of State Attorneys General also 
commented generally that a borrower should be aware of all loss 
mitigation options available to them.
    One of the consumer advocate commenters urged the Bureau to require 
that a servicer include streamlined options during a review of a 
complete loss mitigation option that may take place after a borrower is 
offered a loan modification under the exception, and expressed 
skepticism that servicers would complete another loan modification 
quickly after implementing a loan modification offered under the 
exception. The same commenter expressed concern that defaults or trial 
loan modification plan failures for loan modification options offered 
under the exception would render a borrower ineligible to receive 
another streamlined loan modification for a period of time.
    The Bureau acknowledges that borrowers accepting a loan 
modification offer under the new exception will not receive protections 
under Sec.  1024.41 that are critical in other circumstances. However, 
the Bureau concludes that the exception set forth in final Sec.  
1024.41(c)(2)(vi)(A) will be unlikely to affect this benefit in most 
cases, given the narrow scope and particular circumstances of the 
exception. If a borrower is interested in another form of loss 
mitigation after accepting an offer made pursuant to Sec.  
1024.41(c)(2)(vi)(A), they would still have the right under Sec.  
1024.41 to submit a complete loss mitigation application and receive an 
evaluation for all available options. This would be the case even if, 
for example, a borrower accepted a loan modification trial plan offered 
pursuant to Sec.  1024.41(c)(2)(vi)(A) and then failed to perform on 
that plan.
    Further, to be eligible for the exception under 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 Sec.  1024.41(c)(2)(vi)(A) or 
requests further assistance, under 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). Also, as further discussed below, in this final rule the 
Bureau is amending Sec.  1024.41(c)(2)(vi)(B) to adopt as final a 
requirement that if a borrower fails to perform under a trial loan 
modification plan offered pursuant to Sec.  1024.41(c)(2)(vi)(A) or 
requests further assistance, the servicer must send the borrower the 
notice required by Sec.  1024.41(b)(2)(i)(B), with regard to the most 
recent loss mitigation application the borrower submitted prior to the 
servicer's offer of the loan modification under the exception, unless 
the servicer has already sent that notice to the borrower.
    Finally, as discussed in the section-by-section analysis of Sec.  
1024.41(f)(3), the Bureau is finalizing requirements for special COVID-
19 loss mitigation procedural safeguards that will extend through 
December 31, 2021. These requirements provide generally that a servicer 
must ensure that certain procedural safeguards are met to give 
borrowers a meaningful opportunity to pursue loss mitigation options 
before a servicer initiates foreclosure. These special COVID-19 loss 
mitigation procedural safeguards will temporarily provide borrowers 
with more time to submit a complete loss mitigation application, should 
they choose to do so, before they would be at risk of referral to 
foreclosure.
    With respect to some commenters' concerns that consumers should be 
made aware of the loss mitigation options available to them, many 
borrowers who would receive an offer pursuant to 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 general, borrowers who previously entered into a 
forbearance program will also have received the notice required under 
Sec.  1024.41(b)(2) and written notification of the terms and 
conditions of the forbearance program stating, among other things, 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.

[[Page 34869]]

    As noted above, a commenter expressed concern that a borrower 
default on a loan modification or failure to perform under a trial loan 
modification plan may render a borrower ineligible for certain 
additional loan modifications for a period of time. The Bureau notes 
that the flex modification guidelines cited by the commenter in 
discussing this concern are Fannie Mae's general flex modification 
guidelines. Fannie Mae's reduced eligibility guidelines apply to COVID-
19-related hardships, and the reduced eligibility guidelines do not 
contain the limitation cited by the commenter related to previous 
failure to perform on a trial loan modification or previous default on 
a flex modification.\104\ The Bureau therefore understands that a 
borrower experiencing a COVID-19-related hardship who previously failed 
to perform on a trial loan modification or defaulted on a permanent 
loan modification would not be precluded from obtaining another flex 
modification for those reasons.
---------------------------------------------------------------------------

    \104\ See 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.
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    For the reasons discussed above, the Bureau declines to generally 
extend the requirements in Sec.  1024.41 relating to the receipt of 
complete loss mitigation applications, such as a written notice of 
determination, the right to an appeal, and dual tracking protections, 
to borrowers who are evaluated for or offered a streamlined loan 
modification on the basis of an incomplete application. The Bureau also 
declines to impose requirements on servicers regarding which and how 
many streamlined loan modifications it must evaluate a borrower for on 
the basis of an incomplete application or on the basis of a complete 
loss mitigation application that the borrower may elect to submit after 
the servicer has evaluated an incomplete loss mitigation application 
under Sec.  1024.41(c)(2)(vi).
    Expanded eligibility criteria. Some industry commenters asked that 
the Bureau expand the eligibility criteria in Sec.  
1024.41(c)(2)(vi)(A) to cover a much broader variety of loss mitigation 
options available to borrowers with COVID-19-related hardships, 
including, among other things, repayment plans and loan modifications 
that would increase the monthly required principal and interest 
payment. Another industry commenter urged the Bureau to apply the anti-
evasion exception to bankruptcy plans that are amended to cure COVID-19 
delinquencies.
    The Bureau declines to generally broaden the exception's 
eligibility requirements to cover more loss mitigation solutions with 
criteria different from those outlined in Sec.  1024.41(c)(2)(vi)(1)-
(5), as requested by some commenters, for reasons discussed in the 
section-by-section analyses of those sections below.
Final Rule
    For the reasons discussed herein, the Bureau is adopting Sec.  
1024.41(c)(2)(vi) largely as proposed, with a few changes described 
below.
41(c)(2)(vi)(A)
41(c)(2)(vi)(A)(1)
The Bureau's Proposal
    Under proposed Sec.  1024.41(c)(2)(vi)(A)(1), the first criteria 
would have been 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. As discussed more fully below, the Bureau 
is adopting the criteria in Sec.  1024.41(c)(2)(vi)(A)(1) as proposed, 
with minor clarifying changes as discussed below.
Comments Received
    One consumer advocate commenter and one individual commenter 
expressed specific support for the 480-month term limitation criterion. 
Some individual commenters expressed opposition to the 480-month term 
limitation criterion, stating generally that a 480-month term was too 
long.
    One consumer advocate commenter expressed support for the payment 
increase limitation. One consumer advocate commenter and a few industry 
commenters urged the Bureau to provide additional flexibility for a 
streamlined loan modification to qualify for the new exception even if 
it resulted in increases to the monthly required principal and interest 
payment amount. The consumer advocate commenter advocated for a 
percentage cap, such as 15 percent or 20 percent, on any potential 
increase, noting that capitalizing a large amount of forborne payments 
may make it hard to achieve payment reduction. The Bureau also received 
feedback during its interagency consultation process indicating that 
limiting the proposed new exception to loan modifications that do not 
increase a borrower's monthly required principal and interest payment 
would exclude from the exception some loan modifications offered under 
FHA's COVID-19 owner-occupant loan modification program, which permits 
payment increases in certain circumstances. The industry commenters 
noted that some investors do not offer loan modifications with long-
term fixed rates, and urged the Bureau to clarify whether the criterion 
as proposed would allow adjustable rate loan modifications to qualify 
for the new anti-evasion exception.
    A different industry commenter stated that certain State laws 
prohibit balloon payments, which could make it difficult for servicers 
to offer loan modifications that do not extend the term beyond 480 
months or cause the monthly required principal and interest to 
increase, because the servicer could not defer remaining delinquent 
amounts to the end of the loan.
Final Rule
    For the reasons discussed below, the Bureau is adopting Sec.  
1024.41(c)(2)(vi)(A)(1) as proposed, with minor revisions to clarify 
the criterion that, for a loan modification to qualify for the 
exception, the monthly required principal and interest payment amount 
must not increase for the entire modified term.
    The Bureau believes that it will be advantageous to borrowers and 
servicers alike to facilitate the timely transition of eligible 
borrowers into certain streamlined loan modifications that do not cause 
additional financial hardship, such as flex modifications offered by 
the GSEs and COVID-19 owner-occupant loan modifications offered by FHA 
that meet the eligibility criteria in Sec.  1024.41(c)(2)(vi)(A)(1)-
(5).\105\ The Bureau has concluded that the criteria discussed in this 
section-by-section analysis relating to the term and payment features 
of loan modifications eligible for the exception are appropriate to 
achieve this goal.
---------------------------------------------------------------------------

    \105\ 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 (HUD Mortgagee Letter).
---------------------------------------------------------------------------

    The Bureau notes that Sec.  1024.41(c)(2)(vi) itself will not 
prevent borrowers from qualifying for certain loss mitigation options. 
The criteria that the Bureau is adopting in final Sec.  
1024.41(c)(2)(vi)(A) do not constitute general requirements or 
prohibitions applying to all loss mitigation options. Rather, they are 
a narrowly tailored exception to the anti-evasion requirement to allow 
servicers to offer certain loan modifications to borrowers

[[Page 34870]]

on the basis of an incomplete application. Section 1024.41(c)(2)(vi) 
does not prevent a borrower from submitting a complete loss mitigation 
application, and it does not relieve servicers of their obligations 
under Sec.  1024.41 to evaluate a borrower for all available loss 
mitigation options upon the receipt of a complete loss mitigation 
application. Borrowers can therefore still be evaluated for all loss 
mitigation options available to them, including options that increase 
the term of the loan beyond 480 months from the effective date of the 
loan modification and options that entail an increase to the required 
monthly principal and interest payment amount, by submitting a complete 
loss mitigation application.
    In response to some commenters' requests for clarification 
regarding whether a loan modification with an adjustable rate can 
qualify for the exception, the Bureau is adopting revised language in 
final Sec.  1024.41(c)(2)(vi)(A)(1) clarifying that, for the entire 
modified term, the monthly required principal and interest payment 
cannot increase beyond the monthly principal and interest payment 
required prior to the loan modification. Other than this clarifying 
language, the Bureau adopts Sec.  1024.41(c)(2)(vi)(A)(1) as proposed.
41(c)(2)(vi)(A)(2)
The Bureau's Proposal
    Under proposed Sec.  1024.41(c)(2)(vi)(A)(2), to qualify for the 
anti-evasion requirement exception, 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. As proposed, Sec.  1024.41(c)(2)(vi)(A)(2) also would have 
provided that, to qualify for the anti-evasion 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. For ease of 
readability, the Bureau is moving the language regarding fees to new 
final Sec.  1024.41(c)(2)(vi)(A)(5). These criteria, as well as a 
revision to them that the Bureau is adopting in this final rule, are 
therefore discussed in additional detail in the section-by-section 
analysis of Sec.  1024.41(c)(2)(vi)(A)(5).
Comments Received
    The Bureau received a few comments on this proposed provision. One 
consumer advocate commenter noted that the Bureau did not include FHA 
mortgage insurance termination as a point after which amounts that a 
borrower may delay paying must not accrue interest to meet the proposed 
criterion, even though this language is included in the exception for 
certain deferrals described in Sec.  1024.41(c)(2)(v). An industry 
commenter and a consumer advocate commenter asked that the Bureau 
clarify whether a loan modification that capitalizes some arrearages, 
such as interest arrearages, escrow advances, and escrow shortages, 
into the principal balance of a loan modification would satisfy the 
criterion in proposed Sec.  1024.41(c)(2)(vi)(A)(2). Because the GSEs 
also specify that, for flex modifications, amounts that the borrower 
may delay paying until the mortgage loan is transferred or the unpaid 
principal balance (UPB) is paid off must not accrue interest, the 
Bureau sought comment on whether to specify in a final rule that 
interest cannot be charged on amounts that a borrower may delay paying 
until UPB pay off, transfer, or both. The Bureau did not receive any 
comments regarding the potential addition of this language.
Final Rule
    The Bureau is adopting the criterion in Sec.  
1024.41(c)(2)(vi)(A)(2) largely as proposed with a revision to add 
language addressing FHA mortgage insurance termination. This 
eligibility criterion ensures that borrowers receiving one of the 
covered loan modifications will have years to plan to address amounts 
that are not due until the mortgage loan is refinanced, the mortgaged 
property is sold, the loan modification matures, or, for a mortgage 
loan insured by FHA, the mortgage insurance terminates, and that those 
amounts will not increase due to interest accrual. This may be 
particularly important during the COVID-19 emergency, as many borrowers 
may be facing extended periods of economic uncertainty.
    With respect to the addition in this final rule of language 
addressing FHA mortgage insurance termination, the Bureau notes that 
FHA's COVID-19 owner-occupant loan modification does not involve 
allowing a borrower to delay paying certain amounts until FHA mortgage 
insurance terminates. However, the Bureau understands that FHA also 
offers a COVID-19 combination partial claim and loan modification, 
which includes the potential extension of the loan's term, as well as 
allowing a borrower to delay paying certain amounts until FHA mortgage 
insurance terminates.\106\ If this type of loan modification option 
meets all of the criteria listed in Sec.  1024.41(c)(2)(vi)(A), 
servicers can offer it under that anti-evasion exception on the basis 
of an incomplete application. The Bureau is therefore adopting Sec.  
1024.41(c)(2)(vi)(A)(2) with the addition of language concerning FHA 
mortgage insurance termination, to clarify that a loan modification 
option can qualify for Sec.  1024.41(c)(2)(vi)'s exception if, in 
addition to meeting Sec.  1024.41(c)(2)(vi)(A)'s other eligibility 
requirements, amounts the borrower may delay paying until FHA mortgage 
insurance terminates do not accrue interest.
---------------------------------------------------------------------------

    \106\ Id.
---------------------------------------------------------------------------

    In response to commenters' request for clarification regarding 
capitalization of amounts into a new modified loan term, the Bureau 
notes that loan modifications that charge interest on amounts that are 
capitalized into a new modified term would qualify for the proposed new 
exception, as long as they otherwise satisfy all of the criteria in 
Sec.  1024.41(c)(2)(vi)(A). Capitalized amounts are amounts that the 
borrower pays over the course of the new modified term, and a loan 
modification can meet the criteria in Sec.  1024.41(c)(2)(vi)(A) even 
if these amounts accrue interest. However, if the loan modification 
permits the borrower to delay paying certain amounts until the mortgage 
loan is refinanced, the mortgaged property is sold, the loan 
modification matures, or, for a mortgage loan insured by FHA, the 
mortgage insurance terminates, the criterion in final Sec.  
1024.41(c)(2)(vi)(A)(2) are met only if those amounts do not accrue 
interest. The Bureau is revising Sec.  1024.41(c)(2)(vi)(A)(2) to make 
more clear that this criterion regarding interest accrual only applies 
to loan modifications that involve payments that are delayed until the 
mortgage loan is refinanced, the mortgaged property is sold, the loan 
modification matures, or, for a mortgage loan insured by FHA, the 
mortgage insurance terminates.
    With respect to concerns regarding the potential capitalization of 
amounts related to escrow, the Bureau has received questions about 
whether the servicer is permitted under Regulation X to advance funds 
to cover an escrow shortage (for example, if a borrower is in a 
forbearance) and seek repayment of those advanced funds by capitalizing 
them into a modified principal balance as part of a loan modification. 
Section 1024.17 has specific rules and procedures for the 
administration of escrow accounts associated with

[[Page 34871]]

federally related mortgage loans, but it does not address the specific 
situation described in the question. Regulation X does not prohibit a 
servicer from seeking repayment of funds advanced to cover the shortage 
as described above. Section 1024.17 is intended to ensure that 
servicers do not require borrowers deposit excessive amounts in an 
escrow account (generally limiting monthly payments to 1/12th of the 
amount of the total anticipated disbursements, plus a cushion not to 
exceed 1/6th of those total anticipated disbursements, during the 
upcoming year). Loss mitigation programs such as those permitted under 
this final rule give the borrower more time to repay forborne or 
delinquent amounts and do not specify how servicers must treat any 
forborne or delinquent escrow amounts. Regulation X does not prohibit 
the borrower and servicer from agreeing to a loss mitigation option 
that allows for the repayment of funds that a servicer has advanced or 
will advance to cover an escrow shortage.\107\
---------------------------------------------------------------------------

    \107\ Supra note 102.
---------------------------------------------------------------------------

    As described above, the Bureau is adopting Sec.  
1024.41(c)(2)(vi)(A)(2) as proposed, with revisions to add language 
concerning FHA mortgage termination and to clarify that permitting a 
delay in the payment of amounts until the mortgage loan is refinanced, 
the mortgaged property is sold, the loan modification matures, or, for 
a mortgage loan insured by FHA, the mortgage insurance terminates is 
not required for a loan modification to qualify for the anti-evasion 
exception in Sec.  1024.41(c)(2)(vi)(A).
41(c)(2)(vi)(A)(3)
The Bureau's Proposal
    Proposed Sec.  1024.41(c)(2)(vi)(A)(3) would have required that, to 
qualify for the anti-evasion requirement exception, the loan 
modification offered pursuant to the exception in Sec.  
1024.41(c)(2)(vi)(A) must have been made available to borrowers 
experiencing a COVID-19-related hardship. As discussed in the section-
by-section analysis of Sec.  1024.31, the Bureau proposed 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)).'' The Bureau solicited comment on whether to instead 
condition eligibility on loan modifications offered during a specified 
time period, regardless of whether the option was made available to 
borrowers with a COVID-19-related hardship. The Bureau sought comment 
on whether that alternative would be easier for servicers to implement.
Comments Received
    The Bureau received a few comments on this aspect of the proposal. 
An individual commenter expressed concern that servicers may require 
evidence of the onset of the hardship. A consumer advocate commenter 
noted it would have no general objection to an approach limiting the 
exception to a time period, indicating that that approach might be 
easier for servicers to administer. For the reasons discussed below, 
the Bureau is adopting Sec.  1024.41(c)(2)(vi)(A)(3) as proposed.
Final Rule
    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 believes it would be difficult to 
establish with certainty a date beyond which borrowers would no longer 
be experiencing COVID-19-related hardships and servicers may stop 
making loan modification options available to borrowers experiencing 
such hardships. As further explained in the section-by-section analysis 
of Sec.  1024.31, the Bureau is revising the proposed definition of the 
term ``COVID-19-related hardship'' for purposes of subpart C to refer 
in this final rule to the national emergency proclamation related to 
COVID-19. No end date for this national emergency has been announced. 
The Bureau therefore concludes that it is appropriate to limit 
eligibility for the exception in Sec.  1024.41(c)(2)(vi) to loan 
modification options that are generally made available to borrowers 
experiencing a COVID-19-related hardship.
    Regarding a commenter's concern that servicers would require 
evidence of a COVID-19-related hardship, the Bureau notes that the 
final rule does not require as a criterion for the anti-evasion 
exception that the individual borrower offered the loan modification 
has experienced a COVID-19-related hardship. Rather, the final rule 
limits this exception to loan modifications made available to borrowers 
experiencing a COVID-19-related hardship. The loan modification option 
offered need not be made available exclusively to borrowers 
experiencing a COVID-19-related hardship to qualify for the anti-
evasion exception. A loan modification option can qualify for the anti-
evasion exception if it is made available to borrowers experiencing a 
COVID-19-related hardship as well as other borrowers. For example, the 
Bureau understands that the GSEs' flex modifications are offered to a 
broader population of borrowers than those experiencing COVID-19-
related hardships.\108\ Because these loan modifications are currently 
also available to borrowers experiencing COVID-19-related hardships, 
they meet the criterion that the Bureau is adopting as final in Sec.  
1024.41(c)(2)(vi)(A)(3).
---------------------------------------------------------------------------

    \108\ 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.
---------------------------------------------------------------------------

41(c)(2)(vi)(A)(4)
The Bureau's Proposal
    Proposed Sec.  1024.41(c)(2)(vi)(A)(4) would have required that 
either the borrower's acceptance of a loan modification offer end any 
preexisting delinquency on the mortgage loan, or that a loan 
modification offered 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).
Comments Received
    The Bureau did not receive any comments specifically addressing 
proposed Sec.  1024.41(c)(2)(vi)(A)(4). For the reasons discussed 
below, the Bureau is adopting this requirement as proposed.
Final Rule
    The Bureau believes that this provision will help ensure that 
borrowers who accept a loan modification offered under 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.\109\ If the borrower's acceptance of a loan

[[Page 34872]]

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.
---------------------------------------------------------------------------

    \109\ 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 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 anti-evasion 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 pursuant to Sec.  1024.41(c)(2)(vi)(A). This requirement would 
apply, for example, for a borrower who accepted a trial loan 
modification plan offered pursuant to Sec.  1024.41(c)(2)(vi)(A) and 
subsequently fails to perform under that plan.
    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 
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 Sec.  1024.41(c)(2)(vi)(A) is finalized.\110\ 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. For these reasons, 
the Bureau is adopting Sec.  1024.41(c)(2)(vi)(A)(4) as proposed.
---------------------------------------------------------------------------

    \110\ 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).
---------------------------------------------------------------------------

41(c)(2)(vi)(A)(5)
The Bureau's Proposal
    As noted above, proposed Sec.  1024.41(c)(2)(vi)(A)(2) would have 
provided that, to qualify for the anti-evasion requirement exception in 
Sec.  1024.41(c)(2)(vi)(A), 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. For ease 
of readability, the Bureau is moving this provision to new final Sec.  
1024.41(c)(2)(vi)(A)(5). The Bureau invited comment on whether the 
proposed fee waiver criterion was 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. The Bureau is 
revising this provision to add a date limitation of March 1, 2020, on 
the fee waiver criterion, as described below.
Comments Received
    The Bureau received several comments on this aspect of the 
proposal. Some industry commenters urged the Bureau to narrow the fee 
waiver criterion to fees incurred during a COVID-19-related forbearance 
or on or after March 1, 2020. One consumer advocate commenter also 
asked the Bureau to limit the fee waiver criterion to only fees 
incurred after March 1, 2020, noting that this criterion would align 
with FHA rules regarding COVID-19 loan modification fee waivers. The 
Bureau also received feedback regarding FHA fee waivers during its 
interagency consultation process encouraging the Bureau to narrow the 
fee waiver criterion to fees incurred on or after March 1, 2020. Some 
industry commenters asked that the Bureau confirm whether pass-through 
costs, such as inspection fees, are subject to the waiver requirement. 
The Bureau did not receive any comments addressing the aspect of the 
criterion excluding a loan modification option from eligibility for the 
exception if a fee is charged in connection with the loan modification 
option.
Final Rule
    The Bureau is adopting Sec.  1024.41(c)(2)(vi)(A)(2) largely as 
proposed, but re-numbered as Sec.  1024.41(c)(2)(vi)(A)(5) and with a 
revision limiting the requirement to waive certain fees as discussed 
below. The final rule provides that, to qualify for the anti-evasion 
exception, a servicer must waive all existing late charges, penalties, 
stop payment fees, or similar charges that were incurred on or after 
March 1, 2020, promptly upon the borrower's acceptance of the loan 
modification. This revision responds to commenters' concerns that the 
proposed fee waiver criterion would inappropriately limit the 
availability of the exception. The Bureau, in adopting the new anti-
evasion exception, seeks to allow servicers to offer loan modifications 
to borrowers on the basis of an incomplete application if such a loan 
modification would avoid imposing additional economic hardship on 
borrowers who likely have already experienced prolonged economic 
hardship due to the COVID-19 pandemic.
    The Bureau believes that servicers may be more likely to 
expeditiously offer the types of loan modifications that may qualify 
for the exception in Sec.  1024.41(c)(2)(vi) if they are not required 
to waive fees and charges incurred before March 1, 2020. This approach 
also aligns with FHA servicer guidelines, which only require servicers 
to waive fees incurred on or after March 1, 2020, for its COVID-19 
owner-occupant loan modification and its combination partial claim and 
loan modification.\111\ The Bureau declines to tie the fee waiver 
criterion to fees incurred during forbearance, because some borrowers 
seeking a streamlined loan modification may not have been in 
forbearance for some or all of the period between March 1, 2020 and the 
point at which the servicer offers an eligible loan modification to the 
borrower.
---------------------------------------------------------------------------

    \111\ HUD Mortgagee Letter, supra note 105, at 9 and 11.
---------------------------------------------------------------------------

    The Bureau does not believe that it is necessary to revise the 
proposed regulatory language to address commenters' requests to clarify 
what is meant by similar charges for purposes of this criterion. As 
finalized, Sec.  1024.41(c)(2)(vi)(A)(5) states that the servicer must 
waive all existing late charges, penalties, stop payment fees, or

[[Page 34873]]

similar charges. Similar charges for purposes of Sec.  
1024.41(c)(2)(vi)(A)(5) refers to charges that are similar to late 
charges, penalties, and stop payment fees. The Bureau understands that 
late charges, penalties, and stop payment fees are typically amounts 
imposed on a borrower's mortgage loan account directly by the servicer. 
By contrast, costs such as inspection fees are typically paid by the 
servicer to a third party, and are therefore not similar to late 
charges, penalties and stop payment fees. These charges do not need to 
be waived for a loan modification to qualify under Sec.  
1024.41(c)(2)(vi)(A)'s anti-evasion exception.
    For the reasons described above, the Bureau is adopting Sec.  
1024.41(c)(2)(vi)(A)(5), renumbered from the proposal and with the 
revisions discussed above.
41(c)(2)(vi)(B)
The Bureau's Proposal
    Section 1024.41(b)(1) requires that a servicer exercise reasonable 
diligence in obtaining documents and information to complete a loss 
mitigation application, and Sec.  1024.41(b)(2) requires that promptly 
upon receipt of a loss mitigation application, a servicer must review 
the application to determine if it is complete, and send the written 
notice described in Sec.  1024.41(b)(2)(i)(B) in connection with such 
an application within five days after receiving the application, 
acknowledging receipt of the application (``acknowledgement notice''). 
As proposed, Sec.  1024.41(c)(2)(vi)(B) would have offered servicers 
relief from these regulatory requirements when a borrower accepts a 
loan modification meeting the criteria that the Bureau proposed in 
Sec.  1024.41(c)(2)(vi)(A), but it would have required 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 failed to perform under a trial loan 
modification plan offered pursuant to proposed Sec.  
1024.41(c)(2)(vi)(A) or if the borrower requested further assistance.
    The Bureau solicited comment on whether the Bureau should adopt 
additional foreclosure referral protections for borrowers enrolled in a 
trial loan modification program that does not end any prior delinquency 
upon the borrower's acceptance of the offer, 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 proposed Sec.  1024.41(f)(3). For the reasons discussed below, the 
Bureau is adopting Sec.  1024.41(c)(2)(vi)(B) as proposed, with the 
revisions discussed below.
Comments Received
    Timing of regulatory relief and resumption of reasonable diligence. 
The Bureau received several comments addressing proposed Sec.  
1024.41(c)(2)(vi)(B). As discussed above, proposed Sec.  
1024.41(c)(2)(vi)(B) would have provided servicers with relief from the 
regulatory requirements to perform reasonable diligence to complete a 
loss mitigation application and to send an acknowledgement notice when 
a borrower accepts a loan modification meeting the criteria that the 
Bureau proposed in Sec.  1024.41(c)(2)(vi)(A). Some industry commenters 
urged the Bureau to provide relief from these regulatory requirements 
starting from the point that the servicer offers the loss mitigation 
option until the borrower rejects the offer, rather than providing such 
relief only if and when the borrower accepts the offer. The industry 
commenters noted that, as proposed, the rule would in some 
circumstances still require the servicer to send the notice required by 
Sec.  1024.41(b)(2)(i)(B), which the commenters implied could confuse 
borrowers who were still considering an outstanding offer of a 
streamlined loan modification. Additionally, an industry commenter 
stated that the provision as proposed may create confusion about how a 
servicer must confirm the borrower's acceptance of the offer.
    An industry commenter urged the Bureau not to require the 
resumption of reasonable diligence efforts under Sec.  1024.41(b)(1) 
when a borrower fails to perform under a trial loan modification plan 
offered pursuant to proposed Sec.  1024.41(c)(2)(vi)(A). This commenter 
expressed concern that borrowers who fail to perform under a trial loan 
modification plan are unlikely to be able to afford a home retention 
option and stated that the requirement that servicers resume reasonable 
diligence to complete a loss mitigation application for those borrowers 
would thus impose undue burden on servicers. The same commenter urged 
the Bureau to clarify that servicers are permitted to continue to 
collect a complete loss mitigation application while a borrower is in a 
trial loan modification plan that was offered pursuant to Sec.  
1024.41(c)(2)(vi)(A).
    The Bureau is finalizing Sec.  1024.41(b)(2)(i)(B) to provide 
servicers with relief from the requirements of Sec.  1024.41(b)(1) and 
(b)(2) upon the borrower's acceptance of an offer made pursuant to 
Sec.  1024.41(c)(2)(vi)(A). In response to a commenter's concern about 
the method of a borrower's acceptance of an offer, the Bureau stresses 
that Sec.  1024.41(c)(2)(vi) does not impose any specific requirements 
on servicers concerning what constitutes a borrower's acceptance of 
loan modification offer. For example, the Bureau acknowledges that 
acceptance can take place verbally, and does not necessarily need to 
occur in writing. As to the concern about notices sent pursuant to 
Sec.  1024.41(b)(2)(i)(B), the Bureau notes that Sec.  
1024.41(b)(2)(i)(B) does not prohibit a servicer from adding 
explanatory language to such a notice to allay potential confusion if a 
loan modification offer is outstanding when the notice is sent. The 
Bureau encourages this type of transparency in communications.
    The Bureau also believes that it is important to provide the 
regulatory relief contemplated by Sec.  1024.41(b)(2)(i)(B) only if the 
borrower has become current or accepts an offer for a loan modification 
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 Bureau were to provide relief from the 
requirements of Sec.  1024.41(b)(1) and (b)(2) upon an offer of a loan 
modification option but prior to a borrower's acceptance of that 
option, a servicer would have no obligation to exercise reasonable 
diligence to complete a loss mitigation application or to notify a 
borrower of the completion status of such an application during a 
period of time when the borrower was still delinquent and not in a loan 
modification trial plan or a permanent loan modification. The Bureau 
does not believe it is appropriate to offer this regulatory relief when 
a borrower is delinquent and not in a loan modification trial plan or a 
permanent loan modification, as such a borrower may be vulnerable to 
foreclosure activity, the assessment of default related costs, or both 
during that time. Similarly, the Bureau concludes that it is necessary 
to require a servicer to resume the exercise of reasonable diligence 
when a borrower fails to perform under a trial loan modification plan 
offered pursuant to the exception or requests further assistance.
    In relieving servicers who evaluate a borrower for a streamlined 
loan modification on the basis of an incomplete application from the 
requirements of Sec.  1024.41(b)(1) and (b)(2), the Bureau again 
emphasizes, as

[[Page 34874]]

it did in the proposed rule, that if a borrower does wish to pursue a 
complete application and receive the full protections of Sec.  1024.41, 
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 are 
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 pursuant to Sec.  
1024.41(c)(2)(vi)(A).
    Trial loan modification plans--additional protections. The Bureau 
received one comment from a consumer advocate commenter specifically 
urging the Bureau to prohibit foreclosure referral for a borrower who 
enters a trial loan modification plan that was offered on the basis of 
an incomplete application pursuant to proposed Sec.  
1024.41(c)(2)(vi)(A).
    The Bureau is not including a specific provision in Sec.  
1024.41(c)(2)(vi) prohibiting foreclosure referral for a borrower who 
enters a trial loan modification plan that was offered on the basis of 
an incomplete application pursuant to proposed Sec.  
1024.41(c)(2)(vi)(A). The Bureau notes that the special COVID-19 loss 
mitigation procedural safeguards that the Bureau is adopting in this 
final rule as Sec.  1024.41(f)(3) will provide additional protection 
from foreclosure until January 1, 2022, for certain borrowers who enter 
into a trial loan modification trial plan offered on the basis of an 
incomplete application pursuant to the exception in Sec.  
1024.41(c)(2)(vi)(A).
    Though the Bureau is not revising Sec.  1024.41(c)(2)(vi) to 
provide foreclosure referral protection for a borrower who enters a 
trial loan modification plan that was offered under the new anti-
evasion exception, the Bureau recognizes the importance of ensuring 
that borrowers who fail to perform under a trial loan modification plan 
offered pursuant to Sec.  1024.41(c)(2)(vi)(A) or who request further 
assistance are provided with the information necessary to complete a 
loss mitigation application. The Bureau also notes that some borrowers 
who enter into a trial loan modification plan that was offered on the 
basis of an incomplete application pursuant to Sec.  
1024.41(c)(2)(vi)(A) and then fail to perform on that plan may not have 
received an acknowledgement notice with regard to the most recent loss 
mitigation application the borrower submitted prior to the servicer's 
offer of the loan modification under the exception. This could be the 
case, for example, when a borrower who was not previously in 
forbearance contacts their servicer to inquire about loss mitigation 
options and is offered a streamlined loan modification. The Bureau is 
therefore revising Sec.  1024.41(c)(2)(vi)(B) to adopt a requirement 
that, if a borrower fails to perform under a trial loan modification 
plan offered pursuant to Sec.  1024.41(c)(2)(vi)(A) or requests further 
assistance, the servicer must send the borrower the notice required by 
Sec.  1024.41(b)(2)(i)(B), with regard to the most recent loss 
mitigation application the borrower submitted prior to the servicer's 
offer of the loan modification under the exception, unless the servicer 
has already sent that notice to the borrower.
Final Rule
    For the reasons discussed above, the Bureau is adopting Sec.  
1024.41(b)(2)(i)(B) as proposed, with a revision to require an 
acknowledgement notice under certain circumstances.
41(f) Prohibition on Foreclosure Referral
41(f)(1) Pre-Foreclosure Review Period
41(f)(1)(i)
    As noted below, the Bureau proposed conforming amendments to Sec.  
1024.41(f)(1)(i) to help implement the proposed special pre-foreclosure 
review period in proposed Sec.  1024.41(f)(3). The Bureau did not 
receive any comments on this aspect of the proposal. As discussed below 
in the section-by-section analysis of Sec.  1024.41(f)(3), the Bureau 
is not finalizing the special pre-foreclosure review period as proposed 
and, thus, is not finalizing any corresponding amendments in Sec.  
1024.41(f)(1)(i).
41(f)(3) Temporary Special COVID-19 Loss Mitigation Procedural 
Safeguards
    Section 1024.41(f) prohibits a servicer from referring a borrower 
to foreclosure in several 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 (``first notice or filing'' or ``foreclosure 
referral''), 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. Section 41(f)(2) establishes an additional prohibition on 
making the first notice or filing if the borrower submits a complete 
loss mitigation application within a certain timeframe, unless other 
specified conditions are met. Section 1024.41 generally does not apply 
to small servicers.\112\ However, the pre-foreclosure review period in 
Sec.  1024.41(f)(1) does apply to small servicers.\113\
---------------------------------------------------------------------------

    \112\ 12 CFR 1024.30(b)(1).
    \113\ 12 CFR 1024.41(j).
---------------------------------------------------------------------------

The Bureau's Proposal
    The Bureau proposed 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 have prohibited 
servicers from making a first notice or filing because of a delinquency 
from the effective date of the rule until after December 31, 2021. 
Specifically, the Bureau proposed 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 proposed to add new 
Sec.  1024.41(f)(3), which would have provided that a servicer shall 
not rely on paragraph (f)(1)(i) to make the first notice or filing 
until after December 31, 2021.
    The proposed special pre-foreclosure review period was intended to 
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. The Bureau proposed the intervention to 
address concerns that borrowers and servicers will likely both need 
additional time before foreclosure referral in the months ahead to help 
ensure borrowers have a meaningful opportunity to pursue foreclosure 
avoidance options consistent with the purposes of RESPA. As explained 
in more detail in the proposal, the Bureau is concerned that servicers 
will face capacity constraints that will slow down their operations and 
increase error rates associated with the servicing of delinquent 
borrowers. With respect to borrowers, the Bureau is concerned that 
borrowers have encountered, or will encounter, obstacles to pursuing 
foreclosure avoidance options, such as physical barriers that may 
undermine their ability to pursue foreclosure avoidance options sooner 
or confusion caused by the present circumstances that may have 
interfered with their ability to obtain and understand important 
information

[[Page 34875]]

about the status of their loan and their foreclosure avoidance options. 
A servicer facing capacity constraints will be less able to dedicate 
the resources necessary to borrowers who are facing these obstacles.
    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. The Bureau 
requested comment on alternatives that could narrow the scope of the 
special pre-foreclosure review period while mitigating harm that could 
arise from a surge in loss mitigation-related default servicing 
activity during a period when borrowers might need a lot of assistance. 
The Bureau recognized that, if adopted as proposed, the special pre-
foreclosure review period could have prevented a servicer from making 
the first notice or filing even in circumstances where additional time 
would merely delay rather than prevent avoidable foreclosure. However, 
the Bureau was concerned that alternatives would be difficult to craft 
and implement, particularly under very tight time frames. The Bureau 
believed that the straightforward and simple ``date certain'' approach 
in the proposal would be easy to implement, and its brevity would 
partially mitigate concerns. The alternatives discussed in the Proposal 
included options to (1) use a date certain other than December 31, 
2021; (2) provide exemptions from the December 31, 2021 date certain; 
or (3) adopt a different approach such as requiring a grace period 
after exiting forbearance, keying the special pre-foreclosure review 
period to the length of the delinquency, or ending the special pre-
foreclosure review period on a date that is based on when a borrower's 
delinquency begins or forbearance period ends, whichever occurs last. 
The Bureau explained that it believed each option carried its own set 
of advantages and disadvantages.
    For the reasons discussed below, the Bureau is not finalizing the 
special pre-foreclosure review period as proposed. Instead, as 
finalized, Sec.  1024.41(f)(3) will temporarily provide a more tailored 
procedural protection to minimize avoidable foreclosures in light of a 
potential wave of loss mitigation-related default servicing activity 
during a period when borrowers are also likely to need extra 
assistance. Final Sec.  1024.41(f)(3) generally requires a servicer to 
ensure that one of three temporary procedural safeguards has been met 
before making the first notice or filing because of a delinquency: (1) 
The borrower submitted a completed loss mitigation application and 
Sec.  1024.41(f)(2) permits the servicer to make the first notice or 
filing; (2) the property securing the mortgage loan is abandoned under 
state law; or (3) the servicer has conducted specified outreach and the 
borrower is unresponsive. The temporary procedural safeguards are 
applicable only if (1) the borrower's mortgage loan obligation became 
more than 120 days delinquent on or after March 1, 2020; and (2) the 
statute of limitations applicable to the foreclosure action being taken 
in the laws of the State where the property securing the mortgage loan 
is located expires on or after January 1, 2022. This temporary 
provision will expire on January 1, 2022, meaning that the procedural 
safeguards in Sec.  1024.41(f)(3) would not be applicable if a 
servicers makes the of the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process on 
or after January 1, 2022.
Comments Received
    Most commenters addressed the proposed special pre-foreclosure 
review period. The comments covered issues ranging from general support 
and opposition to specific aspects of the proposal, including specific 
suggestions on overall scope.
    General Support and Opposition. A number of commenters expressed 
general support for the Bureau's stated goals underlying the proposal. 
While most commenters suggested changes to the proposal, several, 
including at least one industry commenter, an individual, and a 
consumer advocate commenter, urged the Bureau to finalize as proposed. 
Those who wanted to finalize the special pre-foreclosure review period 
as proposed (the ``proposed approach'') argued, for example, that the 
proposed approach struck the right balance between minimizing costs to 
servicers and allowing sufficient time for loss mitigation review, and 
that the proposed approach would create clarity and certainty to 
customers who may have become disengaged because of confusion created 
by evolving requirements.
    A group of State Attorneys General expressed general support for 
the proposed special pre-foreclosure review period because they 
believed it would provide a modest expansion of current requirements 
that would bring fairness to borrowers who have no control over who 
owns their loans. Other commenters who generally supported the proposed 
special pre-foreclosure review period stated that they believed the 
proposed approach would give time for borrowers to recover economically 
and explore loss mitigation options to avoid foreclosure. Some 
commenters also cited racial equity concerns, explaining that 
unnecessary foreclosures would have serious negative consequences on 
communities of color, and that the proposal could help address those 
concerns. A consumer advocate commenter echoed and amplified the 
Bureau's concerns described in the proposal. That commenter provided 
additional support and asserted that there will be a spike of hundreds 
of thousands of seriously delinquent mortgage borrowers this fall, that 
there is a serious concern that servicers will be unprepared because of 
problems some servicers exhibited over the last year, and that 
unnecessary foreclosures that could occur as a result would cause 
serious harm.
    Commenters who expressed general opposition to the proposed special 
pre-foreclosure review period cited a range of concerns related to, 
among other things, the Bureau's assumptions, the effect the 
intervention would have on the housing markets, mortgage markets, and 
servicer liquidity, and the Bureau's authority, each discussed more 
fully below.
    After considering the comments, the Bureau is persuaded that it 
should not finalize the proposed special pre-foreclosure review period 
as proposed. Instead, the Bureau is adopting a more narrowly tailed 
approach that balances the goals of foreclosure avoidance in light of 
servicer capacity and borrower confusion concerns while also allowing 
servicers to proceed with foreclosure referral where additional 
procedural safeguards and time are unlikely to help, or are unnecessary 
to give, a borrower pursue foreclosure avoidance options. This more 
narrowly tailored approach adopts aspects of the original proposal, but 
also incorporates exceptions on which the Bureau sought and received 
comment that address circumstances where additional procedural 
safeguards and time are least likely to be beneficial. Because the 
Bureau is adopting this more narrowly tailored approach, the Bureau 
also believes it is appropriate to now refer to this intervention as 
Temporary Special COVID-19 Loss Mitigation Procedural Safeguards, or 
procedural safeguards, to better reflect the temporary and targeted 
nature of the requirement.
    The Bureau continues to believe the proposed approach would be 
simple to

[[Page 34876]]

implement and would give time and flexibilities to servicers and 
borrowers to identify foreclosure alternatives in light of the 
anticipated wave of loss mitigation-related default servicing activity. 
However, the Bureau is also concerned that the proposed approach would 
temporarily prevent servicers from making the first notice or filing 
where doing so is the best remaining option (because, for example, the 
borrower does not qualify for a foreclosure alternative and delaying 
the first notice or filing would do nothing more than increase the 
borrower's delinquency). Further, the Bureau is persuaded that the 
proposed approach would not have sufficiently encouraged borrowers and 
servicers to work together towards a foreclosure alternative because it 
did not include incentives for borrowers or servicers to act promptly. 
Instead, it may have incentivized borrowers and servicers to delay any 
communications because it would have imposed a foreclosure restriction 
that applied regardless of the specific circumstances.
    Inaccurate Assumptions. A number of commenters challenged the 
Bureau's stated assumptions underlying the proposed special pre-
foreclosure review period and argued that the proposed special pre-
foreclosure review period is unnecessary. For example, a number of 
industry and individual commenters argued that the Bureau was wrong to 
assume that there will be a wave of consumers seeking loss mitigation 
later this year. They argued that the number of borrowers who need loss 
mitigation assistance later this year will be much smaller than the 
Bureau predicted because the economy is improving, borrowers have 
already begun exiting forbearance,\114\ and borrowers who can no longer 
afford their homes can avoid foreclosure by selling their homes because 
most borrowers have equity in their homes.\115\ One industry commenter 
cited a recent report indicating that the rate of foreclosures over the 
next two years is expected to be consistent with the historical 
average.
---------------------------------------------------------------------------

    \114\ An industry commenter argued that 25 percent of the loans 
included in the Bureau's assumptions will not qualify for the six-
month extension of forbearance (for a maximum of 18 months) because 
they are not government agency or GSE loans, and that servicers have 
already begun reaching out to those borrowers.
    \115\ Commenters generally made broad statements that the 
housing prices have been increasing, although some pointed to 
specific statistics. For example, an industry commenter cited a 
report indicating that 80 percent of homes have at least 20 percent 
equity.
---------------------------------------------------------------------------

    Some commenters also argued that it was wrong to assume that 
servicers will experience capacity issues. For example, an industry 
commenter argued that most borrowers who may exit forbearance this fall 
will not require significant servicer resources because they will 
qualify for a loss mitigation option that requires few servicer 
resources, such as a payment deferral or streamlined loan modification. 
That commenter also argued that, to the extent any capacity concerns 
exist, they relate to servicers' ability to implement and communicate 
changing regulatory and investor requirements, and not to volume. The 
commenter stated that the proposal would heighten that concern.
    A number of commenters, including consumer advocate commenters, 
industry commenters, and individuals, argued that it was wrong to 
assume that the special pre-foreclosure review period would encourage 
or facilitate loss mitigation review. They generally argued that the 
proposal was nothing more than an extended foreclosure moratorium 
because it would prevent servicers from making the first notice or 
filing without imposing any affirmative loss mitigation review 
requirements, and that such an intervention would do nothing more than 
delay, rather than prevent, any increased foreclosure activity. One of 
these industry commenters also argued that the proposal would do 
nothing to resolve borrower confusion concerns or to prompt 
communications and would instead cause borrowers to further delay 
contacting their servicers.
    Because they believe the Bureau's assumptions are wrong, several 
commenters argued that the proposed intervention would not help 
borrowers and could harm them. Some commenters argued that the proposal 
would be unhelpful because servicers must already comply with current 
investor, Federal law, and State law requirements that would render any 
potential protections created by the rule irrelevant. Some commenters 
argued that the proposal would harm borrowers by, for example, allowing 
the borrower's past due debt to accumulate and artificially delay 
opportunities to exit while home prices are elevated. Other commenters, 
who argued that the proposal essentially extends the moratorium for all 
borrowers to a date certain, expressed concern that this approach could 
harm borrowers, especially borrowers with pre-pandemic delinquencies, 
by leaving them with no exit strategy. For example, an industry 
commenter argued that 18 months is the practical limit of the 
beneficial effect of forbearance and stated that payment deferrals and 
streamlined loan modifications may not be available to borrowers who 
have longer delinquencies. Others expressed concern that the proposal 
could make bankruptcy and loan modification less likely if the size of 
the borrower's default becomes unmanageable.
    An industry commenter argued that the Bureau was wrong to assume 
that borrowers will incur unnecessary fees, stating that fees 
associated with an erroneous foreclosure referral are not recoverable 
from the borrower.
    The Bureau acknowledges that it is impossible to predict what will 
occur later this year, and thus, it is possible that some of the 
Bureau's assumptions will prove to be inaccurate. However, available 
data show that servicers could be faced with potentially unprecedented 
volumes of loss mitigation activity later this fall when approximately 
900,000 borrowers could become eligible for foreclosure referral at 
around the same time. Some of these borrowers will likely exit 
forbearance before September 1, and many may opt into payment deferrals 
or streamlined loan modifications that are less resource intensive than 
full loss mitigation evaluations. However, servicers will likely still 
need to process a high volume of borrowers in the fall to determine 
eligibility for these streamlined options and to otherwise assist with 
related issues, potentially straining servicer resources. Further, even 
if most borrowers take advantage of streamlined options, borrowers 
needing additional assistance, including through a full evaluation 
based on a complete loss mitigation application, could still be 
significant. And, while many affected borrowers are likely to have 
equity in their homes, considerable servicer resources may be necessary 
in the fall to assist borrowers in assessing whether selling their home 
is their best available, or preferred, option. Foreclosure referral 
could limit those borrowers' options and frustrate those borrowers' 
ability to pursue foreclosure alternatives. As a result, and as 
discussed in more detail in the proposal, servicers are likely to 
nevertheless face capacity constraints that could increase error rates.
    Further, because of unique circumstances created by the pandemic, 
borrowers may be delayed in seeking loss mitigation assistance and may 
face obstacles that delay their efforts, which will increase the 
likelihood that a surge of borrowers will need assistance during this 
critical period. For example, as discussed in more detail in the 
proposal, borrowers may have received outdated or incorrect information 
that delays their requests for loss mitigation options, or they may 
have deferred

[[Page 34877]]

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.
    As some commenters emphasized, if these obstacles prevent borrowers 
from having a meaningful opportunity to pursue foreclosure alternatives 
before foreclosure referral, the harm could be severe.
    The Bureau acknowledges that the proposed special pre-foreclosure 
review period was not sufficiently targeted to address the need for 
procedural safeguards in light of the scope of the anticipated wave of 
loss mitigation applications, and could harm borrowers if, for example, 
the review period were to cause borrowers to delay communicating with 
their servicers about foreclosure avoidance options, and the borrowers' 
delay in seeking foreclosure avoidance options causes borrowers to lose 
eligibility for a foreclosure alternative or to incur additional costs. 
Further, the Bureau is persuaded by comments that, if a broad swath of 
borrowers all simply delay seeking foreclosure avoidance options, an 
even larger number of borrowers may become eligible for foreclosure 
referral at around the same time. To address these concerns, the Bureau 
is finalizing narrower temporary loss mitigation procedural safeguards 
that the Bureau believes will facilitate and encourage loss mitigation 
reviews while reducing the risk of servicer errors that cause borrower 
harm in light of the anticipated wave of loss imitation-related default 
servicing activity and obstacles facing consumers discussed above. See 
the section-by-section analysis of Sec.  1024.41(f)(3)(i) through (iii) 
for additional discussion.
    Moral Hazards and Market Effects. Many commenters, including 
individuals and industry commenters, expressed concern that the 
proposed special pre-foreclosure review period would harm the housing 
or mortgage markets by driving up housing prices and reducing the 
availability of credit, which could harm first time homebuyers and 
renters who may be priced out of the market. At least one commenter 
expressed concern that these issues could widen the racial wealth gap. 
Others argued that, because most borrowers have equity, the proposal 
and the effects it would cause on the housing market are unjustified. 
Relatedly, a number of individual commenters expressed concern that the 
proposal would create moral hazards and would be inequitable. For 
example, some commenters expressed concern that the proposal would 
incentivize borrowers who were not suffering a financial hardship to 
skip payments or not bring their mortgage loan obligations current 
while servicers were prohibited from making the first notice or filing, 
while at the same time first time home buyers could be prevented from 
purchasing a home because of rising prices. They also expressed concern 
that borrowers would be allowed to live in their homes for free for 
many years because the court system could be backed up when 
foreclosures are eventually allowed to proceed.
    An industry commenter expressed concern that the proposal would 
further reduce credit availability, particularly for borrowers with 
less-than-perfect credit. The commenter argued that the private label 
securities market is capable of providing safe and responsible access 
to credit to those borrowers, but may be more hesitant to do so if they 
are subject to strict restrictions and are left without support 
relative to the support that other markets receive.
    While the Bureau appreciates markets and moral hazard concerns, the 
Bureau believes that the final rule, as revised from the proposal, will 
mitigate these concerns. Although it is possible that the final rule 
could affect housing markets, housing markets could also be affected if 
the Bureau does not finalize consumer protections because the 
circumstances could lead to an upsurge of foreclosures that could have 
otherwise been avoided, which would in turn affect housing prices. It 
is also true that a small number of borrowers may take advantage of the 
procedural safeguards under the final rule even if they could resume 
payments without assistance, but the Bureau is not aware of any 
evidence indicating that a significant number of borrowers would do so. 
Using data from 2012 to 2015, which may not be directly comparable to 
the current economic crisis, recent economic research finds that 
adverse events were a necessary condition for 97 percent of mortgage 
defaults, and not solely because borrowers were underwater. This 
research suggests that moral hazard concerns have generally been 
overstated in the past.\116\ Further, the final rule should reduce this 
risk because the final rule will only limit a servicer's ability to 
proceed with the first notice or filing in limited circumstances. 
Finally, while the final rule will impose costs on servicers, the 
protections are narrowly tailored and apply for a limited period of 
time. Thus, costs should be minimized compared to the proposal and they 
are unlikely to majorly contribute to credit access concerns. For these 
reasons, the Bureau does not believe that these issues present a 
significant concern that would justify curtailing consumer protections.
---------------------------------------------------------------------------

    \116\ See Peter Ganong & Pascal Noel, Why Do Borrowers Default 
on Mortgages? A New Method for Causal Distribution, (Becker Friedman 
Inst., Working Paper No. 2020-100, 2020), https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_2020100.pdf.
---------------------------------------------------------------------------

    Servicer liquidity concerns. Several industry commenters expressed 
concern that the proposed special pre-foreclosure review period could 
cause a strain on servicer liquidity. For example, an industry 
commenter noted that some servicers have already experienced strain in 
connection with the lengthy forbearances and stated that the proposal 
could deepen that strain. The commenter explained that, while updates 
to GSE policies mitigated some liquidity concerns, servicers would be 
required to continue advancing payment for escrow items and other 
costs, which could cause additional strains. The Bureau appreciates 
these concerns. However, as discussed herein, the Bureau is finalizing 
a more targeted, narrower intervention that should mitigate these 
concerns because it is limited in duration and scope, such that it will 
not delay a servicer from making the first notice or filing except in 
certain circumstances for a brief period of time.
    Legal authority. Several industry commenters questioned the 
Bureau's legal authority for the proposed special pre-foreclosure 
review period, arguing, among other things, that the Bureau lacks legal 
authority under RESPA for the broad intervention proposed.\117\ A few 
of these industry commenters further stated that, if the Bureau moved 
forward with the intervention, it would be appropriate to narrow it to 
include several exceptions, including for nonresponsive borrowers or 
borrowers

[[Page 34878]]

that would not qualify for loss mitigation options.
---------------------------------------------------------------------------

    \117\ Several commenters also stated that the proposed pre-
foreclosure review period raised constitutional concerns, including 
under the First Amendment and Article I, Section 10, Clause 1 (the 
Contract Clause). The Bureau has considered these arguments and 
concludes that the proposed pre-foreclosure review intervention and 
the final rule's procedural safeguards are fully consistent with 
constitutional requirements. The Bureau further believes that the 
final rule adequately addresses commenters' underlying equitable 
concerns.
---------------------------------------------------------------------------

    As described in Part IV (Legal Authority), Section 19(a) of RESPA 
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. 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. 
Section 6(k)(1) of RESPA specifically prohibits servicers from, among 
other items, failing to take timely action to respond to borrower 
requests to correct errors.\118\
---------------------------------------------------------------------------

    \118\ 12 U.S.C. 2605(k)(1).
---------------------------------------------------------------------------

    The Bureau's temporary special COVID-19 loss mitigation procedural 
safeguards are intended to achieve these RESPA consumer protection 
purposes, including providing procedural protections to help ensure 
that consumers (1) are appropriately evaluated for foreclosure 
avoidance options in light of an anticipated wave of loss mitigation 
applications causing servicer capacity constraints and (2) do not incur 
the potential unnecessary costs and fees associated with foreclosures 
that can be avoided. The temporary special COVID-19 loss mitigation 
procedural safeguards are also intended to minimize the potential wave 
of borrowers who may seek loss mitigation at the same time, which could 
result in increased servicer errors or an inability by servicers to 
take timely action to respond to borrowers requests to correct errors.
    Further, as described below, under the section-by-section analyses 
of Sec.  1024.41(f)(3)(ii)(A) through (C), the Bureau's targeted loss 
mitigation procedural safeguards will enable servicers to move forward 
with foreclosure if the property securing the mortgage loan is 
abandoned under State or municipal law, and in circumstances where a 
borrower is unresponsive or does not qualify for loss mitigation 
options. The Bureau believes these new procedural safeguards respond to 
comments that the original proposal may have been overly broad and 
better ensure that the rule is tailored to preventing avoidable 
foreclosures.
    Time Period Covered. The proposed special pre-foreclosure review 
period would have ended on a date certain, meaning that it would have 
applied from the effective date of the rule through December 31, 2021. 
Some commenters expressing concern about the proposed special pre-
foreclosure review period argued, for example, that it would provide 
limited protection to a small subset of borrowers who become eligible 
for foreclosure referral between the effective date of the rule and 
December 31, 2021. These commenters expressed concern that that this 
could incentivize foreclosure referral before the rule becomes 
effective, and that it would not provide protections for borrowers 
exiting forbearance just before, or after, December 31, 2021.
    The Bureau believes the approach under final Sec.  1024.41(f)(3) is 
better tailored than the proposed approach to facilitate loss 
mitigation review. However, the Bureau concludes that final Sec.  
1024.41(f)(3), like the proposed special pre-foreclosure review period, 
should apply only for a limited period of time. As described more in 
the section-by-section analysis of Sec.  1024.41(f)(3)(iii), final 
Sec.  1024.41(f)(3) will apply during the same period of time that 
would have been covered by the proposed special pre-foreclosure review 
period, i.e., from the effective date of the rule through December 31, 
2021. While this is a very short period of time, and some borrowers 
experiencing COVID-19-related hardships will likely be exiting 
forbearance or remain delinquent long after December 31, 2021, the 
Bureau believes that this is the critical period of time when current 
rules may be insufficient because servicers are most likely to suffer 
capacity issues, which could also exacerbate concerns that borrowers 
could face obstacles to pursuing loss mitigation options during that 
period. The Bureau expects that servicers will have fewer capacity 
concerns before August 31, 2021, and after December 31, 2021, because 
the volume of borrowers seeking loss mitigation assistance during those 
timeframes should be more staggered and much lower. While there may be 
some risk of servicers rushing to foreclose on those loans subject to 
the Bureau's final temporary procedural safeguards, based on its 
expertise and experience in the mortgage servicing markets, the Bureau 
believes that servicers are more likely to prioritize soliciting 
borrowers for loss mitigation during the few week gap between the 
anticipated end of nationwide foreclosure moratoria and the effective 
date of the Bureau's rule. Commenters offered no evidence to suggest 
otherwise, much less that any such foreclosure filings will be prompted 
by the Bureau's own rule. The Bureau also notes that existing 
regulatory requirements, including Regulation X, prohibitions against 
unfair, deceptive, or abusive practices, and State law, apply to 
borrowers who become eligible for foreclosure referral before August 
31, 2021, or after December 31, 2021. The Bureau intends to use the 
full scope of its supervision and enforcement authority to ensure that 
servicers comply with those existing requirements.
    Potential Exceptions. As noted above, the Bureau sought comment on 
whether, if it adopted a date certain approach, it should add 
exceptions that would allow a servicer to make the first notice or 
filing before December 31 (the ``date certain approach with 
exceptions'' approach). The Bureau solicited comment on possible 
exceptions where the servicer (1) completed a loss mitigation review of 
the borrower and the borrower was not eligible for any non-foreclosure 
option or (2) made certain efforts to contact the borrower and the 
borrower did not respond to the servicer's outreach. Many industry 
commenters supported finalizing a date certain approach with exceptions 
(or preferred it over the proposed approach or other alternatives). 
These commenters argued, for example, that adding exceptions would 
ensure that the final rule protects borrowers who need it while 
allowing foreclosure to proceed where additional time is unlikely to 
help the borrower or the servicer.
    A number of consumer advocates and some industry commenters opposed 
adding exceptions to the date certain approach. These commenters 
expressed concern that, for example, the exceptions would swallow the 
rule, would fail to provide appropriate protections to communities of 
color, or would increase the likelihood of servicer error and create 
unnecessary confusion without adding any benefits.
    After considering these comments and the general comments 
summarized above, the Bureau believes that allowing servicers to make 
the first notice or filing in certain circumstances is important both 
for purposes of consumer protection and for the proper functioning of 
the market. As discussed in detail below and in the section-by-section 
analysis of Sec.  1024.41(f)(3)(ii) through (iii), to address these 
concerns, the Bureau is not finalizing the special pre-foreclosure 
review period as proposed and is instead finalizing a more tailored 
procedural safeguards approach to minimize avoidable foreclosures in 
light of a potential wave

[[Page 34879]]

of loss mitigation applications. The Bureau believes that the approach 
taken in final Sec.  1024.41(f)(3) should help encourage borrowers and 
servicers to work together to pursue foreclosure alternatives while 
allowing servicers to make the first notice or filing if the servicer 
has given the borrower a meaningful opportunity to pursue loss 
mitigation options or additional time is unlikely to result in 
foreclosure avoidance.
    Unresponsive Borrower. The Bureau specifically sought comment on 
whether to include a potential exception if the servicer has exercised 
reasonable diligence to contact the borrower and has been unable to 
reach the borrower (``unresponsive borrower exception''). A number of 
industry commenters supported an unresponsive borrower exception. These 
commenters explained that there is always a population of borrowers who 
will not respond to servicer outreach until after foreclosure referral 
occurs, at which point the referral will prompt the borrower to reach 
out to their servicer and explore foreclosure alternatives. Some 
commenters also expressed concern that prohibiting foreclosure referral 
in these circumstances could unintentionally create a larger wave of 
foreclosures later because the delinquent amounts will continue to 
accrue, and borrowers may lose their ability to obtain a foreclosure 
alternative.
    A group of consumer advocate commenters expressed concern that an 
exception for unresponsive borrowers would encourage less rigorous and 
less effective servicer outreach. A State elected official expressed 
opposition to the exception and noted that the pandemic has created 
unique burdens that could increase the likelihood that a borrower is 
unresponsive over a short period of time, such as hospitalization of 
the borrower or a family member or additional caregiving 
responsibilities.
    Commenters offered various ideas related to the scope and framing 
of an unresponsive borrower exception, including suggestions on what 
types of outreach should qualify, the timeframe for such outreach, and 
when a borrower should be considered unresponsive.
    After considering these comments, the Bureau concludes that further 
delaying servicers from making the first notice or filing for 
delinquent borrowers who are unresponsive could harm both the 
delinquent borrower and the broader housing market. As explained in the 
section-by-section analysis of Sec.  1024.41(f)(3)(ii)(C) below, the 
Bureau is finalizing temporary special COVID-19 loss mitigation 
procedural safeguards that should help ensure servicers will not be 
prohibited from making the first notice or filing in these situations.
    Completed Loss Mitigation Application Exception. The Bureau also 
specifically sought comment on whether to include an exception 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 (the ``completed loss mitigation 
application exception''). A number of industry commenters supported 
this type of exception. These commenters explained that a completed 
loss mitigation application exception would ensure that servicers focus 
their limited resources on borrowers who are eligible for loss 
mitigation options and who express an interest in home retention, while 
allowing borrowers for whom foreclosure is the best option to proceed 
without unnecessarily stripping their equity. An industry commenter 
expressed its belief that such an exception would allow foreclosure 
referral to occur for a small subset of borrowers without increasing 
borrower harm to the extent that it would outweigh other concerns, such 
as the proper functioning of the housing market. This commenter also 
noted that borrowers may become eligible for State assistance after 
foreclosure referral, including certain mediation and loss mitigation 
programs, which the commenter stated are highly successful and may lead 
to better results for the borrower. Another industry commenter 
expressed support for this type of exception, noting that it has seen 
dramatic declines in bankruptcy filings and that it is concerned that 
continuing to delay foreclosure for borrowers that have already been 
evaluated for non-bankruptcy alternative will lessen the likelihood of 
successful bankruptcy reorganization. This commenter explained that a 
successful bankruptcy reorganization is much more likely if it occurs 
before large arrearages have accumulated.
    Commenters who opposed a completed loss mitigation application 
exception argued, for example, that a borrower's financial situation 
may rapidly change, and that the borrower should not be denied a second 
chance at loss mitigation. A group of consumer advocate commenters 
expressed concern that the exception would allow servicers to proceed 
with foreclosure referral before the borrower has a full opportunity to 
be considered for loss mitigation options.
    Commenters also offered various ideas relating to the scope of any 
complete loss mitigation application exception that largely revolved 
around limiting the exception based on the date the review occurred.
    After considering these comments, the Bureau concludes that further 
delaying servicers from making the first notice or filing if the 
servicer has already determined that the borrower does not qualify for 
a non-foreclosure alternative is unlikely to help borrowers or 
servicers. As explained in the section-by-section analysis of Sec.  
1024.41(f)(3)(ii)(A) below, the Bureau is finalizing temporary special 
COVID-19 loss mitigation procedural safeguards that should help ensure 
servicers that servicers are permitted to make the first notice or 
filing in these situations.
    Additional Exceptions. Commenters proposed a number of additional 
exceptions that they believed would allow servicers to proceed with 
foreclosure referral without significantly harming borrowers. For 
example, some commenters, including consumer advocate commenters, urged 
the Bureau to require servicers to offer specific loss mitigation 
options before referral. An industry commenter suggested allowing 
foreclosure to proceed if the borrower has not entered into a 
forbearance plan or loss mitigation process. Another industry commenter 
suggested adding an exception for servicers who have followed program 
loss mitigation requirements for agency or GSE loans. The Bureau 
declines to adopt the additional exceptions suggested by commenters and 
is instead finalizing temporary special COVID-19 loss mitigation 
procedural safeguards, as discussed below. Among other reasons, the 
Bureau believes that incorporating additional ideas offered by 
commenters would add complexity and costs. The Bureau believes its 
revised approach strikes the right balance of ensuring borrowers have a 
meaningful opportunity to pursue foreclosure alternatives while 
allowing servicers to proceed with foreclosure referral when additional 
time is unlikely to aid in that goal.
    Potential Alternative Approaches. The Bureau solicited comment on 
several alternatives to the proposed special pre-foreclosure review 
period, including imposing a ``grace period'' within which servicers 
could not make the first notice or filing for a certain number of days 
after the borrower exited forbearance, keying the special pre-
foreclosure review period to the length of the borrower's delinquency, 
or ending the special pre-foreclosure review period on a date that is 
based on when a borrower's delinquency begins or forbearance period 
ends, whichever occurs last.

[[Page 34880]]

    Most consumer advocates preferred a grace period approach to the 
proposed date certain approach, and at least one industry commenter 
supported it. Commenters who preferred the grace period approach 
generally believed that it would give most COVID-19-affected borrowers 
time to find an affordable solution without swamping servicers with a 
single date on which foreclosure referrals may begin because it would 
continue to apply after December 31, 2021. These commenters argued that 
it takes significant time and effort to move borrowers from a 
forbearance plan to a sustainable permanent solution.
    Few commenters addressed other alternatives, although at least one 
consumer advocate commenter expressed support for an alternative 
approach that would apply a pre-foreclosure review period based on the 
later of the date the borrower's delinquency begins or forbearance 
period ends. However, another consumer advocate commenter opposed that 
approach because they were concerned that it provided the weakest 
protections to borrowers who need it most. Another commenter urged the 
Bureau to develop a solution that would focus on making contact with 
the borrower and determining which foreclosures can be avoided, and 
that the Bureau should provide a soft landing for borrowers who cannot 
avoid foreclosure.
    A few commenters suggested applying a different date certain for 
various reasons. At least one commenter suggested applying a more 
flexible date certain that is tied to the last-announced forbearance 
extensions.
    A number of commenters, including individual, consumer advocate, 
and industry commenters, suggested the Bureau consider different 
alternatives that were not specifically discussed in the proposed rule, 
such as implementing the California Homeowner's Bill of Rights, 
prohibiting foreclosure referral until the later of a date certain or 
120 days after forbearance, funding additional outreach to borrowers, 
or requiring servicers to offer specific loss mitigation options.
    The Bureau declines to adopt one of the alternatives suggested by 
commenters and is instead finalizing temporary special COVID-19 loss 
mitigation procedural safeguards, as discussed below. Although the 
Bureau agrees that a grace period approach would offer some advantages, 
it also has several disadvantages. For example, it would impose 
restrictions for a longer period of time, well beyond the critical 
period this fall identified by the Bureau, and would leave some 
borrowers unprotected during the period of time when the Bureau finds 
intervention is most needed to help ensure borrowers have a meaningful 
opportunity to pursue foreclosure avoidance options consistent with the 
purposes of RESPA. The Bureau believes that final Sec.  1024.41(f)(3), 
which imposes procedural safeguards for the narrow period of time 
through the end of 2021 when a borrower's ability to pursue foreclosure 
avoidance options is most likely to be frustrated, is more 
appropriately tailored to facilitate loss mitigation review during the 
period of time when existing requirements may be insufficient. As noted 
herein, the Bureau intends to use the full scope of its supervision and 
enforcement authority to ensure that servicers comply with existing 
requirements.
    Scope. Under the proposed rule, the special pre-foreclosure review 
period would have applied to all delinquent loans that are secured by 
the borrower's principal residence, regardless of when the first 
delinquency occurred. The Bureau sought comment on whether this 
category of loans was the appropriate scope of coverage for the 
proposed special pre-foreclosure review period. Many commenters 
addressed this question. Some commenters urged the Bureau to adopt a 
broader scope, while others asked that the scope be narrowed.
    For example, some commenters, including consumer advocate 
commenters, argued that any final rule should apply to borrowers with 
pre-pandemic delinquencies. These commenters generally argued that 
borrowers whose delinquencies began before the pandemic are among the 
most vulnerable because borrowers with longer delinquencies are more 
likely to need additional assistance from their servicers. In contrast, 
others, including individuals, industry commenters, and other consumer 
advocate commenters, argued that the scope should be limited based on 
the timing of delinquency. These commenters argued, for example, that 
loans that first became delinquent before the pandemic are unlikely to 
benefit from an additional delay in foreclosure referral. Some 
commenters also argued that limiting any foreclosure restriction based 
on when the mortgage loan became delinquent would ensure the rule is 
tailored to COVID-19-related delinquencies. These commenters suggested 
various cutoffs, such as excluding loans that became delinquent before 
March 1, 2020, that became 120 days delinquent before March 1, 2020, or 
that had already been referred to foreclosure before March 1, 2020.
    Some commenters suggested limiting the scope based on the cause of 
delinquency so that the provision only applies to borrowers who can 
demonstrate a financial hardship, with some suggesting an even narrower 
scope so that it only applies if the financial hardship is COVID-19-
related. An individual commenter who indicated they were denied 
forbearance because they had already used forbearance in connection 
with a previous financial hardship asked the Bureau to ensure the final 
rule applies even if the borrower experienced a financial hardship in 
the past.
    Some commenters asked the Bureau to exclude particular loans, such 
as loans that are not government backed, those that are government 
backed, loans located in States that already have special COVID-19-
related rules, open-end loans, or business-purpose loans. Some 
commenters also discussed which entities they believe should be subject 
to any new foreclosure restriction adopted by the final rule. A group 
of consumer advocate commenters argued that the final rule should apply 
to small servicers, while an industry commenter and an individual 
argued that the final rule should exempt small lenders and servicers.
    After considering all of the comments addressing the scope of the 
proposed special pre-foreclosure review period, the Bureau is limiting 
the scope of the new temporary special COVID-19 loss mitigation 
procedural safeguards to apply only to mortgages that became more than 
120 days delinquent on or after March 1, 2020. Thus, the procedural 
safeguards are not applicable for a mortgage that became more than 120 
days delinquent prior to March 1, 2020, and a servicer may make the 
first notice or filing before January 1, 2022, without ensuring a 
procedural safeguard has been met in those circumstances. The Bureau 
believes this narrowly tailored approach will address a number of 
concerns raised by commenters without imposing overly burdensome 
requirements on servicers that could prove impossible to implement by 
the effective date of the final rule. For example, the Bureau concludes 
that the final rule should focus on providing relief to borrowers who 
became severely delinquent near the beginning of the COVID-19 pandemic 
or after it began. These borrowers are the least likely to have already 
meaningfully pursued foreclosure alternatives and are the most likely 
to have suffered a sudden but temporary financial strain and they may 
have obtained temporary relief, such as forbearance, without 
understanding the effects of the relief. Final Sec.  1024.41(f)(3)

[[Page 34881]]

targets these borrowers because it only applies to mortgage loans that 
became more than 120 days delinquent after March 1, 2020. Borrowers who 
became more than 120 days delinquent before that date almost certainly 
became delinquent for reasons unrelated to the pandemic, and they 
should have been given a meaningful opportunity under then existing 
requirements to pursue foreclosure avoidance options before the 
pandemic began. These borrowers are more likely to have already 
discussed foreclosure avoidance options with their servicers. This 
approach is consistent with existing Sec.  1024.41(f)(1)(i), which 
provides a 120-day period to ensure a borrower has a meaningful 
opportunity to pursue foreclosure avoidance options. The Bureau chose 
March 1, 2020, to help ensure that borrowers who became eligible for 
foreclosure referral just prior to the date on which the COVID-19 
national emergency was declared, who are less likely to have been given 
a meaningful opportunity to pursue foreclosure avoidance options during 
the first 120 days of their delinquency, are also given procedural 
safeguards provided by the final rule.
    The Bureau believes that requiring servicers to determine the cause 
of the delinquency would add complexity during a period when servicer 
capacity may already be strained. Limiting the rule to permit servicers 
to proceed with foreclosure referral for borrowers with serious 
delinquencies before the pandemic without applying the temporary 
special COVID-19 loss mitigation procedural safeguards for those 
borrowers should generally achieve the same goal while placing less 
strain on servicers because they already track the delinquency date for 
every loan.
    Foreclosure Restarts. Several commenters, including law firms, 
trade associations, and a government commenter, asked the Bureau to 
clarify that the special pre-foreclosure review period does not apply 
to loans that have already been referred to foreclosure, regardless of 
whether the foreclosure must be ``restarted.'' ``Restarts'' should not 
be an issue under the final rule because the scope of the new temporary 
special COVID-19 loss mitigation procedural safeguards is limited to 
mortgage loan obligations that became more than 120 days delinquent 
after March 1, 2020. Shortly thereafter, beginning on March 18, 2020, a 
foreclosure moratorium was imposed on most mortgages that prohibited 
certain foreclosure activities, including making the first notice or 
filing. Thus, the servicer is unlikely to have made the first notice or 
filing in connection with these mortgage loans.
    Statute of Limitations. At least two commenters urged the Bureau to 
adopt an additional exception that would permit a servicer to make the 
first notice or filing if the foreclosure statute of limitations will 
expire during the period covered by the rule. One industry commenter, 
for example, expressed concern that any Federal prohibition on making 
the first notice or filing would not toll the statute of limitations 
and would permanently prevent the servicer from foreclosing on the 
property. The Bureau is persuaded that the final rule should not 
prohibit a servicer from making the first notice or filing if the 
applicable foreclosure statute of limitations will expire during the 
period of time covered by the rule.
    Vacant and Abandoned Properties. A number of commenters, including 
industry and consumer advocates, urged the Bureau to clarify the extent 
to which any foreclosure restriction adopted in the final rule applies 
to abandoned properties, vacant properties, unoccupied properties, and 
properties with trespassers or squatters. Several urged the Bureau to 
specifically exempt these properties from any foreclosure restriction 
that the Bureau adopts and asked the Bureau to define these terms or 
otherwise provide guidance on how to determine that a property is the 
borrower's principal residence. Commenters explained that the lack of 
clarity around this issue could prevent servicers from making the first 
notice or filing even though the borrowers likely no longer have any 
interest in retaining the property and the condition of the property 
could negatively affect surrounding properties and communities. 
However, at least one commenter urged caution, expressing concern that 
servicers may incorrectly conclude that a property is vacant or 
abandoned, which is a particular concern during the pandemic because 
borrowers or their family members may have spent significant time away 
from their properties. Commenters offered several specific solutions, 
including proposed definitions of abandoned property.
    The Bureau appreciates these concerns and has considered similar 
issues in prior rulemakings.\119\ The Bureau declines to establish 
general definitions that would apply broadly to Regulation X in this 
rulemaking. However, the Bureau concludes that additional clarity for 
purposes of this rulemaking is important to address heightened concerns 
that numerous properties may have been abandoned during the extended 
foreclosure moratorium \120\ and to ensure that servicers may make the 
first notice or filing without further delay when a property has been 
abandoned. Thus, the Bureau's final temporary special COVID-19 loss 
mitigation procedural safeguards will expressly permit a servicer to 
make the first notice or filing before January 1, 2022, if the property 
is abandoned under the laws of the State or municipality where the 
property is located. This is not intended to more broadly define 
abandoned property or principal residence for purposes of Regulation X. 
Further, a servicer continues to have flexibility to determine that a 
property is not the borrower's principal residence for different 
reasons, including because it used a different method to determine that 
the property is abandoned or because the State or municipality in which 
the property is located does not define abandoned property. However, if 
a servicer incorrectly applies State or municipal law and makes the 
first notice or filing on a property that is not abandoned under the 
laws of the State or municipality in which the property is located, the 
servicer will have failed to satisfy the procedural safeguard in Sec.  
1024.41(f)(3)(ii)(B) and may have violated Regulation X, as well as 
other applicable law.
---------------------------------------------------------------------------

    \119\ 78 FR 60381, 60406-07 (Oct. 1, 2013); 81 FR 72160, 72913, 
72915 (Oct. 19, 2016).
    \120\ Commenters did not provide data on this issue. The 
proposed rule noted that, of the homes in the foreclosure process, 
only approximately 3.8 percent are currently abandoned. Even if the 
number of abandoned properties in the foreclosure process is small 
compared to the total volume of properties in foreclosure, the 
Bureau appreciates that the number of abandoned properties may have 
grown, and that clarity is needed for purposes of this rulemaking.
---------------------------------------------------------------------------

    This final rule does not address other issues raised in the 
comments, such as what actions the servicer may take when a property is 
vacant or occupied by squatters or trespassers. The Bureau considers 
these issues beyond the scope of this rulemaking, which was not 
undertaken to clarify the scope of actions servicers may take to 
address such a vacant or occupied property under the Regulation X 
servicing provisions. Servicers should determine whether the property 
is the borrower's principal residence in those circumstances consistent 
with existing requirements.
    Definition of First Notice or Filing. A few commenters, including 
industry, trade associations and consumer advocates, asked the Bureau 
to clarify whether sending certain State-mandated disclosures to 
borrowers, such as notices that are commonly called

[[Page 34882]]

``breach notices,'' would be considered making the first notice or 
filing and thus prohibited during the proposed special pre-foreclosure 
review period. These commenters asserted that these State-mandated 
disclosures have proven to be an effective tool to encourage borrowers 
to seek foreclosure alternatives. The Bureau does not believe 
additional clarity is needed to address this issue because current 
comment 41(f)-1 provides guidance on what documents are considered the 
first notice or filing for purposes of Sec.  1024.41(f). As noted in 
that comment, whether a document is considered the first notice or 
filing is determined on the basis of foreclosure procedure under the 
applicable State law. Thus, certain State-mandated documents might be 
considered the first notice or filing and some might not. To the extent 
State-mandated documents, such as breach notices or acceleration 
notices are not the first notice or filing, nothing in this rule 
prevents servicers from sending them.
Final Rule
    For the reasons stated herein, and after considering all of the 
comments, the Bureau is not finalizing the proposed special pre-
foreclosure review period as proposed and is instead finalizing 
temporary special COVID-19 loss mitigation procedural safeguards at 
Sec.  1024.41(f)(3). Final Sec.  1024.41(f)(3) requires a servicer to 
give a borrower a meaningful opportunity to pursue loss mitigation 
options by ensuring that one of three procedural safeguards has been 
met before making the first notice or filing because of a delinquency: 
(1) The borrower submitted a completed loss mitigation application and 
Sec.  1024.41(f)(2) permits the servicer to make the first notice or 
filing; (2) the property securing the mortgage loan is abandoned under 
State or municipal law; or (3) the servicer has conducted specified 
outreach and the borrower is unresponsive. The temporary procedural 
safeguards are applicable only if (1) the borrower's mortgage loan 
obligation became more than 120 days delinquent on or after March 1, 
2020 and (2) the statute of limitations applicable to the foreclosure 
action being taken in the laws of the State where the property securing 
the mortgage loan is located expires on or after January 1, 2022. In 
addition, the temporary procedural safeguards will expire on January 1, 
2022, meaning that the procedural safeguards are not applicable if a 
servicer makes the of the first notice or filing required by applicable 
law for any judicial or non-judicial foreclosure process before the 
effective date of the rule or on or after January 1, 2022.
    Small servicers. Like the proposal, final Sec.  1024.41(f)(3) does 
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).\121\ The final rule's temporary procedural 
safeguards are in Sec.  1024.41(f)(3) and not Sec.  1024.41(f)(1).
---------------------------------------------------------------------------

    \121\ 2013 RESPA Servicing Final Rule, supra note 11, at 10843.
---------------------------------------------------------------------------

    Record retention. The Bureau is also adding new comment 41(f)(3)-1 
to clarify record retention requirements for Sec.  1024.41(f)(3). It 
provides that, as required by Sec.  1024.38(c)(1), a servicer shall 
maintain records that document actions taken with respect to a 
borrower's mortgage loan account until one year after the date a 
mortgage loan is discharged or servicing of a mortgage loan is 
transferred by the servicer to a transferee servicer. It clarifies 
that, if the servicer makes the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process 
before January 1, 2022, these records must include evidence 
demonstrating compliance with Sec.  1024.41(f)(3), including, if 
applicable, evidence that the servicer satisfied one of the procedural 
safeguard requirements described in Sec.  1024.41(3)(ii). It also 
provides examples of information and documents required to be retained, 
depending on the procedural safeguard on which the servicer relies to 
make the first notice or filing while Sec.  1024.41(f)(3) is in effect.
    The temporary procedural safeguards provisions consist of three 
parts in Sec.  1024.41(f)(3)(i) through (iii) described more fully 
below. Section 1024.41(f)(3)(i) describes the general rule requiring a 
servicer to ensure that one of the procedural safeguards is met for 
certain loans before making a foreclosure referral and the scope of its 
coverage. Section 1024.41(f)(3)(ii) describes when a procedural 
safeguard is met for purposes of Sec.  1024.41(f)(3)(i). Section 
1024.41(f)(3)(iii) provides a sunset date after which the temporary 
special COVID-19 loss mitigation procedural safeguards no longer apply.
41(f)(3)(i) In General
    As noted above, the Bureau proposed to add new Sec.  1024.41(f)(3) 
that would have imposed a special pre-foreclosure review period on 
certain mortgage loans and would have provided that a servicer shall 
not rely on paragraph (f)(1)(i) to make the first notice or filing 
until after December 31, 2021.
    The Bureau received numerous comments on proposed Sec.  
1024.41(f)(3), discussed above in the section-by-section analysis of 
Sec.  1024.41(f)(3). For the reasons discussed in the section-by-
section analysis of Sec.  1024.41(f)(3), the Bureau is not finalizing 
proposed Sec.  1024.41(f)(3), and is, instead, adopting new Sec.  
1024.41(f)(3) to establish new temporary special COVID-19 loss 
mitigation procedural safeguards.
    Final Sec.  1024.41(f)(3)(i) provides that, to give a borrower a 
meaningful opportunity to pursue loss mitigation options, a servicer 
must ensure that one of the procedural safeguards described in Sec.  
1024.41(f)(3)(ii) has been met before making the first notice or filing 
required by applicable law for any judicial or non-judicial foreclosure 
process because of a delinquency under paragraph (f)(1)(i) if: (A) The 
borrower's mortgage loan obligation became more than 120 days 
delinquent on or after March 1, 2020; and (B) the applicable statute of 
limitations will expire on or after January 1, 2022. Both of these 
elements must be met, and Sec.  1024.41(f)(3) must be in effect prior 
to the sunset date, for the procedural safeguards to be applicable. See 
the section-by-section analysis of Sec.  1024.41(f)(3)(iii) for 
discussion of when Sec.  1024.41(f)(3) will be in effect.
    As discussed more fully in part II, most borrowers with loans in 
forbearance programs as of the publication of this final 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. Many of these borrowers may become 
immediately eligible for foreclosure referral even though, in light of 
unique circumstances created by the pandemic, they have not yet pursued 
or been reviewed for available loss mitigation options. Thus, without 
regulatory intervention, servicers may make the first notice or filing 
before those borrowers have had a meaningful opportunity to pursue 
foreclosure avoidance options. As explained in more detail in the 
proposed rule and in part II above, this could occur because the 
expected surge in borrowers seeking loss mitigation assistance later 
this year could trigger servicer errors that lead to improper 
foreclosure referrals. This also could occur because borrowers who may 
have been confused about protections available, or who may have been 
unable to seek loss mitigation

[[Page 34883]]

options because of issues related to the COVID-19 pandemic, may not 
have adequate time before foreclosure referral to understand their 
options and pursue them. If borrowers do not have sufficient time 
before foreclosure referral to pursue foreclosure avoidance options, 
borrowers could suffer 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, 
among other things, harms from dual tracking, such as unwarranted or 
unnecessary costs and fees.
    Although current Regulation X, State laws, and investor 
requirements already impose obligations on servicers that help to 
ensure borrowers have a meaningful opportunity to pursue foreclosure 
avoidance options, the Bureau believes that these existing requirements 
are likely to be insufficient as a result of this unprecedented COVID-
19 emergency when a surge of borrowers who were in extended forbearance 
programs and may have been experiencing unprecedented hardship due to 
the COVID-19 emergency, are likely to be seeking loss mitigation 
assistance between September 1 and December 31, 2021. For the reasons 
discussed herein, including in the section-by-section analysis of Sec.  
1024.41(f)(3), the Bureau concludes that the proposed special pre-
foreclosure review period would not have sufficiently addressed these 
concerns. The proposed special pre-foreclosure review period would have 
imposed a restriction on making the first notice or filing, regardless 
of the borrower's specific situation, and it would not have provided 
any incentives for borrowers and servicers to work together to 
determine if a foreclosure alternative is available before its 
restrictions ended. As a result, the proposed special pre-foreclosure 
review period could have prevented servicers from making the first 
notice or filing in circumstances where doing so could have helped the 
borrower and where further delays could have potentially caused harm. 
Without exceptions to the proposed delay in when the first notice or 
filing could be made, the proposed approach could have caused borrowers 
and servicers to delay communications, potentially undermining the 
Bureau's objective to ensure borrowers receive a meaningful opportunity 
to pursue foreclosure avoidance options.
    To address these concerns, the Bureau is now finalizing temporary 
special COVID-19 loss mitigation procedural safeguards, as described in 
more detail below and in the section-by-section analysis of Sec.  
1024.41(f)(3)(ii) through 1024.41(f)(3)(ii)(C), that balance the goal 
of ensuring that borrowers have a meaningful opportunity to pursue 
foreclosure avoidance options during the expected surge of borrowers 
seeking loss mitigation assistance later this year, while also 
recognizing that there may be circumstances where enhanced procedural 
safeguards are not appropriate and unlikely to accomplish RESPA's 
purpose of facilitating review for foreclosure avoidance options. These 
procedural safeguards are modeled on the stated goals of the proposed 
special pre-foreclosure review period and the various alternatives to 
that proposal on which the Bureau sought comment. However, instead of 
prohibiting any foreclosure referrals until a date certain without 
exceptions, the final rule imposes new temporary special COVID-19 loss 
mitigation procedural safeguards that apply only to certain mortgage 
loans and that generally must be satisfied before the servicer makes 
the first notice or filing until the sunset date of the provision. The 
Bureau believes these temporary procedural safeguards will provide 
sufficient incentives to encourage both: (1) Servicers to diligently 
communicate with borrowers about loss mitigation and promptly evaluate 
any complete loss mitigation applications; and (2) borrowers to 
communicate with their servicers.
    The Bureau is adopting the temporary special COVID-19 loss 
mitigation procedural safeguards because the Bureau believes that many 
borrowers who may become eligible for foreclosure referral this fall 
may be able to avoid foreclosure if they are given a meaningful 
opportunity to pursue foreclosure alternatives, but they may not be 
given that opportunity without regulatory intervention that encourages, 
and allows time for, servicer outreach and borrower response. The 
Bureau is concerned, for example, that a surge in loss mitigation 
applications could make it more difficult for servicers to engage in 
outreach or for borrowers to contact or work with their servicers, and 
in some instances, that the wave could result in servicer errors. As 
described in more detail below, the final rule is intended to balance 
the goals of encouraging communication between the servicer and 
borrower to help ensure the borrower has a meaningful opportunity to 
pursue foreclosure avoidance options, while also allowing the servicer 
to make the first notice or filing where additional time before 
foreclosure referral is unlikely to achieve that goal. For example, 
specifying that servicers can make the first notice or filing when 
borrowers are unresponsive is intended to incentivize servicers to 
engage in outreach, which should also increase the likelihood that 
borrowers will to respond to servicer outreach, and work towards a 
foreclosure alternative, while allowing the servicer to proceed with 
foreclosure referral if the borrower does not respond. As another 
example, specifying that servicers can proceed with foreclosure when a 
servicer has already considered a borrower for loss mitigation and 
determined that the borrower does not qualify for a foreclosure 
alternative should encourage the servicer to promptly seek loss 
mitigation applications and evaluate them. Servicers could have been 
discouraged from engaging in outreach and borrowers may have been 
disincentivized from responding until foreclosure referral was imminent 
if the Bureau had instead finalized an intervention that delayed 
foreclosure referrals without any exceptions because they may have 
viewed earlier efforts as less likely to be productive.
    Further, the Bureau believes that final Sec.  1024.41(f)(3) will 
protect a borrower from servicer errors and delays that may occur 
during the surge this fall by ensuring that the servicer cannot make 
the first notice or filing while this provision is in effect if a 
temporary special COVID-19 loss mitigation procedural safeguard is not 
met. For example, if the borrower engages with the servicer but is 
unable to submit a complete loss mitigation application because of a 
servicer error or delay, the procedural safeguards would provide the 
borrower with additional time to submit a complete loss mitigation 
application because it would temporarily prevent the servicer from 
making the first notice or filing while this provision is in effect.
    The temporary special COVID-19 loss mitigation procedural 
safeguards will generally prevent servicers from making the first 
notice or filing while this provision is in effect if the borrower and 
servicer are in communication, but the borrower has not exhausted their 
loss mitigation options. The Bureau believes that providing this 
additional time in cases where the servicer is evaluating the borrower 
for loss mitigation or is in communication with the borrower is 
important to protect borrowers from errors that may occur due to 
capacity issues.
41(f)(3)(i)(A)
    Final Sec.  1024.41(f)(3)(i) provides that, to give a borrower a 
meaningful opportunity to pursue loss mitigation options, a servicer 
must ensure that one

[[Page 34884]]

of the procedural safeguards described in Sec.  1024.41(f)(3)(ii) has 
been met before making the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process 
because of a delinquency under paragraph (f)(1)(i) if two elements are 
met. Final Sec.  1024.41(f)(3)(i)(A) sets forth the first of the two 
elements: That the borrower's mortgage loan obligation became more than 
120 days delinquent on or after March 1, 2020. This means that the 
temporary special COVID-19 loss mitigation procedural safeguards do not 
apply to mortgage loans that became more than 120 days delinquent 
before March 1, 2020, and a servicer may make the first notice or 
filing in connection with those mortgage loans without ensuring a 
procedural safeguard has been met, as long as all other applicable 
requirements are met.
    As discussed in the section-by-section analysis of Sec.  
1024.41(f)(3) above, the Bureau believes that it is appropriate to 
apply the temporary procedural safeguards to borrowers who became 
severely delinquent near the beginning of the COVID-19 pandemic or 
after it because those borrowers are most likely to need additional 
time before foreclosure referral to have a meaningful opportunity to 
pursue foreclosure avoidance options. Although borrowers who became 
more than 120 days delinquent before that date may need significant 
help to avoid foreclosure, they are less likely to benefit from 
procedural safeguards for the reasons discussed above.
41(f)(3)(i)(B)
    The other element under final Sec.  1024.41(f)(3)(i) provides that 
the procedural safeguards are only applicable if the statute of 
limitations applicable to the foreclosure action being taken in the 
laws of the State where the property securing the mortgage loan is 
located expires on or after January 1, 2022. In other words, final 
Sec.  1024.41(f)(3) does not prohibit a servicer from making the first 
notice or filing if the applicable statute of limitations will expire 
before the temporary special COVID-19 loss mitigation procedural 
safeguards expire. As discussed in the section-by-section analysis of 
Sec.  1024.41(f)(3) above, the Bureau is adopting this element to 
ensure that the procedural safeguards do not permanently prevent a 
servicer from enforcing their rights under the security instrument and 
note.
41(f)(3)(ii) Procedural Safeguards
    Final Sec.  1024.41(f)(3)(ii) provides that a procedural safeguard 
is met if one of three specified conditions is met. As noted above, the 
Bureau believes these procedural safeguards will allow a servicer to 
make the first notice or filing where the borrower is likely to have 
already had a meaningful opportunity to pursue foreclosure avoidance 
options or would otherwise not benefit from additional time before 
foreclosure referral, which should also encourage borrowers and 
servicers to work together to pursue foreclosure avoidance options 
before the servicer makes the first notice or filing.
41(f)(3)(ii)(A) Completed Loss Mitigation Application Evaluated
    Final Sec.  1024.41(f)(3)(ii)(A) describes the first of the 
specified procedural safeguards that would allow the servicer to make 
the first notice or filing while the procedural safeguards are in 
effect. Specifically, Sec.  1024.41(f)(3)(ii)(A) provides that the 
servicer has met a procedural safeguard if the borrower submitted a 
complete loss mitigation application, has remained delinquent at all 
times since submitting the application, and Sec.  1024.41(f)(2) permits 
the servicer to make the first notice or filing required for 
foreclosure. Section 1024.41(f)(2) prohibits a servicer from making the 
first notice or filing if a borrower submits a complete loss mitigation 
application during the pre-foreclosure review period in Sec.  
1024.41(f)(1) or before the servicer has made the first notice or 
filing unless (1) the servicer has sent the borrower a notice required 
by Sec.  1024.41(c)(1)(ii) stating that the borrower is not eligible 
for any loss mitigation option and the appeal process in Sec.  
1024.41(h) is not applicable, the borrower has not requested an appeal 
within the applicable time period for requesting an appeal, or the 
borrower's appeal has been denied; (2) the borrower rejects all loss 
mitigation options offered by the servicer; or (3) the borrower fails 
to perform under an agreement on a loss mitigation option.
    As explained above, the Bureau believes that this provision will 
provide appropriate incentives for servicers to engage in meaningful 
outreach to solicit a completed loss mitigation application from the 
borrower and to promptly evaluate the application, which should in turn 
increase the likelihood that the borrower actively engages their 
servicer to discuss foreclosure alternatives. Unlike the proposed 
approach, final Sec.  1024.41(f)(3) allows servicers to make the first 
notice or filing without delay in these circumstances, but otherwise 
generally prohibits the servicer from doing so unless another 
procedural safeguard is met or until the temporary special COVID-19 
loss mitigation procedural safeguards expire.
    The Bureau also believes that neither the borrower nor the servicer 
would benefit if the servicer were prohibited from making the first 
notice or filing in connection with these loans. The servicer will have 
determined that the borrower does not qualify for a foreclosure 
avoidance option, and the borrower will have submitted all required 
documentation to be considered for foreclosure avoidance options and 
exhausted all appeals to overturn the servicer's decision. Additional 
protections are not needed because these borrowers will have already 
been considered for foreclosure avoidance options. While it is possible 
that the borrower's financial condition could later improve, the Bureau 
concludes that prohibiting a servicer from making the first notice or 
filing in these circumstances would at best help a very small number of 
borrowers while adding substantial costs to servicers and potentially 
harming the vast majority of affected borrowers by allowing their 
delinquencies to continue to grow. As noted in the proposed rule, the 
Bureau understands 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. Servicer policies and procedures must be designed 
to implement those requirements.\122\ Thus, the servicer would be 
required to re-evaluate the borrower's eligibility for loss mitigation 
under those requirements if the borrower's financial situation later 
changes.
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    \122\ 2013 RESPA Servicing Final Rule, supra note 11, at 10836.
---------------------------------------------------------------------------

41(f)(3)(ii)(B) Abandoned Property
    Final Sec.  1024.41(f)(3)(ii)(B) describes the second specified 
condition that would allow the servicer to make the first notice or 
filing while procedural safeguards are in effect. Specifically, Sec.  
1024.41(f)(3)(ii)(B) provides that the servicer may make the first 
notice or filing if the property is abandoned according to the laws of 
the State or municipality where the property is located when the 
servicer makes the first notice or filing required by applicable law 
for any judicial or non-judicial foreclosure process. As discussed in 
response to comments received in the section-by-section discussion of 
Sec.  1024.41(f)(3) above, the Bureau believes that borrowers and 
servicers are unlikely to benefit, and could be harmed, if servicers 
are prohibited from making the first notice

[[Page 34885]]

or filing in connection with abandoned properties.
    Final Sec.  1024.41(f)(3), like the rest of this final rule, only 
applies to mortgage loans that are secured by the borrower's principal 
residence. While the Bureau has previously stated that an abandoned 
property may no longer be a borrower's principal residence, and thus 
Sec.  1024.41 generally would not apply,\123\ the Bureau appreciates 
that servicers have difficulty in making that determination, which 
could pose special challenges because of the circumstances presented by 
the COVID-19 pandemic emergency. Thus, the Bureau is finalizing Sec.  
1024.41(f)(3)(ii)(B) to facilitate servicer's processes of determining 
whether a property is abandoned during the surge by expressly 
permitting a servicer to make the first notice or filing before January 
1, 2022, if the property is abandoned under the laws of the State or 
municipality where the property is located.
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    \123\ 86 FR 18840, 18867 (Apr. 9, 2021). See also 78 FR 60381, 
60406-07 (Oct. 1, 2013); 81 FR 72160, 72913, 72915 (Oct. 19, 2016).
---------------------------------------------------------------------------

    The Bureau notes that this provision is specific to the temporary 
special COVID-19 loss mitigation procedural safeguards provision and is 
not intended to more broadly define what is considered an abandoned 
property or principal residence for purposes of the rest of Regulation 
X. Further, a servicer continues to have flexibility under Regulation X 
to determine that a property is not the borrower's principal residence 
for different reasons, including because it used a different method to 
determine that the property is abandoned because the State and 
municipality in which the property is located does not define abandoned 
property. However, if a servicer incorrectly applies State or municipal 
law and makes the first notice or filing on a property that is not 
abandoned under the laws of the State or municipality in which the 
property is located, the servicer will have failed to satisfy the 
procedural safeguard in Sec.  1024.41(f)(3)(ii)(B) and may have 
violated Regulation X, as well as other applicable law.
41(f)(3)(ii)(C) Unresponsive Borrower
    Final Sec.  1024.41(f)(3)(ii)(C) describes the third specified 
procedural safeguard that would allow the servicer to make the first 
notice or filing while Sec.  1024.41(f)(3) is in effect. Specifically, 
Sec.  1024.41(f)(3)(ii)(C) provides that the servicer may make the 
first notice or filing if the servicer did not receive any 
communications from the borrower for at least 90 days before the 
servicer makes the first notice or filing required by applicable law 
for any judicial or non-judicial foreclosure process and all of the 
following conditions are met: (1) The servicer made good faith efforts 
to establish live contact with the borrower after each payment due 
date, as required by Sec.  1024.39(a), during the 90-day period before 
the servicer makes the first notice or filing required by applicable 
law for any judicial or non-judicial foreclosure process; (2) the 
servicer sent the written notice required by section 1024.39(b) at 
least 10 days and no more than 45 days before the servicer makes the 
first notice or filing required by applicable law for any judicial or 
non-judicial foreclosure process; (3) the servicer sent all notices 
required by this section, as applicable, during the 90-day period 
before the servicer makes the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process; 
and (4) the borrower's forbearance program, if applicable, ended at 
least 30 days before the servicer makes the first notice or filing 
required by applicable law for any judicial or non-judicial foreclosure 
process.
    This provision is intended to allow a servicer to make the first 
notice or filing if the servicer has reasonably attempted to contact 
the borrower and the borrower has been unresponsive. This provision is 
modeled after the loss mitigation requirements in Regulation X to ease 
compliance burdens. The Bureau solicited comment on defining an 
unresponsive borrower based on Home Affordable Modification Program 
requirements, and commenters suggested several alternative approaches 
to defining unresponsive borrower. However, the Bureau is not 
finalizing any of those options due to concerns that servicers would 
not have sufficient time to adopt new procedures that would satisfy 
those alternatives or be able to track compliance with these 
requirements. The Bureau is concerned that servicers would be required 
to make significant changes to their systems and procedures to meet the 
standard, which could reduce the likelihood that a servicer would take 
advantage of it and may further overwhelm servicer capacity during this 
critical time. The Bureau believes it is important to design this 
procedure so that servicers can apply it broadly because, as commenters 
highlighted, the first notice or filing may serve to prompt borrowers 
who have been unresponsive to contact their servicers, and State 
programs can help to do the same.
    This final rule builds on current Regulation X requirements and 
adds additional guardrails that are intended to ensure that the 
servicer has engaged in sufficient outreach when the borrower is most 
likely to understand and respond. In particular, this provision 
requires that four elements be met before a servicer can make the first 
notice or filing under this provision.
    First, new Sec.  1024.41(f)(3)(ii)(C)(1) clarifies that the 
servicer must make good faith efforts to establish live contact with 
the borrower after each payment due date, as required by Sec.  
1024.39(a), during the 90-day period before the servicer makes the 
first notice or filing required by applicable law for any judicial or 
non-judicial foreclosure process. This requirement is intended to 
ensure that the servicer has engaged in sufficient outreach before 
determining that the borrower is unresponsive. A servicer can satisfy 
this provision based on activities that occurred before the effective 
date of this final rule.
    Second, new Sec.  1024.41(f)(3)(ii)(C)(2) requires the servicer to 
send the written notice required by Sec.  1024.39(b) at least 10 days 
and no more than 45 days before the servicer makes the first notice or 
filing. Servicers are already required to provide the notice required 
by Sec.  1024.39(b). This provision adds new timing requirements that 
are intended to ensure that the servicer has engaged in sufficient 
outreach during the most critical period before making the first notice 
or filing on the basis that the borrower is unresponsive. The Bureau 
believes that receipt of this notice during this period will decrease 
the likelihood that the borrower has not responded to servicer outreach 
because they do not understand the importance of communicating with 
their servicer.
    Third, new Sec.  1024.41(f)(3)(ii)(C)(3) requires the servicer to 
send all notices required by Sec.  1024.41, as applicable, during the 
90-day period before the servicer makes the first notice or filing 
required by applicable law for any judicial or non-judicial foreclosure 
process. Applicable notices may include, for example, the notice 
required by Sec.  1024.41(c)(2)(iii). The Bureau notes that this 
provision, as well as Sec.  1024.41(f)(3)(ii)(C)(1) and (2), require 
strict compliance with all applicable provisions of Sec.  1024.41. This 
includes all relevant aspects of those provisions, including the timing 
requirements. Thus, a servicer that has not met existing timing 
requirements under Regulation X during the relevant period cannot rely 
on Sec.  1024.41(f)(3)(ii)(C) to make the first notice or filing while 
the procedural safeguards are in effect, notwithstanding the existing 
Joint Statement.

[[Page 34886]]

    Fourth, a servicer is only permitted to make the first notice or 
filing under new Sec.  1024.41(f)(3)(ii)(C)(4) if the borrower's 
forbearance program, if applicable, ended at least 30 days before the 
servicer makes the first notice or filing. Similar to Sec.  
1024.41(f)(3)(ii)(C)(1), this requirement is intended to address 
concerns that a borrower would ignore a servicer's outreach efforts 
while the borrower is in a forbearance program because the servicer and 
borrower have already agreed that the borrower will not make payments 
until a later date. The Bureau is concerned that a borrower may not 
have a meaningful opportunity to pursue foreclosure avoidance options 
if a servicer were allowed to deem a borrower unresponsive because the 
borrower did not communicate with the servicer several months before 
the borrower's forbearance program was scheduled to end.
    The Bureau believes that all of these provisions under Sec.  
1024.41(f)(3)(ii)(C) will ensure that the servicer's outreach and the 
borrower's failure to respond occurs during a period of time when the 
borrower should expect to be in contact with the servicer.
    As noted above, Sec.  1024.41(f)(3)(ii)(C) provides that the 
servicer may make the first notice or filing if the servicer did not 
receive any communications from the borrower within a specified period 
of time. The Bureau is adopting new comment 41(f)(3)(ii)(C)-1 to help 
clarify what is considered a communication from the borrower. 
Specifically, comment 41(f)(3)(ii)(C)-1 provides that, for purposes of 
Sec.  1024.41(f)(3)(ii)(C), a servicer has not received a communication 
from the borrower if the servicer has not received any written or 
electronic communication from the borrower about the mortgage loan 
obligation, has not received a telephone call from the borrower about 
the mortgage loan obligation, has not successfully established live 
contact with the borrower about the mortgage loan obligation, and has 
not received a payment on the mortgage loan obligation. A servicer has 
received a communication from the borrower if, for example, the 
borrower discusses loss mitigation options with the servicer, even if 
the borrower does not submit a loss mitigation application or agree to 
a loss mitigation option offered by the servicer.
    The Bureau is also adopting new comment 41(f)(3)(ii)(C)-2 to 
clarify that a servicer has received a communication from the borrower 
if the communication is from an agent of the borrower. The comment 
explains that 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 that a person that claims to be an agent of the 
borrower provide documentation from the borrower stating that the 
purported agent is acting on the borrower's behalf. Upon receipt of 
such documentation, the comment explains that the servicer shall treat 
the communication as having been submitted by the borrower.
    This comment clarifies that a borrower who is attempting to 
communicate with their servicer is afforded the protections of the 
procedural safeguards, regardless of the substance of the communication 
from the borrower. The Bureau will closely monitor consumer complaints 
and examine servicers to ensure that a servicer's procedures have not 
created obstacles that frustrate a borrower's ability to engage with 
the servicer or that make borrowers appear unresponsive even though 
they were attempting to contact the servicer (for example, if servicer 
phone lines have unreasonably long hold times).
41(f)(3)(iii) Sunset Date
    Final Sec.  1024.41(f)(3)(iii) provides that paragraph (f)(3) does 
not apply if a servicer makes the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process on 
or after January 1, 2022. Because the procedural safeguards provisions 
become effective on August 31, 2021, the provisions also would not be 
applicable if the servicer makes the first notice or filing before 
August 31, 2021. As discussed above, the Bureau believes that a 
significant number of borrowers are likely to be seeking loss 
mitigation assistance during this period from August 31, 2021 through 
December 31, 2022. This is the period of time when, in light of the 
anticipated surge, there is a heightened risk of servicer error, and 
borrowers may face more difficulty in contacting and communicating with 
their servicers to meaningfully pursue foreclosure alternatives. This 
is also the period when existing requirements may be insufficient to 
ensure borrowers have a meaningful opportunity to pursue foreclosure 
alternatives and additional requirements could help ensure that the 
potentially unprecedented circumstances do not result in borrower harm. 
The Bureau believes that the sunset date will ensure that certain 
procedural safeguards are in place during the temporary period when 
borrowers may face the greatest potential harm because of the increase 
in borrowers exiting forbearance and the related risks of servicer 
error and borrower delay or confusion.

VI. Effective Date

    The Bureau proposed that any final rule relating to the proposed 
rule 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. The Bureau sought comment on whether 
there was a day of the week or time of the month that would best 
facilitate the implementation of the proposed changes.
    The Bureau did not receive comments about a specific day of the 
week or time of the month may best facilitate implementation of the 
proposed changes. The Bureau did receive a few general comments on the 
effective date. These comments generally urged the Bureau to make the 
final rule effective sooner than August 31, 2021, so that as many 
borrowers as possible could be benefit from the final rule.
    As discussed more fully in part II, above, 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 
weeks and months. The Bureau is keenly aware of the need for quick 
action to protect vulnerable borrowers during the unique circumstances 
presented by the COVID-19 emergency. However, the Office of Information 
and Regulatory Affairs has designated this rule as a ``major rule'' for 
purposes of the Congressional Review Act (CRA).\124\ The CRA requires 
that the effective date of a major rule must be at least 60 days after 
publication in the Federal Register.\125\ The Bureau anticipates that 
August 31, 2021 will be at least 60 days from Federal Register 
publication of this rule. The effective date of this final rule will 
therefore be August 31, 2021.
---------------------------------------------------------------------------

    \124\ 5 U.S.C. 801 et seq.
    \125\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------

    While servicers will not have to comply with this rule until the 
effective date, servicers may voluntarily begin engaging in activity 
required by this final rule before the final rule's effective date. In 
certain circumstances, such voluntary activity can establish compliance 
with the rule after its effective date. For example, if the borrower's 
forbearance is scheduled to end on September 15th, and a servicer 
provides the additional information required by Sec.  1024.39(e)(2) 
during a live contact that occurs before the effective date, but fewer 
than 45 days before the forbearance program is scheduled to

[[Page 34887]]

expire, the servicer need not provide the information required by Sec.  
1024.39(e)(2) again after the effective date. Similarly, certain 
conduct taking place before the effective date of this rule can satisfy 
the procedural safeguards described in Sec.  1024.41(f)(3). For a more 
detailed discussion of the required conduct that can establish 
compliance, whether completed before or after the effective date of the 
final rule, please refer to the section-by-section analyses of 
Sec. Sec.  1024.39 and 1024.41(f)(3).
    While the Bureau declines to adopt an earlier effective date, for 
the reasons discussed above, the Bureau does not intend to use its 
limited resources to pursue supervisory or enforcement action against 
any mortgage servicer for offering a borrower a streamlined loan 
modification that satisfies the criteria in Sec.  1024.41(c)(2)(vi)(A) 
based on the evaluation of an incomplete loss mitigation application 
before the effective date of this final rule.\126\
---------------------------------------------------------------------------

    \126\ This statement is intended to provide information 
regarding the Bureau's general plans to exercise its supervisory and 
enforcement discretion for institutions under its jurisdiction and 
does not impose any legal requirements on external parties, nor does 
it create or confer any substantive rights on external parties that 
could be enforceable in any administrative or civil proceeding. In 
addition, this statement is not intended to be rule, regulation, or 
interpretation for purposes of RESPA section 18(b) (12 U.S.C. 
2617(b)).
---------------------------------------------------------------------------

    In addition, some commenters expressed concern that servicers may 
initiate the foreclosure process between when foreclosure moratoria are 
set to expire and the August 31, 2021 effective date of this final 
rule. The Bureau is aware of the concern, but is not adopting an 
earlier effective date for the reasons discussed above. In addition, as 
most borrowers in forbearance programs receive protection from 
foreclosure during the forbearance program,\127\ an August 31, 2021 
effective date of this final rule ensures that most borrowers exiting 
forbearance in September, when the Bureau expects a very high volume of 
forbearance exits, are not at risk of foreclosure immediately when 
their forbearance program ends. The Bureau recently released a 
Compliance Bulletin and Policy Guidance (Bulletin) announcing the 
Bureau's supervision and enforcement priorities regarding housing 
insecurity in light of heightened risks to consumers needing loss 
mitigation assistance in the coming months as the COVID-19 foreclosure 
moratoriums and forbearances end.\128\ The Bulletin articulates the 
Bureau intends to consider a servicer's overall effectiveness in 
communicating clearly with consumers, effectively managing borrower 
requests for assistance, promoting loss mitigation, and ultimately 
reducing avoidable foreclosures and foreclosure-related costs. It 
reiterates that the Bureau intends to hold mortgage servicers 
accountable for complying with Regulation X.
---------------------------------------------------------------------------

    \127\ See, e.g., 12 CFR 1024.41(c)(2)(iii) (prohibiting a 
servicer from making the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process 
and certain other foreclosure activity if the borrower is performing 
pursuant to the terms of a short-term payment forbearance program 
offered based on the evaluation of an incomplete application).
    \128\ 86 FR 17897 (Apr. 7, 2021).
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VII. Dodd-Frank Act Section 1022(b) Analysis

A. Overview

    In developing this final rule, the Bureau has considered the 
potential benefits, costs, and impacts as required by section 
1022(b)(2)(A) of the Dodd-Frank Act.\129\ In developing this final 
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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    \129\ 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 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 final rule. The Bureau provides estimates, to the extent 
possible, of the potential benefits and costs to consumers and covered 
persons of the final rule given available data. However, as discussed 
further below, the data with which to quantify the potential costs, 
benefits, and impacts of the final 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 final 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.

C. Baseline for Analysis

    In evaluating the benefits, costs, and impacts of this final rule, 
the Bureau considers the impacts of the final rule 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.\130\
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    \130\ The Bureau has discretion in any rulemaking to choose an 
appropriate scope of analysis with respect to potential benefits, 
costs, and impacts, and an appropriate baseline.
---------------------------------------------------------------------------

    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 this final rule, 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.
    As further discussed below, under the baseline, many mortgage 
borrowers who are currently protected by foreclosure moratoria and 
forbearance programs will be vulnerable to foreclosure when those 
programs begin to expire later this year. Bureau analysis using data 
from the National Mortgage Database showed that Black and Hispanic 
borrowers made up a significantly larger share of borrowers that were 
in forbearance (33 percent) or delinquent (27 percent) as reported 
through March 2021.\131\ Whereas, Black and Hispanic borrowers made up 
18 percent of all mortgage borrowers and 16 percent of borrowers that 
were current. Forbearance and delinquency were also significantly more 
likely in majority-minority census tracts and in tracts with lower 
relative income.
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    \131\ See CFPB Mortgage Borrower Pandemic Report, supra note 5.

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[[Page 34888]]

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 temporary special COVID-19 loss mitigation 
procedural safeguards (Sec.  1024.41(f)(3)); (2) the new exception to 
the complete application requirement (Sec.  1024.41(c)(2)(vi)); and (3) 
the clarifications of the early intervention live contact and 
reasonable diligence requirements (Sec. Sec.  1024.39(a) and (e); 
1024.41(b)(1)).
1. Temporary Special COVID-19 Loss Mitigation Procedural Safeguards
    The amendments to Regulation X establish temporary special COVID-19 
loss mitigation procedural safeguards that apply from the effective 
date of the rule until on or after January 1, 2022. The final rule 
provides that, to give a borrower a meaningful opportunity to pursue 
loss mitigation options, a servicer must ensure that one of three 
procedural safeguards has been met before making the first notice or 
filing because of a delinquency: (1) The borrower submitted a completed 
loss mitigation application and Sec.  1024.41(f)(2) permits the 
servicer to make the first notice or filing; (2) the property securing 
the mortgage loan is abandoned under State or municipal law; or (3) the 
servicer has conducted specified outreach and the borrower is 
unresponsive. A mortgage loan is subject to the temporary procedural 
safeguards if (1) the borrower's mortgage loan obligation became more 
than 120 days delinquent on or after March 1, 2020 and (2) the statute 
of limitations applicable to the foreclosure action being taken in the 
laws of the State where the property securing the mortgage loan is 
located expires on or after January 1, 2022. This restriction is 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 amendment does not apply to small servicers.
    Benefits and costs to consumers. The provision would provide 
benefits and costs to consumers by providing certain borrowers 
additional time to allow for meaningful review of loan modification and 
other loss mitigation options to help ensure that those borrowers who 
can avoid foreclosure through loss mitigation will have the opportunity 
to do so. The primary benefits and costs to consumers of this 
additional time for review can be measured by actual avoidance of 
foreclosure among the set of borrowers for whom the special procedural 
safeguards would likely apply.\132\
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    \132\ The benefits and costs to consumers will decrease to the 
extent that additional protections for delinquent borrowers are 
extended by the Federal government or investors. For instance, if 
new protections were introduced that prevent foreclosure from being 
initiated for federally backed mortgages until after January 1, 
2022, then the benefits of the provision for borrowers with 
federally backed mortgages would be reduced or eliminated. 
Similarly, the costs of the provision to servicers of these loans, 
as discussed in the ``Benefits and costs to covered persons'' for 
this provision, below, would be reduced. The most recent available 
data from Black Knight indicate that about 1.6 million of the 2.2 
million loans in forbearance as of April 2021 are federally backed 
mortgage loans. The benefits and costs of the provision for 
remaining loans would likely be largely unaffected. Black Apr. 2021 
Report, supra note 7.
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    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 even if 
the borrower is more than 120 days delinquent. As of late-June, Federal 
foreclosure moratoria are set to expire on July 31, 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, a 
significant number of borrowers reached 12 months in a forbearance 
program in February (160,000) and March (600,000) of 2021.\133\ 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 forbearance period terminate 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.\134\ The final rule will be 
effective on August 31, 2021. Thus, the final rule should reduce 
foreclosure risk for the large number of borrowers who are expected to 
exit forbearance between September and December of 2021 and for whom 
the special procedural safeguards would apply.
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    \133\ See Black Jan. 2021 Report, supra note 44.
    \134\ Supra note 62 and accompanying text.
---------------------------------------------------------------------------

    The primary benefit to consumers from this provision arises 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 all else 
equal.\135\ By providing borrowers with additional time before 
foreclosure can be initiated, the proposed provision would give 
borrowers a better opportunity to avoid foreclosure altogether.
---------------------------------------------------------------------------

    \135\ 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 11, 
at 10832.
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    To quantify the benefit of the provision from a reduction in 
foreclosure 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 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

[[Page 34889]]

average benefit to preventing foreclosure and the number of 
foreclosures that could be potentially prevented as a result of the 
special procedural safeguards.
    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 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.\136\ 
Delinquent borrowers in the last recession had significantly less 
equity in their homes compared to borrowers in the current crisis.\137\ 
All else equal, this means that fewer borrowers in the current crises 
are expected to enter into foreclosure as a result of their equity 
position compared to the last crisis, making it difficult to generalize 
foreclosure outcomes from the last recession to the current period. 
Overall, 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 provision, any 
of which can lead to significant under or overestimation of the 
benefits.
---------------------------------------------------------------------------

    \136\ 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.
    \137\ A recent Bureau report using data from the National 
Mortgage Database (NMDB) showed that borrowers with an LTV ratio 
above 95 percent, a common measure of whether a borrower may be 
underwater on their mortgage and potentially more vulnerable to 
foreclosure, made up 5 percent of borrowers that were delinquent, 1 
percent of borrowers that were in forbearance, and less than 1 
percent of borrowers that were current as reported through March 
2021, https://files.consumerfinance.gov/f/documents/cfpb_characteristics-mortgage-borrowers-during-covid-19-pandemic_report_2021-05.pdf. Similar evidence from the Urban 
Institute showed that during the five years preceding Q4 2009, the 
rate of serious delinquency and home price appreciation had a strong 
negative relationship. By contrast, this relationship was weak in Q4 
2020, https://www.urban.org/urban-wire/understanding-differences-between-covid-19-recession-and-great-recession-can-help-policymakers-implement-successful-loss-mitigation.
---------------------------------------------------------------------------

    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 Office 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.\138\ 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),\139\ and adverse medical 
conditions.\140\ 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.\141\ The HUD study referenced above estimates the average 
effect of foreclosure on neighboring house values at $14,531, or 
$17,600 in 2021 dollars, based on research from 2008 or earlier. 
Combined, the HUD figures suggest a benefit of at least $30,100, which 
the Bureau believes is likely an underestimate of the average benefit 
to preventing foreclosure.\142\
---------------------------------------------------------------------------

    \138\ 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/.
    \139\ 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.
    \140\ 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.
    \141\ 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.
    \142\ Based on comments received by the Bureau on the May 2021 
Notice of Proposed Rulemaking, commenters suggested that the 
significant costs of foreclosure for borrowers include the non-
monetary cost to borrowers and the cost to communities. As such, the 
Bureau will focus on the combined value of $30,100 rather than only 
the direct costs of avoiding foreclosure as was used in the April 
2021 Notice of Proposed Rulemaking.
---------------------------------------------------------------------------

    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.\143\ 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 certain 
communities. For example, Black and Hispanic homeowners were more than 
two times as likely to be behind on housing payments as of December 
2020.\144\ Black and Hispanic borrowers were also two times as likely 
to be in forbearance compared to White borrowers as of March 2021.\145\ 
The benefit to avoiding foreclosure for these arguably ``marginal'' 
borrowers may be significantly larger compared to the average borrower.
---------------------------------------------------------------------------

    \143\ 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 
of Econ. Res., Working Paper No. 28394, 2021), https://www.nber.org/papers/w28394.
    \144\ 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).
    \145\ See CFPB Mortgage Borrower Pandemic Report, supra note 5.
---------------------------------------------------------------------------

    The total benefit to borrowers of delaying foreclosure also depends 
on the number of foreclosures that would be prevented by the provision; 
in other words, the difference in the total foreclosures between what 
would occur under the baseline and what would occur under the special 
procedural

[[Page 34890]]

safeguards provision. 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 final rule, which is August 31, 2021, or that 
will become 120 days delinquent between the effective date and the end 
of the period during which the special procedural safeguards will 
apply, on or after January 1, 2022. 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 provision.
    As of April 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.\146\ 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 
final rule's effective date. One publicly available estimate based on 
current trends is that 900,000 loans will reach terminal expirations 
starting in the fall of 2021.\147\ Many of the loans currently 
delinquent 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 effective 
date, a reasonable approach is to consider a range with respect to the 
share of loans that will reach terminal expirations starting in 
September of 2021 and through the remainder of the year. For purposes 
of quantifying a potential range of benefits to consumers, the 
discussion below assumes that as of August 31, 2021, all of loans 
reaching terminal expiration in the fall will be considered 120 days 
delinquent under Regulation X and not in a forbearance plan.
---------------------------------------------------------------------------

    \146\ See Black Apr. 2021 Report, supra note 7.
    \147\ Id. Black Knight's estimates require significant 
assumptions due to the uncertainty in how forbearance will evolve in 
future periods. In particular, Black Knight assumes that borrowers 
exit forbearance at a rate of 3 percent per month until the end of 
2021. The Bureau believes there is significant uncertainty in the 
rate at which borrowers will exit forbearance during the remainder 
of the year and, therefore, the extent to which this assumption will 
hold. Black Knight does not provide alternative estimates under 
different assumptions or a range of plausible outcomes.
---------------------------------------------------------------------------

    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 true 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 on average. Estimates from April 
2021 show that the number of loans in forbearance programs (2.2 
million) is significantly larger than the number of borrowers who are 
seriously delinquent and with loans that are not in a forbearance 
program (191,000).\148\ 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.
---------------------------------------------------------------------------

    \148\ See Black Apr. 2021 Report, supra note 7. It is possible 
for a borrower to be delinquent for purposes of Regulation X during 
a forbearance program. See supra note 62 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) \149\ 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.\150\ 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.\151\ 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.
---------------------------------------------------------------------------

    \149\ See 2013 RESPA Servicing Rule Assessment Report, supra 
note 11.
    \150\ Id. at 69-70.
    \151\ 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 April 2021 will be more than 120 
days delinquent as of August 31, 2021, and unable to resolve their 
delinquency 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 rule.\152\ 
Next, the Bureau excludes 14 percent of these loans, reflecting an 
estimate of the share of loans serviced by small servicers to which the 
rule would not apply.\153\ This leaves between roughly 620,000 and 1.2 
million loans at risk of an initial filing of foreclosure to which the 
final rule would apply.
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    \152\ An alternative to providing a range of estimates is to 
forecast an expected number of loans that will exit forbearance 
after the effective date of the rule and be more than 120 days 
delinquent and unable to resolve the delinquency. Forecasting a 
specific value for a future period requires making significant 
assumptions due to the uncertainty associated with predicting future 
outcomes. In order to account for this uncertainty, standard 
econometric and statistical forecasting models also report standard 
errors or confidence bands around the estimates, effectively 
providing a range of plausible estimates given the uncertainty in 
future outcomes. Absent formal forecasting models, the Bureau 
believes it is reasonable to rely on a range of plausible estimates 
rather than making significant assumptions to pinpoint a single 
estimate, which may be less reliable.
    \153\ 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.\154\ 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.\155\ 
Overall, this gives a baseline estimate of loans that will experience

[[Page 34891]]

foreclosure sale of between roughly 125,000 and 250,000.
---------------------------------------------------------------------------

    \154\ 2013 RESPA Servicing Rule Assessment Report, supra note 
11, at 48.
    \155\ A large share of foreclosures is 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 2013 RESPA 
Servicing Rule Assessment Report, supra note 11, at 52-53.
---------------------------------------------------------------------------

    The next step is to estimate how the number of foreclosures would 
change under the final rule. The final rule is effective on August 31, 
2021 and requires servicers to comply with special procedural 
safeguards until January 1, 2022, delaying any foreclosure proceedings 
for certain loans until after that date. The Bureau assumes each loan 
will experience a four-month delay in the point at which servicers can 
initiate foreclosure for borrowers with loans that exit forbearance and 
are more than 120 days delinquent and cannot resolve the delinquency 
upon exiting forbearance between the effective date of the final rule 
and the end of the period during which special procedural safeguards 
will apply.\156\ 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 final rule.\157\ Similarly, if servicers would not 
immediately initiate foreclosure proceedings with the borrowers absent 
the rule as some commenters indicated, then the delay period as a 
result of the rule would be shorter and the number of foreclosures 
prevented would be reduced.\158\
---------------------------------------------------------------------------

    \156\ The Bureau believes there is significant uncertainty in 
the average length of delay for affected loans. The average delay 
could be shorter if a significant share of loans exit forbearance 
between October and December 2021 and servicers are generally able 
to initiate foreclosure upon termination of the period during which 
special procedural safeguards will apply on January 1, 2022. On the 
other hand, if the rule indirectly causes a delay in servicers' 
ability to initiate foreclosure after January 1, 2022, then loans 
that exit forbearance between October and December 2021 may 
experience delays that extend beyond the termination of the period 
during which special procedural safeguards will apply. The average 
benefits to consumers will be overestimated if the average delay is 
shorter and will be underestimated if the average delay is longer.
    \157\ An extension of forbearance programs or foreclosure 
moratoria would reduce the total number of months delay under the 
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 January 1, 2022. 
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.
    \158\ If servicers delay initiating foreclosure, then the total 
number of foreclosures prevented under the 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 growth in 
the share of recovered loans over the additional four-month period, 
where recovered is defined as a self-cure, pre-payment, 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 who have missed payments because of a forbearance 
plan may not be required to repay those missed payments immediately. 
Any of these differences across borrowers can significantly affect the 
growth in the share of recovered loans over time.
    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.\159\ 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.\160\ 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.
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    \159\ See 2013 RESPA Servicing Rule Assessment Report, supra 
note 11, 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.
    \160\ 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).
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    The special procedural safeguard requirements would provide certain 
borrowers additional time during which servicers cannot initiate 
foreclosure, unless the special procedural safeguards have been met. 
For these borrowers, the special procedural safeguards 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 this additional time makes in a borrower's 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 special procedural safeguards provision will not change the 
course of recovery for all borrowers who exit forbearance and are at 
least 120 days delinquent as of the effective date of the rule. In 
particular, it will not affect the likelihood of foreclosure for loans 
to which the special procedural safeguards do not apply or for loans 
for which the special procedural safeguards have been met. The Bureau 
believes the special procedural safeguards will directly affect the 
course of recovery for the remaining group of borrowers who are more 
likely to be in contact with their servicer and are experiencing 
financial difficulty as a direct result of the current economic crisis. 
This group of borrowers is expected to have a higher likelihood of 
recovery as a result of the additional time for meaningful review 
generated by the special procedural safeguards provision.
    The Bureau does not know exactly how many borrowers exist for whom 
the special procedural safeguard requirements will not apply or for

[[Page 34892]]

whom the procedural safeguards may be met, and therefore would have 
similar outcomes both under the baseline and under the final rule. 
Publicly available estimates report that roughly 19 percent of 
borrowers in forbearance as of March 2021 were 30+ days delinquent in 
February of 2020. Given the special procedural safeguard requirements, 
the share of borrowers that were 120+ days delinquent in March 2020 is 
likely a smaller share of borrowers in forbearance. There are no 
publicly available numbers on the share of loans in forbearance that 
correspond to abandoned properties \161\ or the share of unresponsive 
borrowers. Assuming some overlap between these three groups, the Bureau 
believes that 25 percent is a reasonable estimate of the share of 
borrowers for whom the special procedural safeguard requirements will 
not apply or for whom the servicer may exercise the special procedural 
safeguards, and who therefore will not experience a change in their 
course of recovery resulting from the special procedural safeguards 
provision. This implies that 75 percent of borrowers with terminal 
expirations between September 2021 and the end of the year will be 
directly affected as a result of the special procedural safeguard 
requirements and may experience a course of recovery different than 
they otherwise would have absent the special procedural safeguard 
provision.
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    \161\ Publicly available information from ATTOM Data Solutions' 
reports that, of the roughly 216,000 homes currently in the 
foreclosure process, roughly 7,960 or 3.7 percent are abandoned as 
of the third quarter of 2021. It is unclear how to generalize this 
information to the group of borrowers that remain in forbearance. 
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/.
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    For purposes of estimating a plausible range of potential benefits 
of the final rule, suppose that, for borrowers who are afforded 
additional time before foreclosure can be initiated as a result of the 
rule, the increase in the number of borrowers who are ultimately able 
to recover as a result of the delay is 0.55 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.\162\ Assuming an average four-month 
delay, the additional share of loans that recover could then be 
estimated at about 2.2 percent of the initial group of delinquent 
loans.\163\ The remaining distribution of outcomes (foreclosure, 
prepay, and delinquent without loan modification) are estimated based 
on a constant relative share across groups.\164\ This means that 7.8 
percent of delinquent loans will end with a foreclosure sale within 18 
months. Similar to under the baseline, the Bureau 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 11.7 percent of delinquent loans would end with a 
foreclosure sale). Applying this to the assumed 75 percent of loans 
that would be directly affected by the special procedural safeguard 
requirements generates an estimate of foreclosure sales under the rule 
for this set of loans of between roughly 91,000 and 182,000. Comparing 
this to baseline foreclosures for this group of loans, the special 
procedural safeguards would lead to approximately 2,500 and 5,000 fewer 
foreclosures compared to the baseline.
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    \162\ The average monthly rate of recovery is 10 percent higher 
than the rate of recovery used in the Bureau's Notice of Proposed 
Rulemaking, which used an average monthly recovery rate of 0.5 
percent. As described, the Bureau believes the group of borrowers 
for whom the special procedural safeguards would delay foreclosure 
are relatively more likely to recover from delinquency. This means 
the rate of recovery should be higher for this group compared to the 
average borrower. If the additional rate of recovery compared to the 
average borrower was smaller (e.g., 0.525 percent or a 5 percent 
increase compared to the average) then the number of prevented 
foreclosures would decrease. If the additional rate of recovery was 
larger (e.g., 0.6 percent or a 20 percent increase compared to the 
average), then the number of prevented foreclosures would increase.
    \163\ The extent of the delay depends on when a loan exits 
forbearance and the specifics of how the special procedural 
safeguards delay initiation of foreclosure. If the exact number of 
loans experiencing a delay of a certain number of months was known, 
then one could multiply the number of loans exiting forbearance each 
month by the month-adjusted expected recovery rate. Then, the number 
of recovered loans can be calculated by summing across months.
    \164\ 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 2013 RESPA 
Servicing Rule Assessment Report, supra note 11, 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.
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    The Bureau believes that an assumed increase in the likelihood of 
recovery of 2.2 percent may significantly overestimate or underestimate 
the actual effect of the 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.
    Finally, an estimate of a plausible range of the potential total 
benefit to borrowers of avoiding foreclosure sales as a result of the 
provision can be calculated by taking the difference in the number of 
foreclosure sales under the baseline compared to under the final rule 
and multiplying that difference by the per-borrower cost of 
foreclosure. Based on a per foreclosure cost to the borrower of 
$30,100, the benefit to borrowers of avoiding foreclosure under the 
rule is estimated at between $75 million and $151 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 per-borrower benefit 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 will benefit from the 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 special procedural safeguards provision could mean that some 
borrowers who would have cured their delinquency after foreclosure is 
initiated are instead able to cure their

[[Page 34893]]

delinquency before foreclosure is initiated, meaning that they are able 
to avoid such foreclosure-related costs. Preventing the initiation of 
foreclosure also may have longer-term benefits. For example, 
foreclosure initiation may make future access to both mortgage and 
nonmortgage credit more difficult if the foreclosure initiation is 
reported on the consumer's credit report. The Bureau does not have data 
that would permit it to estimate the extent of this benefit of the 
final rule, which would likely vary according to State foreclosure laws 
and the borrower's specific situation.
    In addition, there may be significant indirect effects of 
additional time to enter into loss mitigation given recent policy 
changes affecting distressed borrowers.\165\ For example, the U.S. 
Treasury Department (Treasury) is administering the Homeowner 
Assistance Fund (HAF), which was established under section 3206 of the 
American Rescue Plan Act of 2021 (the ARP).\166\ The purpose of HAF is 
to prevent mortgage delinquencies and defaults, foreclosures, loss of 
utilities or home energy services, and displacement of homeowners 
experiencing financial hardship after January 21, 2020.\167\ Funds from 
the HAF may be used for assistance with mortgage payments, homeowner's 
insurance, utility payments, and other specified purposes. Treasury is 
expected to distribute the majority of HAF funds to the States after 
June 30, 2021, with most funds available by the end of the year. Any 
delays in foreclosure initiation resulting from the special loss 
mitigation procedural safeguards provision may enable borrowers to take 
advantage of HAF funds when they begin to be distributed. In 
particular, the additional time available to certain borrowers may 
enable them to avoid foreclosure by offering additional time to gain 
access to HAF assistance. The Bureau does not have data that would 
permit it to estimate the extent of this benefit of the final rule.
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    \165\ While the Bureau considers this potential benefit for 
purposes of sec. 1022(b)(2)(A), it does not rely on these potential 
benefits to finalize the rule's regulatory interventions under RESPA 
or the Dodd-Frank Act.
    \166\ American Rescue Plan Act of 2021, Public Law 117-2, 135 
Stat. 4 (2021).
    \167\ U.S. Dep't of the Treasury, Homeowner Assistance Fund 
Guidance at 1 (Apr. 14, 2021), https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/homeowner-assistance-fund.
---------------------------------------------------------------------------

    The 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. In order to quantify this effect, the Bureau would need 
data on how often borrowers who are delinquent and have not yet taken 
steps to engage with their servicer about resolving their delinquency 
decide to initiate such steps because they receive a foreclosure 
notice. The Bureau does not have such data that would permit it to 
estimate the extent of this cost of the rule. However, the Bureau 
anticipates that the provision of the rule permitting foreclosures to 
proceed when borrowers are unresponsive will mitigate any such costs, 
by permitting some foreclosures to be initiated when borrowers choose 
not to engage with their servicers.
    Benefits and costs to covered persons. The provision will impose 
new costs on servicers and investors by delaying the date at which 
foreclosure can be initiated for loans subject to the special 
procedural safeguard requirements but where the special procedural 
safeguards are not met, which will prolong the ongoing costs of 
servicing these non-performing loans and delay the point at which 
servicers are able to complete the foreclosure and sell the property. 
These costs apply to foreclosures that the rule does 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. However, as also discussed 
above, past experience and the large number of loans currently in a 
nonpayment status suggest that as many as 91,000 and 182,000 loans of 
the loans that could be subject to delay as a result of the special 
procedural safeguard requirements could ultimately end in foreclosure. 
An additional number of these loans are likely to enter the foreclosure 
process but not end in foreclosure because the borrower is able to 
recover or prepay the loan either through refinancing or selling the 
home.
    By preventing servicers from initiating foreclosure for loans that 
would be subject to the special procedural safeguard requirements and 
where the special procedural safeguards are not met before January 1, 
2022, the rule could delay many foreclosures from being initiated by up 
to four months for this group of borrowers. 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.\168\ For borrowers in this 
group where foreclosures 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.
---------------------------------------------------------------------------

    \168\ Even absent the special procedural safeguards, 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).\169\ 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

[[Page 34894]]

are likely to be well below $178 per month for each loan.
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    \169\ 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. For loans subject to the special procedural 
safeguards but where the special procedural safeguards are not met, the 
provision will 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 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.\170\ 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.
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    \170\ 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 44, at 7.
---------------------------------------------------------------------------

    In addition, as discussed above, the provision may delay some 
borrowers' 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. If this causes some borrowers 
to resolve their delinquencies later than they would have under the 
baseline, the servicer may incur additional costs of servicing non-
performing loans during the period before those consumers resolve their 
delinquencies. Such additional costs would be qualitatively similar to 
the additional costs associated with a delay in foreclosure sales.
    Servicers would also incur costs to ensure the provision is not 
violated. The relative simplicity of the provision may mean the direct 
cost of developing systems to ensure compliance is not too great. 
However, servicers that meet procedural safeguard requirements and seek 
to pursue foreclosure (for example, when a borrower is unresponsive) 
will incur additional costs to ensure that the procedural safeguard 
requirements are in fact met so that they do not inadvertently violate 
the provision.
    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 certain 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 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 on or after January 1, 2022, the rule will 
cause servicers to delay foreclosure in some cases even when they 
perceive the net benefit of doing so to be 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.
Alternative Approach: Special Pre-Foreclosure Review Period
    In the proposed rule, the Bureau proposed an alternative in which 
servicers would not be allowed to initiate the foreclosure process for 
any loans during a special pre-foreclosure review period that would 
have taken place between the effective date of the rule and December 
31, 2021.
    Such an alternative could provide larger benefits for certain 
borrowers whose loans are more than 120 days delinquent and either not 
eligible for the special procedural safeguards or loans where the 
procedural safeguards are met. In general, the benefits of a pre-
foreclosure review period would be lower for borrowers whose loans are 
not affected by the procedural safeguard requirements. For example, if 
the servicer has already determined a borrower is not eligible for any 
loss mitigation options the borrower would be less likely to obtain a 
loss mitigation option even if afforded additional time. However, the 
alternative could permit some borrowers to benefit from the additional 
time for loss mitigation review 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 circumstances 
mean the alternative would provide significant benefits.
    Similarly, the benefits of the alternative approach 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 the time required by the final 
rule but who would benefit from the additional time to be considered 
for loss mitigation options if they were to contact their servicer 
later in the pre-foreclosure review period. The Bureau is not aware of 
data that could reasonably quantify the number of borrowers who meet 
the final rule's criteria for unresponsiveness and, of those, the 
number for whom such an additional time before foreclosure could be 
initiated would meaningfully increase their benefits from the rule. 
Similarly, the Bureau is not aware of data that could reasonable 
quantify the number of borrowers for whom the final rule might provide 
a greater benefit than the alternative because permitting a first

[[Page 34895]]

notice or filing for foreclosure may prompt them to engage with their 
servicer regarding loss mitigation options.
    This alternative approach would generally impose greater costs on 
servicers than the final rule because it would delay the initiation of 
foreclosure for a larger number of loans. If servicers were unable to 
initiate the foreclosure process for any loans until after December 31, 
2021, more loans would experience a delay of the overall foreclosure 
timeline. The loans that would not be affected by the final rule's 
procedural safeguard requirements may be loans that are particularly 
likely to move to foreclosure, so may be the loans for which the cost 
of preventing an earlier initiation of foreclosure is greatest. The 
extent of such costs 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 alternative's pre-foreclosure review period 
would not have increased the likelihood of finding a loss mitigation 
option.
Alternative Approach: ``Grace Period'' Rather Than Date Certain
    The Bureau considered an alternative to the special procedural 
safeguard requirements 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 final 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 rule, this alternative 
approach would provide a longer period than in the rule during which 
the borrower would be protected from the initiation of foreclosure. For 
example, a borrower whose forbearance ends on November 30, 2021 and 
whose loan is subject to the special procedural safeguard requirements 
would be protected from initiation of foreclosure for approximately one 
month under the final 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 final rule, 
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 final rule, 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 final rule 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 final rule, which would apply to all covered loans 
until a certain date. The Bureau does not have data to estimate such 
additional costs relative to the final rule.
2. Evaluation of Loss Mitigation Applications
    Section 1024.41(c)(2)(vi) extends 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 made 
available to borrowers experiencing 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 Sec.  
1024.41(c)(2)(vi), for any loss mitigation application the borrower 
submitted before that offer, a servicer is no longer required to comply 
with Sec.  1024.41(b)(1)'s requirements regarding reasonable diligence 
to collect a complete loss mitigation application, and a servicer also 
is no longer required to comply with Sec.  1024.41(b)(2)'s evaluation 
and notice requirements. If the borrower fails to perform under a trial 
loan modification plan offered pursuant to Sec.  1024.41(c)(2)(vi)(A) 
or if the borrower requests further assistance, a servicer must 
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, and must send the notice required under Sec.  
1024.41(b)(2) with regard to the most recent loss mitigation 
application the borrower submitted prior to the offer the servicer made 
under the exception, unless the servicer has already sent that notice.
    Benefits and costs to consumers. The exception will 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 provision could enable borrowers to obtain a loan 
modification in the first place.\171\ For some borrowers, a loan 
modification may be their only opportunity to

[[Page 34896]]

become or remain current and avoid foreclosure. Thus, for some 
borrowers who obtain a loan modification under the exception, the 
benefit of the provision is the value of obtaining a loan modification 
or obtaining a loan modification more quickly, potentially preventing 
delinquency fees and foreclosure.
---------------------------------------------------------------------------

    \171\ 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. Section 1024.41(c)(2)(ii). By providing 
additional conditions under which servicers may offer certain loss 
mitigation options based on an incomplete application, the final 
rule may increase the likelihood that a borrower is able to qualify 
for a loss mitigation option after submitting an incomplete 
application.
---------------------------------------------------------------------------

    As discussed above in part II, an estimated 2.2 million borrowers 
had mortgage loans that were in a forbearance program as of April 2021. 
Of these, an estimated 14 percent are serviced by small servicers, 
leaving approximately 1.9 million whose servicers are covered by the 
rule. Many of these borrowers may recover before the 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 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 as many as 760,000 borrowers exiting 
their forbearance programs after 18 months of forborne payments in 
September and October of 2021.\172\ 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.\173\ 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 exception.
---------------------------------------------------------------------------

    \172\ Black Apr. 2021 Report, supra note 7, 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 roughly 650,000 
loans subject to the final rule would exit forbearance in these 
months.
    \173\ 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, 2021), 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 provision may 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 Sec.  1024.41(c)(2)(vi) could 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 rule a 
borrower who receives a streamlined loan modification after evaluation 
of an incomplete application will 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.
    Benefits and costs to covered persons. Servicers will 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 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.\174\ 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.
---------------------------------------------------------------------------

    \174\ 2013 RESPA Servicing Rule Assessment Report, supra note 
11, at 155-156.
---------------------------------------------------------------------------

    In addition to the reduced costs associated with evaluation for 
streamlined loan modifications, the 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 provision will reduce this strain and may 
thereby reduce overall servicing costs.
    The Bureau does not have data to quantify the reduction in costs to 
servicers from the provision. The Bureau understands that working 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.

[[Page 34897]]

3. Live Contact and Reasonable Diligence Requirements
    Section 1024.39(e) temporarily requires servicers to provide 
additional information to certain borrowers during live contacts 
established under existing requirements. In general, for borrowers that 
are not in forbearance at the time live contact is established, if the 
owner or assignee of the borrower's mortgage loan makes a forbearance 
program available to borrowers experiencing a COVID-19-related 
hardship, Sec.  1024.39(e)(1) requires servicers to inform the borrower 
that forbearance programs are available for borrowers experiencing such 
a hardship. Unless the borrower states they are not interested, the 
servicer must list and briefly describe available forbearance programs 
to those borrowers and the actions a borrower must take to be 
evaluated. Additionally, the servicer must identify at least one way 
the borrower can find contact information for homeownership counseling 
services. In general, proposed Sec.  1024.39(e)(2) requires that, for 
borrowers who are in a forbearance program made available to those 
experiencing a COVID-19-related hardship 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 required live 
contact that occurs at least 10 days but no more than 45 days before 
the scheduled end of the forbearance period. Servicers must also 
identify at least one way the borrower can find contact information for 
homeownership counseling services. The rule does 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 Sec.  1024.39(e)(2), the final rule adds 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. Section 
1024.39(e)(1) will 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.\175\ Similarly, Sec.  1024.39(e)(2), together with comment 
41(b)1-4.iv, will 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.
---------------------------------------------------------------------------

    \175\ 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 provisions, the extent of the benefit depends to a large 
degree on whether servicers are already taking the actions required by 
the applicable 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.\176\ 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 will benefit from the provision. As discussed above, an estimated 
2.2 million borrowers were in forbearance programs as of April 2021 and 
an estimated 191,000 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.
---------------------------------------------------------------------------

    \176\ 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 provision.
---------------------------------------------------------------------------

    The costs to covered persons of complying with the provision also 
depend on the extent to which servicers are already taking the actions 
required by the provision. Servicers that do not currently take these 
actions will need to revise call scripts and make similar changes to 
their procedures when conducting live contact communications.\177\ Even 
servicers that do currently take actions that comply with the 
provisions will likely incur one-time costs to review policies and 
procedures and potentially make changes to ensure compliance with the 
rule. 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, will tend to make any changes more costly.\178\
---------------------------------------------------------------------------

    \177\ Servicers should already have access to the information 
they would need to provide under the 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).
    \178\ 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, 2021), https://www.fanniemae.com/research-and-insights/perspectives/servicers-report-biggest-challenges-implementing-covid-19-assistance-programs.

---------------------------------------------------------------------------

[[Page 34898]]

E. Potential Specific Impacts of the 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.\179\ 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 are exempt from the rule and are 
therefore not be directly affected by the rule.
---------------------------------------------------------------------------

    \179\ 81 FR 72160 (Oct. 19, 2016).
---------------------------------------------------------------------------

    With respect to servicers that are not small servicers but are 
depository institutions with $10 billion or less in total assets, the 
Bureau believes that the consideration of benefits and costs of covered 
persons presented above generally describes the impacts of the 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 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 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 rule will 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 
January 1, 2022. The exemption of small servicers from the rule will 
help maintain consumer access to credit through these providers.
Impact of the Provisions on Consumers in Rural Areas
    Consumers in rural areas may experience benefits from the 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 are 
exempt from the rule, although they may already provide most of the 
benefits to consumers that the rule is designed to provide.

VIII. Final 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.\180\ 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.\181\ The Bureau certified that the 
proposed rule, if adopted, would not have a significant economic impact 
on a substantial number of small entities.\182\
---------------------------------------------------------------------------

    \180\ 5 U.S.C. 601 et seq.
    \181\ 5 U.S.C. 609.
    \182\ 86 FR 18840, 18877 (Apr. 9, 2021).
---------------------------------------------------------------------------

    Consistent with the proposed rule, the final rule does 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 are 
therefore not directly affected by the 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.\183\ Therefore, the Bureau has 
concluded that the final rule will not have an effect on a substantial 
number of small entities.
---------------------------------------------------------------------------

    \183\ 2013 RESPA Servicing Final Rule, supra note 11, 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 final 
rule will 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.

IX. 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 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 final 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 <a href="/cdn-cgi/l/email-protection#e3a0a5b3a1bcb396818f8a80bcb3b1a2a380859381cd848c95"><span class="__cf_email__" data-cfemail="1754514755484762757b7e7448474556577471677539707861">[email protected]</span></a>.

X. Congressional Review Act

    Pursuant to the Congressional Review Act,\184\ the Bureau will 
submit a report containing this rule and other required information to 
the U.S. Senate, the U.S. House of Representatives, and the Comptroller 
General of the United States at least 60 days prior to the rule's

[[Page 34899]]

published effective date. The Office of Information and Regulatory 
Affairs has designated this rule as a ``major rule'' as defined by 5 
U.S.C. 804(2).
---------------------------------------------------------------------------

    \184\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

XI. 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.

XII. Authority and Issuance

    For the reasons set forth in the preamble, the Bureau amends 
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 national emergency for the COVID-19 pandemic 
declared in Proclamation 9994 on March 13, 2020 (beginning on March 1, 
2020) and continued on February 24, 2021, in accordance with section 
202(d) of the National Emergencies Act (50 U.S.C.1622(d)).
* * * * *

0
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 (e) of this 
section, if applicable.
* * * * *
    (e) Temporary COVID-19-Related Live Contact. Until October 1, 2022, 
in complying with the requirements described in paragraph (a) of this 
section, 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. At the time the servicer establishes live contact pursuant to 
paragraph (a) of this section, if the borrower is not in a forbearance 
program 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 shall inform the borrower of the 
following information:
    (i) That forbearance programs are available for borrowers 
experiencing a COVID-19-related hardship and, unless the borrower 
states that they are not interested in receiving information about such 
programs, the servicer shall list and briefly describe to the borrower 
any such forbearance programs made available at that time and the 
actions the borrower must take to be evaluated for such forbearance 
programs.
    (ii) At least one way that the borrower can find contact 
information for homeownership counseling services, such as referencing 
the borrower's periodic statement.
    (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 live contact 
established pursuant to paragraph (a) of this section that occurs at 
least 10 days and no more than 45 days before the scheduled end of the 
forbearance program or, if the scheduled end date of the forbearance 
program occurs between August 31, 2021 and September 10, 2021, during 
the first live contact made pursuant paragraph (a) of this section 
after August 31, 2021, the servicer shall inform the borrower of the 
following information:
    (i) The date the borrower's current forbearance program is 
scheduled to end;
    (ii) A list and brief description of each of the types of 
forbearance extension, repayment options, and other loss mitigation 
options made available to the borrower by the owner or assignee of the 
borrower's mortgage loan at the time of the live contact, and the 
actions the borrower must take to be evaluated for such loss mitigation 
options; and
    (iii) At least one way that the borrower can find contact 
information for homeownership counseling services, such as referencing 
the borrower's periodic statement.

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); and
0
c. 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

[[Page 34900]]

modification is effective and, for the entire modified term, does not 
cause the borrower's monthly required principal and interest payment to 
increase beyond the monthly principal and interest payment required 
prior to the loan modification.
    (2) If the loan modification permits the borrower to delay paying 
certain amounts until the mortgage loan is refinanced, the mortgaged 
property is sold, the loan modification matures, or, for a mortgage 
loan insured by the Federal Housing Administration, the mortgage 
insurance terminates, those amounts do not accrue interest.
    (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 this 
paragraph (c)(2)(vi)(A) ends any preexisting delinquency on the 
mortgage loan or the loan modification offered pursuant to this 
paragraph (c)(2)(vi)(A) 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.
    (5) 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 that were incurred on 
or after March 1, 2020, promptly upon the borrower's acceptance of the 
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 and must provide the borrower with the 
notice required by paragraph (b)(2)(i)(B) of this section with regard 
to the most recent 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, unless the servicer has 
already provided such notice to the borrower.
* * * * *
    (f) * * *
    (3) Temporary Special COVID-19 Loss Mitigation Procedural 
Safeguards. (i) In general. To give a borrower a meaningful opportunity 
to pursue loss mitigation options, a servicer must ensure that one of 
the procedural safeguards described in paragraph (f)(3)(ii) of this 
section has been met before making the first notice or filing required 
by applicable law for any judicial or non-judicial foreclosure process 
because of a delinquency under paragraph (f)(1)(i) if:
    (A) The borrower's mortgage loan obligation became more than 120 
days delinquent on or after March 1, 2020; and
    (B) The statute of limitations applicable to the foreclosure action 
being taken in the laws of the State where the property securing the 
mortgage loan is located expires on or after January 1, 2022.
    (ii) Procedural safeguards. A procedural safeguard is met if:
    (A) Complete loss mitigation application evaluated. The borrower 
submitted a complete loss mitigation application, remained delinquent 
at all times since submitting the application, and paragraph (f)(2) of 
this section permitted the servicer to make the first notice or filing 
required for foreclosure;
    (B) Abandoned property. The property securing the mortgage loan is 
abandoned according to the laws of the State or municipality where the 
property is located when the servicer makes the first notice or filing 
required by applicable law for any judicial or non-judicial foreclosure 
process; or
    (C) Unresponsive borrower. The servicer did not receive any 
communications from the borrower for at least 90 days before the 
servicer makes the first notice or filing required by applicable law 
for any judicial or non-judicial foreclosure process and all of the 
following conditions are met:
    (1) The servicer made good faith efforts to establish live contact 
with the borrower after each payment due date, as required by Sec.  
1024.39(a), during the 90-day period before the servicer makes the 
first notice or filing required by applicable law for any judicial or 
non-judicial foreclosure process;
    (2) The servicer sent the written notice required by Sec.  
1024.39(b) at least 10 days and no more than 45 days before the 
servicer makes the first notice or filing required by applicable law 
for any judicial or non-judicial foreclosure process;
    (3) The servicer sent all notices required by this section, as 
applicable, during the 90-day period before the servicer makes the 
first notice or filing required by applicable law for any judicial or 
non-judicial foreclosure process; and
    (4) The borrower's forbearance program, if applicable, ended at 
least 30 days before the servicer makes the first notice or filing 
required by applicable law for any judicial or non-judicial foreclosure 
process.
    (iii) Sunset date. This paragraph (f)(3) does not apply if a 
servicer makes the first notice or filing required by applicable law 
for any judicial or non-judicial foreclosure process on or after 
January 1, 2022.
* * * * *

0
5. In Supplement I to Part 1024:
0
a. Under Sec.  1024.39--Early intervention requirements for certain 
borrowers, 39(a) Live contact, revise ``39(a) Live contact'';
0
b. Under Sec.  1024.41--Loss mitigation procedures, revise ``41(b)(1) 
Complete loss mitigation application''; and
0
c. Under Sec.  1024.41--Loss mitigation procedures, after 41(f) 
Prohibition on Foreclosure Referral, add paragraphs 41(f)(3) Temporary 
Special COVID-19 Loss Mitigation Procedural Safeguards and 
41(f)(3)(ii)(C) Unresponsive borrower.
    The revisions and addition 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

[[Page 34901]]

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. However, 
if a borrower is in a situation such that the additional live 
contact information is required under Sec.  1024.39(e) or if a 
servicer relies on the temporary special COVID-19 loss mitigation 
procedural safeguards provision in Sec.  1024.41(f)(3)(ii)(C)(1), 
providing no more than a sentence requesting that the borrower 
contact the servicer with regard to the delinquencies in the 
periodic statement or in an electronic communication would not be a 
reasonable step, under the circumstances, to make good faith efforts 
to establish live contact. 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 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. When the borrower is in a forbearance program made 
available to borrowers experiencing a COVID-19-related hardship such 
that the additional live contact information is required under Sec.  
1024.39(e)(2) or if a servicer relies on the temporary special 
COVID-19 loss mitigation procedural safeguards provision in Sec.  
1024.41(f)(3)(ii)(C)(1), the servicer is not maintaining ongoing 
contact with the borrower under the loss mitigation procedures under 
Sec.  1024.41 in a way that would comply with Sec.  1024.39(a) if 
the servicer has only sent the notices required by Sec.  
1024.41(b)(2)(i)(B) and (c)(2)(iii) and has had no further ongoing 
contact with the borrower concerning the borrower's loss mitigation 
application. 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:

[[Page 34902]]

    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 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, and the borrower remains delinquent, a 
servicer must contact the borrower no later than 30 days before the 
scheduled 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.
* * * * *

41(f)(3) Temporary Special COVID-19 Loss Mitigation Procedural 
Safeguards

    1. Record retention. As required by Sec.  1024.38(c)(1), a 
servicer shall maintain records that document actions taken with 
respect to a borrower's mortgage loan account until one year after 
the date a mortgage loan is discharged or servicing of a mortgage 
loan is transferred by the servicer to a transferee servicer. If the 
servicer makes the first notice or filing required by applicable law 
for any judicial or non-judicial foreclosure process before January 
1, 2022, these records must include evidence demonstrating 
compliance with Sec.  1024.41(f)(3), including, if applicable, 
evidence that the servicer satisfied one of the procedural 
safeguards described in Sec.  1024.41(3)(ii). For example, if the 
procedural safeguards are met due to an unresponsive borrower 
determination as described in Sec.  1024.41(f)(3)(ii)(C), the 
servicer must maintain records demonstrating that the servicer did 
not receive communications from the borrower during the relevant 
time period and that all four elements of Sec.  1024.41(f)(3)(ii)(C) 
were met. For example, records demonstrating that the servicer did 
not receive any communications from the borrower during any relevant 
time period may include, for example: (1) Call logs, servicing 
notes, and other systems of record cataloguing communications 
showing the absence of written or oral communication from the 
borrower during the relevant period; and (2) a schedule of all 
transactions credited or debited to the mortgage loan account, 
including any escrow account as defined in Sec.  1024.17(b) and any 
suspense account, as required by Sec.  1024.38(c)(2)(i). The method 
of retaining these records must comply with comment 31(c)(1)-1.

41(f)(3)(ii)(C) Unresponsive Borrower

    1. Communication. For purposes of Sec.  1024.41(f)(3)(ii)(C), a 
servicer has not received a communication from the borrower if the 
servicer has not received any written or electronic communication 
from the borrower about the mortgage loan obligation, has not 
received a telephone call from the borrower about the mortgage loan 
obligation, has not successfully established live contact with the 
borrower about the mortgage loan obligation, and has not received a 
payment on the mortgage loan obligation. A servicer

[[Page 34903]]

has received a communication from the borrower if, for example, the 
borrower discusses loss mitigation options with the servicer, even 
if the borrower does not submit a loss mitigation application or 
agree to a loss mitigation option offered by the servicer.
    2. Borrower's representative. A servicer has received a 
communication from the borrower if the communication is from an 
agent of the borrower. 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 that a person that claims to be an 
agent of the borrower provide documentation from the borrower 
stating that the purported agent is acting on the borrower's behalf. 
Upon receipt of such documentation, the servicer shall treat the 
communication as having been submitted by the borrower.
* * * * *

    Dated: June 25, 2021.
David Uejio,
Acting Director, Bureau of Consumer Financial Protection.
[FR Doc. 2021-13964 Filed 6-29-21; 8:45 am]
BILLING CODE 4810-AM-P


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