34848 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

1This 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). 

2The Coronavirus Aid, Relief, and Economic 

Security Act, Public Law 116–136, 134 Stat. 281 

(2020) (CARES Act). 3 Id. 

5Bureau 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-covid19-pandemic_report_2021-05.pdf (CFPB Mortgage 

Borrower Pandemic Report). 

6Nat’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-remainsprimary-driver-of-household-wealth/. 

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. 

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. 

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 CFPB_Accessibility@cfpb.gov. 

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. 

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. 

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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 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 nonjudicial 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 

§ 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 § 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 

§ 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 

§ 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 § 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 § 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)). 


jbell on DSKJLSW7X2PROD with RULES2
34850 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

10Real 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-ruleassessment_report.pdf (Servicing Rule Assessment 

Report). 

12Amendments 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-toRepay 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). 13See generally 2013 RESPA Servicing Final 

Rule, supra note 11, at 10699–701. 

14See 2013 RESPA Servicing Rule Assessment 

Report, supra note 11, at 37–60. 

15 2013 RESPA Servicing Final Rule, supra note 

11, at 10700. 

16See 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. 

17See 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). 

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. 27 86 FR 11599 (Feb. 26, 2021). 28 85 FR 39055 (June 30, 2020). 29See 12 CFR 1024.41(c)(2). 

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

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. 

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

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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34851 

30FHA, 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. 

31The 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. 

32CFPB Mortgage Borrower Pandemic Report, 

supra note 5. 

33USAFacts, 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/. 

34 Id. at 8. 

35An estimated 413,000 borrowers exited 

forbearance in May. Id. at 9. 

36 Id. 

37Black Apr. 2021 Report, supra note 7, at 10. 

38Andy 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/forbearancevolumes-increase-again-moderate-opportunity-foradditional-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). 

39A 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. 

40Black Apr. 2021 Report, supra note 7, at 8. 

days at the request of the borrower if the 

borrower attests to having a COVIDrelated 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. 

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. 

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. 

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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
34852 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

41Black Apr. 2021 Report, supra note 7, at 5. 42 Id. 43 Id. 44Black 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). 45Supra note 7, at 10. 46 Id. 47 Id. 48 Id. 

49 Id. at 9. 

50 Id. 

51 Id. 

52 Id. at 11. 

53 Id. at 10. 

54 Id. 

55See 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/statementsreleases/2021/06/24/fact-sheet-biden-harrisadministration-announces-initiatives-to-promotehousing-stability-by-supporting-vulnerable-tenantsand-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. 

56ATTOM 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/markettrends/foreclosures/attom-data-solutions-september

-and-q3-2020-u-s-foreclosure-market-report/. 

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 deedin-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

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. 

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. 

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

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

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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34853 

57Black Apr. 2021 Report, supra note 7, at 3. 

58Statista, Foreclosure rate in the United States 

from 2005–2020, (Apr. 15, 2021), https://

www.statista.com/statistics/798766/foreclosurerate-usa/. 

59 Id. 

60 Id. 

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). 

62For 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). 

63Supra note 7 (1.77 million 90-day 

delinquencies plus 153k active foreclosures). 

64 Id. at 3. 

65CFPB Mortgage Borrower Pandemic Report, 

supra note 5. 

66 Id. 

67 Id. 

68Bureau 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. 

69Bureau 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. 

foreclosure inventory was down 26 

percent from the same time last year.57

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. 

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. 

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

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

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. 

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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
34854 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

70 Id. 

71Bureau 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-rulescovid-19.pdf. 

72Bureau of Consumer Fin. Prot., Bureau’s 

Mortgage Servicing Rules FAQs related to the 

COVID–19 Emergency (Apr. 3, 2020), https://

files.consumerfinance.gov/f/documents/cfpb_

mortgage-servicing-rules-covid-19_faqs.pdf. 

73 86 FR 17897 (Apr. 7, 2021). 

74News 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-warnsmortgage-servicers-unprepared-is-unacceptable/. 

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. 

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. 

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 § 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. 

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 foreclosurerelated 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. 

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 (DoddFrank 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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34855 

77The 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. 

78The 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. 

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. 

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

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. 


jbell on DSKJLSW7X2PROD with RULES2
34856 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

79Presidential 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/presidentialactions/2021/02/24/notice-on-the-continuation-ofthe-national-emergency-concerning-thecoronavirus-disease-2019-covid-19-pandemic/. 

80Small 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. 

85When 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. 

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. 

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, § 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 

§ 1024.41.84

As discussed below in the section-bysection analysis of § 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 § 1024.39(a) and related 

comments 39(a)–4–i and –ii 85 to 

incorporate references to proposed 

§ 1024.39(e). 

As discussed in more detail below 

and in the section-by-section analysis 

for § 1024.39(e), generally the comments 

received on proposed § 1024.39(a) 

supported the changes to § 1024.39(a) 

and (e). Among those comments, the 

Bureau received a couple of comments 

specific to the proposed amendments to 

§ 1024.39(a). A consumer advocate 

commenter suggested the Bureau should 

include additional amendments to 

§ 1024.39(a) commentary to further the 

goals of and properly incorporate 

proposed § 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 § 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 

§ 1024.39(b)(2) may be an alternative for 

live contact during the period 

§ 1024.39(e) is effective. Additionally, 

an industry commenter discussed how 

§ 1024.39(e) intersects with the 

guidance provided in existing comment 

39(a)–6, indicating that it felt the Bureau 

should not require § 1024.39(e) under 

the circumstances described in 

comment 39(a)–6. 

For the reasons discussed below, the 

Bureau is adopting the amendments to 

§ 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 § 1024.41(f)(3). Currently, 

comment 39(a)–3 clarifies that good 

faith efforts to establish live contact for 

purposes of § 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34857 

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

87Small servicers, as defined in Regulation Z, 12 

CFR 1026.41(e)(4), are not subject to these 

requirements. 12 CFR 1024.30(b)(1). 

situation such that the additional live 

contact information is required under 

§ 1024.39(e) or if a servicer plans to rely 

on the temporary special COVID–19 loss 

mitigation procedural safeguards in 

§ 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 

§ 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 § 1024.39(e) or 

§ 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 

§ 1024.41(f)(3)(ii)(C), because 

compliance with § 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 

§ 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 § 1024.39(e) 

discussed in the proposal to Regulation 

X and the goals of new 

§ 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 § 1024.41, 

the servicer complies with § 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 

§ 1024.39(e) or if a servicer plans to rely 

on the temporary special COVID–19 loss 

mitigation procedural safeguards in 

§ 1024.41(f)(3)(ii)(C)(1), then certain loss 

mitigation related communications 

alone are not enough for compliance 

with § 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 § 1024.41 in a way 

that would comply with § 1024.39(a) if 

the servicer has only sent the notices 

required by § 1024.41(b)(2)(i)(B) and 

§ 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 

§ 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. 

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 § 1024.39(a) 

to inform a borrower about loss 

mitigation options by providing the 

written notice required by 

§ 1024.39(b)(1), but the servicer must 

provide such notice promptly after the 

servicer establishes live contact. The 

existing requirement in § 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 

§ 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 § 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 

§ 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 


jbell on DSKJLSW7X2PROD with RULES2
34858 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

88 12 CFR 1024.39(a). 89 86 FR 18840 at 18851 (Apr. 9, 2021). 

must inform the borrower about the 

availability of loss mitigation options, if 

appropriate.88

The Bureau’s Proposal 

The Bureau proposed to add 

§ 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 § 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 § 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 postforbearance 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 § 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 § 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 § 1024.39(e), the 

Bureau should rely on existing 

§ 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 

§ 1024.39(e) supported the proposed 

amendments. Some industry 

commenters provided general support. 

Other commenters, industry and 

otherwise, supported proposed 

§ 1024.39(e) but requested certain 

revisions. Below is a discussion of 

comments received on the overall 

proposed requirements in § 1024.39(e). 

See the section-by-section analyses of 

§ 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 § 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 § 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-bysection analysis of proposed 

§ 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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34859 

90Comment 39(b)(1)–1 states, in part, that a 

servicer may provide additional information that 

the servicer determines would be helpful. 

91For 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. 

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

93See 12 CFR 1024.32(a)(2). 

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 § 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 

§ 1024.39(e) to be provided in a written 

notice or added to the existing 45-day 

written notice requirements in 

§ 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

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 § 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 § 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 § 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 § 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. 

Exempt federally backed mortgages. 

One industry trade group requested the 

Bureau exempt ‘‘federally backed’’ 

mortgage loans from proposed 

§ 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 § 1024.39(e) requirements is 

necessary. The Bureau believes final 

§ 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 § 1024.39(e) to assist limited 

English proficiency borrowers. The 

Bureau is not revising § 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 


jbell on DSKJLSW7X2PROD with RULES2
34860 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

94See 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/rulespolicy/notice-opportunities-comment/open-notices/ 

statement-regarding-the-provision-of-financialproducts-and-services-to-consumers-with-limitedenglish-proficiency/; 86 FR 6306 (Jan. 13, 2021). See 

also 82 FR 55810 (Nov. 20, 2017). 

95See, e.g., 78 FR 10695, 10745 (Feb. 14, 2013) 

(discussing the suggestion to require establishing 

electronic portals for intake of notices of error 

under § 1024.35(c)). 

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. 

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 industrywide 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. 

Sunset date. A few commenters 

discussed the sunset date for proposed 

§ 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 § 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 § 1024.39(e) more closely to 

the pandemic is necessary to prevent 

conflicts between § 1024.39(e) and 

pandemic-related investor or guarantor 

requirements, such as those related to 

additional communications and loss 

mitigation options. 

As such, § 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 § 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 

§ 1024.39(e) must cover both the 

expiration of COVID–19-related 

forbearance programs, which would be 

relevant for the requirements for 

§ 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 

§ 1024.39(e)(2). To cover both groups of 

borrowers, and particularly to reach all 

borrowers exiting the relevant 

forbearance programs discussed in 

§ 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 

§ 1024.39(e)(1) and (2) below, the 

Bureau is finalizing § 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 

§ 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. 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34861 

96 12 CFR 1024.38(b)(2); 12 CFR 1024.40(b)(1)(i) 

and (ii). 

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 § 1024.39(a). Thus, the 

Bureau reiterates that § 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 § 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 § 1024.39(e)(1) or 

(2). However, the Bureau reiterates that 

the required information under 

§ 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

39(e)(1) 

The Bureau’s Proposal 

Proposed § 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 § 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 § 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 

§ 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 § 1024.39(e)(1). One industry 

commenter opposed this provision 

overall, asserting servicers were already 

performing the requirements proposed 

in § 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 § 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 

§ 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-bysection analysis for the definition of 

COVID–19-Related Hardship in 

§ 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 

§ 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 


jbell on DSKJLSW7X2PROD with RULES2
34862 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

97Existing § 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. 

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 § 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 § 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 

§ 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 § 1024.39(e)(1) does not 

replace the existing live contact 

requirements in § 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 § 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 § 1024.39(e)(1) 

generally as proposed with some 

revisions to address certain comments 

received. The Bureau believes 

§ 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 § 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 § 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-bysection analysis for § 1024.39(e) more 

generally, the Bureau notes that 

particular to § 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. 

39(e)(2) 

The Bureau’s Proposal 

Proposed § 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 

§ 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 § 1024.39(a) that occurs before 

the end of the loan’s forbearance period. 

For the reasons discussed below, the 

Bureau is finalizing § 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. 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34863 

Comments Received 

Commenters generally supported 

proposed § 1024.39(e)(2). One industry 

commenter opposed this provision 

overall, asserting servicers were already 

performing the requirements proposed 

in § 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 § 1024.39(e)(2). One 

individual commenter suggested the 

requirements in § 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 § 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 

§ 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 § 1024.39(e) are in 

addition to the existing requirement in 

§ 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 § 1024.39(e)(2) is 

necessary for borrowers that exit 

forbearance programs early. First, 

§ 1024.39(e)(2), and § 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, § 1024.39(e)(2), as revised, 

would not apply because § 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 § 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 § 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 § 1024.39(e)(2) 

during the last live contact made 

pursuant to existing § 1024.39(a) that 

occurs before the end of the loan’s 

forbearance program. These commenters 

supported proposed § 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 


jbell on DSKJLSW7X2PROD with RULES2
34864 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

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). 

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 § 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 

§ 1024.39(e)(2) to clarify when servicers 

must provide the information required 

by § 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 § 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 § 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. 

Thus, to balance the timing 

considerations, the Bureau is revising 

§ 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 

§ 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 § 1024.39(e)(2) 

generally as proposed, with some 

revisions to address certain comments 

received. As revised, the Bureau 

concludes that § 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 § 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 § 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, § 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 § 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 

§ 1024.39(e)(2) requires the servicer to 

provide the additional information 

during the first live contact made 

pursuant to § 1024.39(a) after August 31, 

2021. 

Finally, the Bureau notes that 

§ 1024.39(e)(2), as revised, works with 

the new reasonable diligence obligations 

in comment 41(b)(1)–4.iv to ensure 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34865 

100The 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. 101 85 FR 39055 (June 30, 2020). 

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 

§ 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 § 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. 

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 § 1024.41(c)(2)(v), adopted 

in the June 2020 IFR,101 and proposed 

§ 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 § 1024.41(c)(2)(v) and new 

§ 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 


jbell on DSKJLSW7X2PROD with RULES2
34866 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

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. 

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, 

§ 1024.41(c)(2)(ii), (iii), and (v). As 

further described in the section-bysection analysis of § 1024.41(c)(2)(vi) 

below, the Bureau proposed to add a 

temporary exception to this anti-evasion 

requirement in new § 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 

§ 1024.41(c)(2)(vi). The Bureau did not 

receive any comments on the addition 

of this reference and, because the 

Bureau is adopting § 1024.41(c)(2)(vi), 

the Bureau is finalizing the amendment 

to § 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 § 1024.31, the Bureau 

proposed to define the term ‘‘COVID– 

19-related hardship’’ for purposes of 

subpart C, including § 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 

§ 1024.41(c)(2)(v) to utilize the proposed 

new term. 

As further explained in the sectionby-section analysis of § 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 

§ 1024.41(c)(2)(v), and is finalizing it as 

proposed. The Bureau does not intend 

for this conforming amendment to 

substantively change § 1024.41(c)(2)(v). 

Escrow Issues. As the Bureau stated in 

the June 2020 IFR, 

§ 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 § 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 § 1024.41(c)(2)(v)(A). 

The Bureau has received questions 

about whether servicers should issue a 

short-year annual escrow account 

statement under § 1024.17(i)(4) prior to 

offering a loss mitigation option under 

§ 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 escrowrelated 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 § 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34867 

102Additionally, 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 § 1024.17(f)(4)(iii). 

103A loan modification that a servicer offers 

based upon the evaluation of an incomplete loss 

mitigation application can qualify for the exception 

in § 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 

Continued 

this context. Assume a servicer performs 

an escrow analysis before offering a loss 

mitigation option to the borrower under 

§ 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 noninterest 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 

§ 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

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 

§ 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 § 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 

§ 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 

§ 1024.41(c)(2)(vi)(A), the Bureau 

proposed to exclude servicers from the 

requirement to exercise reasonable 

diligence required by § 1024.41(b)(1) 

and to send the acknowledgement 

notice required by § 1024.41(b)(1). 

However, the proposal would have 

required the servicer to immediately 

resume reasonable diligence efforts 

required by § 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 § 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 § 1024.41(c)(2)(vi). Most 

commenters who expressed support for 

proposed § 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 


jbell on DSKJLSW7X2PROD with RULES2
34868 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

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 § 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 

§ 1024.41(c)(2)(ii), unless one of the exceptions 

listed in § 1024.41(c)(2)(ii) through (vi) applies. 

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. 

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 

§ 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 § 1024.41 that 

are critical in other circumstances. 

However, the Bureau concludes that the 

exception set forth in final 

§ 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 § 1024.41(c)(2)(vi)(A), 

they would still have the right under 

§ 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 

§ 1024.41(c)(2)(vi)(A) and then failed to 

perform on that plan. 

Further, to be eligible for the 

exception under § 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 

§ 1024.41(c)(2)(vi)(A) or requests further 

assistance, under § 1024.41(c)(2)(vi)(B) 

the servicer must immediately resume 

reasonable diligence efforts to collect a 

complete loss mitigation application as 

required under § 1024.41(b)(1). Also, as 

further discussed below, in this final 

rule the Bureau is amending 

§ 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 

§ 1024.41(c)(2)(vi)(A) or requests further 

assistance, the servicer must send the 

borrower the notice required by 

§ 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 sectionby-section analysis of § 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 § 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 

§ 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. 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34869 

104See Fed. Nat’l Mortg. Ass’n, Servicing Guide: 

D2–3.2–07: Fannie Mae Flex Modification (Sept. 9, 

2020), https://servicing-guide.fanniemae.com/THESERVICING-GUIDE/Part-D-Providing-Solutions-toa-Borrower/Subpart-D2-Assisting-a-Borrower-Whois-Facing-Default-or/Chapter-D2-3-Fannie-Mae-sHome-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. 

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). 

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. 

For the reasons discussed above, the 

Bureau declines to generally extend the 

requirements in § 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 § 1024.41(c)(2)(vi). 

Expanded eligibility criteria. Some 

industry commenters asked that the 

Bureau expand the eligibility criteria in 

§ 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 

§ 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 § 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 

§ 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 § 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 

§ 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 

§ 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. 

The Bureau notes that 

§ 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 

§ 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 


jbell on DSKJLSW7X2PROD with RULES2
34870 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

106 Id. 

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 

§ 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 

§ 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 § 1024.41(c)(2)(vi)(A)(1) 

as proposed. 

41(c)(2)(vi)(A)(2) 

The Bureau’s Proposal 

Under proposed 

§ 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, 

§ 1024.41(c)(2)(vi)(A)(2) also would 

have provided that, to qualify for the 

anti-evasion exception in 

§ 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 

§ 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 

§ 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 § 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 § 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 § 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 

§ 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 

§ 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 § 1024.41(c)(2)(vi)’s 

exception if, in addition to meeting 

§ 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. 

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 

§ 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 

§ 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 § 1024.41(c)(2)(vi)(A)(2) are met 

only if those amounts do not accrue 

interest. The Bureau is revising 

§ 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34871 

107Supra note 102. 

108See 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/THESERVICING-GUIDE/Part-D-Providing-Solutions-toa-Borrower/Subpart-D2-Assisting-a-Borrower-Whois-Facing-Default-or/Chapter-D2-3-Fannie-Mae-sHome-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. 

109 12 CFR 1024.41(f)(1). 

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

As described above, the Bureau is 

adopting § 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 

§ 1024.41(c)(2)(vi)(A). 

41(c)(2)(vi)(A)(3) 

The Bureau’s Proposal 

Proposed § 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 § 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 § 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 

§ 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 

§ 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 

§ 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 § 1024.41(c)(2)(vi)(A)(3). 

41(c)(2)(vi)(A)(4) 

The Bureau’s Proposal 

Proposed § 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 

§ 1024.41(c)(2)(vi). 

Comments Received 

The Bureau did not receive any 

comments specifically addressing 

proposed § 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 

§ 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 


jbell on DSKJLSW7X2PROD with RULES2
34872 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

110Small servicers, as defined in Regulation Z, 12 

CFR 1026.41(e)(4), are not subject to these 

requirements. 12 CFR 1024.30(b)(1). 

111HUD Mortgagee Letter, supra note 105, at 9 

and 11. 

modification offer ends any preexisting 

delinquency on the mortgage loan, 

§ 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, § 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. 

Additionally, the Bureau notes that 

servicers must still comply with the 

requirements of § 1024.41 for the first 

loss mitigation application submitted 

after acceptance of a loan modification 

offered pursuant to 

§ 1024.41(c)(2)(vi)(A), due to 

§ 1024.41(i)’s requirement that a servicer 

comply with § 1024.41 if a borrower 

submits a loss mitigation application, 

unless the servicer has previously 

complied with the requirements of 

§ 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 § 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 § 1024.41 with respect 

to the first subsequent application 

submitted by the borrower after the 

borrower accepts an offer pursuant to 

§ 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 

§ 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 

§ 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 

§ 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 

§ 1024.41(c)(2)(vi)(A)(4) as proposed. 

41(c)(2)(vi)(A)(5) 

The Bureau’s Proposal 

As noted above, proposed 

§ 1024.41(c)(2)(vi)(A)(2) would have 

provided that, to qualify for the antievasion requirement exception in 

§ 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 

§ 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 

§ 1024.41(c)(2)(vi)(A)(2) largely as 

proposed, but re-numbered as 

§ 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 

§ 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 owneroccupant 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. 

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, 

§ 1024.41(c)(2)(vi)(A)(5) states that the 

servicer must waive all existing late 

charges, penalties, stop payment fees, or 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34873 

similar charges. Similar charges for 

purposes of § 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 § 1024.41(c)(2)(vi)(A)’s 

anti-evasion exception. 

For the reasons described above, the 

Bureau is adopting 

§ 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 § 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 § 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, 

§ 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 § 1024.41(c)(2)(vi)(A), but it 

would have required a servicer to 

immediately resume reasonable 

diligence efforts as required under 

§ 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 § 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 § 1024.41(f)(3). For 

the reasons discussed below, the Bureau 

is adopting § 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 

§ 1024.41(c)(2)(vi)(B). As discussed 

above, proposed § 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 

§ 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 § 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 

§ 1024.41(b)(1) when a borrower fails to 

perform under a trial loan modification 

plan offered pursuant to proposed 

§ 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 § 1024.41(c)(2)(vi)(A). 

The Bureau is finalizing 

§ 1024.41(b)(2)(i)(B) to provide servicers 

with relief from the requirements of 

§ 1024.41(b)(1) and (b)(2) upon the 

borrower’s acceptance of an offer made 

pursuant to § 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 § 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 § 1024.41(b)(2)(i)(B), the 

Bureau notes that § 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 

§ 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 

§ 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 § 1024.41(b)(1) and 

(b)(2), the Bureau again emphasizes, as 


jbell on DSKJLSW7X2PROD with RULES2
34874 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

112 12 CFR 1024.30(b)(1). 

113 12 CFR 1024.41(j). 

it did in the proposed rule, that if a 

borrower does wish to pursue a 

complete application and receive the 

full protections of § 1024.41, 

§ 1024.41(c)(2)(vi) would not prohibit 

them from doing so. In addition, as 

discussed in the section-by-section 

analysis of § 1024.41(c)(2)(vi)(A)(4), the 

Bureau stresses that servicers are 

required to comply with § 1024.41, 

including § 1024.41(b)(1) and (2), if the 

borrower submits a new loss mitigation 

application after accepting a loan 

modification pursuant to 

§ 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 

§ 1024.41(c)(2)(vi)(A). 

The Bureau is not including a specific 

provision in § 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 

§ 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 § 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 

§ 1024.41(c)(2)(vi)(A). 

Though the Bureau is not revising 

§ 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 

§ 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 

§ 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 § 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 § 1024.41(c)(2)(vi)(A) or requests 

further assistance, the servicer must 

send the borrower the notice required 

by § 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 § 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 

§ 1024.41(f)(1)(i) to help implement the 

proposed special pre-foreclosure review 

period in proposed § 1024.41(f)(3). The 

Bureau did not receive any comments 

on this aspect of the proposal. As 

discussed below in the section-bysection analysis of § 1024.41(f)(3), the 

Bureau is not finalizing the special preforeclosure review period as proposed 

and, thus, is not finalizing any 

corresponding amendments in 

§ 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, 

§ 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 dueon-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 preforeclosure review period in 

§ 1024.41(f)(1) does apply to small 

servicers.113

The Bureau’s Proposal 

The Bureau proposed to revise 

§ 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 § 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 

§ 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 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 preforeclosure 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 preforeclosure 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 preforeclosure review period as proposed. 

Instead, as finalized, § 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 

§ 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 

§ 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 § 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 nonjudicial 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 preforeclosure 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 preforeclosure 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 


jbell on DSKJLSW7X2PROD with RULES2
34876 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

114An 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. 

115Commenters 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. 

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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34877 

116See 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. 

117Several 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 preforeclosure 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. 

consideration of their long-term ability 

to meet their monthly mortgage 

payment obligations in favor of shortterm 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 imitationrelated default servicing activity and 

obstacles facing consumers discussed 

above. See the section-by-section 

analysis of § 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. 

Servicer liquidity concerns. Several 

industry commenters expressed concern 

that the proposed special preforeclosure 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 


jbell on DSKJLSW7X2PROD with RULES2
34878 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

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

that would not qualify for loss 

mitigation options. 

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

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 

§ 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 § 1024.41(f)(3) is better 

tailored than the proposed approach to 

facilitate loss mitigation review. 

However, the Bureau concludes that 

final § 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 

§ 1024.41(f)(3)(iii), final § 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-bysection analysis of § 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34879 

of loss mitigation applications. The 

Bureau believes that the approach taken 

in final § 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 

§ 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 nonbankruptcy 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 sectionby-section analysis of 

§ 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. 


jbell on DSKJLSW7X2PROD with RULES2
34880 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

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 preforeclosure 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 

§ 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 prepandemic 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, openend 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 § 1024.41(f)(3) 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34881 

119 78 FR 60381, 60406–07 (Oct. 1, 2013); 81 FR 

72160, 72913, 72915 (Oct. 19, 2016). 

120Commenters 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. 

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 § 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 

§ 1024.41(f)(3)(ii)(B) and may have 

violated Regulation X, as well as other 

applicable law. 

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 


jbell on DSKJLSW7X2PROD with RULES2
34882 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

121 2013 RESPA Servicing Final Rule, supra note 

11, at 10843. 

‘‘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 Statemandated 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 § 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 

§ 1024.41(f)(3). Final § 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 

§ 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 nonjudicial foreclosure process before the 

effective date of the rule or on or after 

January 1, 2022. 

Small servicers. Like the proposal, 

final § 1024.41(f)(3) does not apply to 

small servicers. This is because small 

servicers are exempt from the 

requirements in § 1024.41, except with 

respect to § 1024.41(f)(1).121 The final 

rule’s temporary procedural safeguards 

are in § 1024.41(f)(3) and not 

§ 1024.41(f)(1). 

Record retention. The Bureau is also 

adding new comment 41(f)(3)–1 to 

clarify record retention requirements for 

§ 1024.41(f)(3). It provides that, as 

required by § 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 

§ 1024.41(f)(3), including, if applicable, 

evidence that the servicer satisfied one 

of the procedural safeguard 

requirements described in 

§ 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 § 1024.41(f)(3) is in effect. 

The temporary procedural safeguards 

provisions consist of three parts in 

§ 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 § 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 § 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 § 1024.41(f)(3), 

discussed above in the section-bysection analysis of § 1024.41(f)(3). For 

the reasons discussed in the section-bysection analysis of § 1024.41(f)(3), the 

Bureau is not finalizing proposed 

§ 1024.41(f)(3), and is, instead, adopting 

new § 1024.41(f)(3) to establish new 

temporary special COVID–19 loss 

mitigation procedural safeguards. 

Final § 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 § 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 § 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 

§ 1024.41(f)(3)(iii) for discussion of 

when § 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 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 § 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 § 1024.41(f)(3), the Bureau 

concludes that the proposed special preforeclosure review period would not 

have sufficiently addressed these 

concerns. The proposed special preforeclosure 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 § 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 

§ 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 § 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 


jbell on DSKJLSW7X2PROD with RULES2
34884 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

122 2013 RESPA Servicing Final Rule, supra note 

11, at 10836. 

of the procedural safeguards described 

in § 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 

§ 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 § 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 

§ 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 § 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 § 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 § 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 § 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, § 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 § 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 preforeclosure review period in 

§ 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 § 1024.41(c)(1)(ii) 

stating that the borrower is not eligible 

for any loss mitigation option and the 

appeal process in § 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 

§ 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 reevaluate the borrower’s eligibility for 

loss mitigation under those 

requirements if the borrower’s financial 

situation later changes. 

41(f)(3)(ii)(B) Abandoned Property 

Final § 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, 

§ 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 nonjudicial foreclosure process. As 

discussed in response to comments 

received in the section-by-section 

discussion of § 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34885 

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). 

or filing in connection with abandoned 

properties. 

Final § 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 § 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 

§ 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. 

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 

§ 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 § 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 

§ 1024.41(f)(3) is in effect. Specifically, 

§ 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 § 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 nonjudicial 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 § 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 

§ 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 § 1024.41(f)(3)(ii)(C)(2) 

requires the servicer to send the written 

notice required by § 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 

§ 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 § 1024.41(f)(3)(ii)(C)(3) 

requires the servicer to send all notices 

required by § 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 § 1024.41(c)(2)(iii). The 

Bureau notes that this provision, as well 

as § 1024.41(f)(3)(ii)(C)(1) and (2), 

require strict compliance with all 

applicable provisions of § 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 

§ 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. 


jbell on DSKJLSW7X2PROD with RULES2
34886 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

124 5 U.S.C. 801 et seq. 

125 5 U.S.C. 801(a)(3). 

Fourth, a servicer is only permitted to 

make the first notice or filing under new 

§ 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 § 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 § 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, § 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 § 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 § 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. 

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 § 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34887 

126This 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)). 

127See, 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 nonjudicial 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). 129Specifically, sec. 1022(b)(2)(A) of the DoddFrank 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 DoddFrank Act; and the impact on consumers in rural 

areas. 

130The 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. 

131See CFPB Mortgage Borrower Pandemic 

Report, supra note 5. 

expire, the servicer need not provide the 

information required by § 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 

§ 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 

§§ 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 

§ 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

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. 

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 DoddFrank 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. 

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

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. 


jbell on DSKJLSW7X2PROD with RULES2
34888 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

132The 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. 

133See Black Jan. 2021 Report, supra note 44. 

134Supra note 62 and accompanying text. 

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. 

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 (§ 1024.41(f)(3)); (2) the new 

exception to the complete application 

requirement (§ 1024.41(c)(2)(vi)); and (3) 

the clarifications of the early 

intervention live contact and reasonable 

diligence requirements (§§ 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 

§ 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 § 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

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. 

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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34889 

136See Am. Enterprise Inst., National Home Price 

Appreciation Index (Jan. 2021), https://

www.aei.org/wp-content/uploads/2021/03/HPAinfographic-Jan.-2021-FINAL.pdf?x91208. 

137A 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-covid19-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/understandingdifferences-between-covid-19-recession-and-greatrecession-can-help-policymakers-implementsuccessful-loss-mitigation. 

138This 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 nonforeclosures 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/IAREFINANCENEGATIVEEQUITY.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/. 

139Rebecca 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. 

140One 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. 

141See, 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. 142Based 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. 

143See, 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). 

145See CFPB Mortgage Borrower Pandemic 

Report, supra note 5. 

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. 

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

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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
34890 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

146See 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. 

148See 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. 

149See 2013 RESPA Servicing Rule Assessment 

Report, supra note 11. 

150 Id. at 69–70. 

151 Id. at 48. 

152An 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. 

153See 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). 

154 2013 RESPA Servicing Rule Assessment 

Report, supra note 11, at 48. 

155A 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. 

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. 

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. 

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. 

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 twothirds 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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34891 

156The 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. 

157An 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 selfcure, 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. 

159See 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-singlefamily-loan-performance-data. 

160The rate of change in borrowers who have 

recovered is calculated as: [(85 percent ¥ 80 

percent) ÷ 80 percent] × 100 ≈ 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). 

foreclosure sale of between roughly 

125,000 and 250,000. 

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

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 selfcure, 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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
34892 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

161Publicly 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-solutionsseptember-and-q3-2020-u-s-foreclosure-marketreport/. 

162The 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. 

163The 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. 

164More 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 × 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. 

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. 

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 fourmonth 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. 

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 perborrower 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34893 

165While 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. 

166American Rescue Plan Act of 2021, Public 

Law 117–2, 135 Stat. 4 (2021). 

167U.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-tribalgovernments/homeowner-assistance-fund. 

168Even 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. 

169Mortg. Bankers Ass’n, Servicing Operations 

Study and Forum for Prime and Specialty Servicers 

(Dec. 2018), https://www.mba.org/news-researchand-resources/research-and-economics/singlefamily-research/servicing-operations-study-andforum-for-prime-and-specialty-servicers. 

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. 

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 nonperforming 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 foreclosurerelated 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. 

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 


jbell on DSKJLSW7X2PROD with RULES2
34894 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

170As 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. 

are likely to be well below $178 per 

month for each loan. 

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. 

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 PreForeclosure 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 preforeclosure 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 preforeclosure 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34895 

171Under existing § 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. 

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 perloan 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 loanspecific 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 

§ 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 § 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 § 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 § 1024.41(b)(2)’s 

evaluation and notice requirements. If 

the borrower fails to perform under a 

trial loan modification plan offered 

pursuant to § 1024.41(c)(2)(vi)(A) or if 

the borrower requests further assistance, 

a servicer must immediately resume 

reasonable diligence efforts as required 

under § 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 § 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 


jbell on DSKJLSW7X2PROD with RULES2
34896 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

172Black 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. 

173Servicers 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-reportbiggest-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. 

174 2013 RESPA Servicing Rule Assessment 

Report, supra note 11, at 155–156. 

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. 

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. 

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 § 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 

§ 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. 

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. 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34897 

175For 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 LambieHanson 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-mortgageforbearance-borrower-uptake-and-understandingof-lender-accommodations. 

176For 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. 

177Servicers 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). 

178One 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-andinsights/perspectives/servicers-report-biggestchallenges-implementing-covid-19-assistanceprograms. 

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, 

§ 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 § 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 postforbearance 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 § 1024.39(a). 

In conjunction with § 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 shortterm 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, 

§ 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. 

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. 

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


jbell on DSKJLSW7X2PROD with RULES2
34898 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

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

180 5 U.S.C. 601 et seq. 

181 5 U.S.C. 609. 

182 86 FR 18840, 18877 (Apr. 9, 2021). 

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. 

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

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. 

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 noticeand-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

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. 

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 CFPB_Public_

PRA@cfpb.gov. 

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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 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). 

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) 

■ 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 

■ 2. Amend § 1024.31 by adding, in 

alphabetical order, a definition of 

‘‘COVID–19-related hardship’’ to read as 

follows: 

§ 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)). 

* * * * * 

■ 3. Section 1024.39 is amended by 

revising paragraph (a) and adding 

paragraph (e) to read as follows: 

§ 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. 

■ 4. Section 1024.41 is amended by: 

■ a. Revising paragraphs (c)(2)(i), and 

(c)(2)(v)(A)(1); 

■ b. Adding paragraph (c)(2)(vi); and 

■ c. Adding paragraph (f)(3). 

The additions and revisions read as 

follows: 

§ 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 


jbell on DSKJLSW7X2PROD with RULES2
34900 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

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 § 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 nonjudicial foreclosure process; 

(2) The servicer sent the written 

notice required by § 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 nonjudicial foreclosure process on or after 

January 1, 2022. 

* * * * * 

■ 5. In Supplement I to Part 1024: 

■ a. Under § 1024.39—Early 

intervention requirements for certain 

borrowers, 39(a) Live contact, revise 

‘‘39(a) Live contact’’; 

■ b. Under § 1024.41—Loss mitigation 

procedures, revise ‘‘41(b)(1) Complete 

loss mitigation application’’; and 

■ c. Under § 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 

* * * * * 

§ 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 34901 

meet the requirements of § 1024.39(a) for two 

missed payments. To illustrate, the servicer 

complies with § 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 

§ 1024.39(a) for both the January 1 and 

February 1 missed payments. The March 25 

attempt meets the requirements of 

§ 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 § 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 § 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 § 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 

§ 1024.39(a). Servicers may also combine 

contacts made pursuant to § 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 § 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 § 1024.39(e) or if a servicer 

relies on the temporary special COVID–19 

loss mitigation procedural safeguards 

provision in § 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 § 1024.41. 

4. Promptly inform if appropriate. 

i. Servicer’s determination. Except as 

provided in § 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 § 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 § 1024.39(a) to 

inform a borrower about loss mitigation 

options by providing the written notice 

required by § 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 § 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 § 1024.41(c)(1)(ii) that the 

borrower is not eligible for any loss 

mitigation options, the servicer complies 

with § 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 § 1024.39(e)(2) 

or if a servicer relies on the temporary special 

COVID–19 loss mitigation procedural 

safeguards provision in 

§ 1024.41(f)(3)(ii)(C)(1), the servicer is not 

maintaining ongoing contact with the 

borrower under the loss mitigation 

procedures under § 1024.41 in a way that 

would comply with § 1024.39(a) if the 

servicer has only sent the notices required by 

§ 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 

§ 1024.39(a) for a borrower who becomes 

delinquent again after curing a prior 

delinquency. 

* * * * * 

§ 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: 


jbell on DSKJLSW7X2PROD with RULES2
34902 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 

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 § 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 shortterm 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 § 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 § 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 

§ 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 § 1024.41(f)(3), including, if applicable, 

evidence that the servicer satisfied one of the 

procedural safeguards described in 

§ 1024.41(3)(ii). For example, if the 

procedural safeguards are met due to an 

unresponsive borrower determination as 

described in § 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 § 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 

§ 1024.17(b) and any suspense account, as 

required by § 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 

§ 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 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations 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 


jbell on DSKJLSW7X2PROD with RULES2