On March 31, 2020, the CFPB posted a “Guide to coronavirus mortgage relief options,” which provides instruction to mortgage loan borrowers who may be impacted by COVID-19 on when and how to go about obtaining assistance. While we have previously discussed compliance challenges that are likely to arise related to verbal loss mitigation applications and the obligations surrounding short-term forbearance and repayment plans, the CFPB’s borrower guide adds some additional considerations that are worth following. Specifically, the CFPB’s guide suggests that servicers should take the following actions:
- Loss Mitigation Disclosures – Ensure that disclosures surrounding loss mitigation options are clear and completely convey the terms of the agreement.
- Periodic Billing Statements – Validate that periodic billing statements are compliant while a borrower is performing under a loss mitigation option, and ensure that borrowers are made aware of why a monthly statement may not align with the terms of a loss mitigation plan.
- Credit Reporting – Track and comply with all guidelines and restrictions on credit reporting during the COVID-19 pandemic, and ensure consumers understand how a servicer will report while a borrower is performing under a loss mitigation option.
The CFPB’s guide generally provides helpful information and background on the various initiatives that may provide borrowers with a path for relief, such as the forbearance option and foreclosure moratorium established via the CARES Act. The guide does an excellent job of providing consumers with a plain language explanation of if and when they may qualify for relief, and (from a servicer’s perspective) helpfully notes that “[i]f you can pay your mortgage, pay your mortgage.”
The CFPB’s guide ultimately gets into recommendations for how mortgage loan borrowers should go about trying to obtain relief. This includes calling the servicer and being prepared to explain:
- Why the borrower is unable to make payments
- Whether the problem is temporary or permanent
- Details about income, expenses and other assets, such as cash in the bank
- Whether the borrower is a servicemember with permanent change of station orders
The CFPB also suggests that borrowers ask the mortgage servicer:
- What options are available to help temporarily reduce or suspend payments?
- What forbearance, loan modification, or other options are available?
- Can the servicer waive late fees?
As we’ve previously described, these conversations will likely qualify as loss mitigation applications under the framework established in Regulation X by the CFPB in 2014. Servicers must be prepared to recognize them as such, and then comply with the various obligations that stem from receiving an application, including acknowledging receipt and assisting the borrower in completing the application. As a part of this, servicers must also recognize the limitations Regulation X puts on the ability to offer certain types of loss mitigation options based upon an incomplete application. Regulation X generally prohibits servicers from offering loss mitigation options based upon an incomplete application, unless the option qualifies as a short-term repayment plan or a short-term payment forbearance plan, as those terms are defined in the rules. A short-term payment forbearance plan under Regulation X allows for the forbearance of payments due over periods of no more than six months, irrespective of the amount of time a servicer allows the borrower to make up the missing payments. A short-term repayment plan under Regulation X allows for the repayment of no more than three months of past due payments and allows a borrower to repay the arrearage over a period lasting no more than six months. Servicers who receive an incomplete loss mitigation application and offer loss mitigation options above, beyond, and/or different than the short-term options outlined above run the risk of violating Regulation X.
The CFPB’s guide then describes things that a borrower who is granted forbearance or other relief should do during and after the telephone conversation with the mortgage servicer. First, the CFPB suggests that borrowers request everything in writing:
Once you’re able to secure forbearance or another mortgage relief option, ask your servicer to provide written documentation that confirms the details of your agreement and that you’re clear on what the terms are. With some forbearance programs, you may owe all of your missed payments at one time, or additional payments at the end of the mortgage might be required, so make sure you’re familiar with the final terms.
While Regulation X already requires that the terms of a short-term forbearance or repayment plan be disclosed promptly after it is offered, servicers may want to ensure that their forbearance disclosures adequately explain how the covered payments will be handled at the end of the term. For example, after completing a six-month forbearance plan, will the six payments immediately be due and payable? Or, will those payments be deferred to the end of the loan? Similarly, are other relief options potentially available towards the end of the plan to help resolve a delinquency that builds up? Since the CFPB is encouraging borrowers to make sure they understand how these plans work, they will likewise also expect that servicers proactively do their part in clearly explaining all the terms and what to expect. Now is the time to revisit existing disclosures and make sure they are adequate in light of the circumstances.
Finally, the CFPB suggests that borrowers do certain things while in the forbearance period or working under another mortgage relief option. This includes paying attention to monthly mortgage statements to make sure there aren’t any errors and keeping an eye on credit reports to make sure that information is reporting accurately. While servicers are already bound by detailed legal requirements when sending periodic billing statements or furnishing information about a mortgage loan to a credit reporting agency, the CFPB is pointing consumers to areas where there are likely to be challenges.
In the periodic billing statement context, the CFPB amended the commentary to Regulation Z in 2016 to explain how servicers can comply when a borrower is performing under a temporary loss mitigation option. Specifically, for the amount due requirement on a billing statement the CFPB noted that servicers could either display “the payment due under the temporary loss mitigation program or the amount due according to the loan contract.” Servicers who choose to display the payment amount due under the loan contract should ensure that they somehow notify borrowers that the billing statement may not reflect what was agreed upon for the borrower to pay (or not pay) each month under the terms of a loss mitigation option. Otherwise, servicers should expect to receive calls and inquiries from borrowers asserting inaccuracies on their monthly statements. For example, without some clarifying disclosure it seems likely that a borrower who is not expecting to pay anything under the terms of a forbearance plan could be confused when the monthly statement reflects the full amount being owed.
Similarly, servicers should be mindful of the restrictions on credit reporting that may be in place while a borrower is impacted by COVID-19. The GSEs and various states have been imposing guidelines and restrictions on credit reporting over the past few weeks. Therefore, in order to avoid future disputes and inquiries, servicers should ensure their systems are correctly handling forbearance plans and other assistance options and consider disclosing to borrowers at the outset how they will (or will not) report the status of a loss mitigation option during the term of the plan.
While servicers certainly have a lot on their plates at the moment, taking time now to ensure that high-risk aspects of a servicing business that could be impacted by the COVID-19 pandemic are functional and compliant could pay dividends in the future. Areas such as disclosures, periodic billing statements, and credit reporting are already being highlighted by the CFPB. Not only are compliance challenges in these areas going to be amplified over time, but the influx of customer complaints and inquiries can be staved off by addressing any weaknesses now.