On April 1, 2021, the Consumer Financial Protection Bureau emphasized that the mortgage servicing industry must prepare now for an inevitable increase later this year in loss mitigation requests from borrowers whose COVID-19 forbearance plans come to an end. In what is certainly not an April Fools’ joke, the CFPB issued a detailed bulletin that is likely to make servicers a bit nervous. The Bureau acknowledges there will be increased and, in many ways, unique demands placed on servicers in September and October of 2021 when COVID-19 forbearance plans end and millions of borrowers all at once need assistance to hopefully get back on track with mortgage payments. To an industry facing these unusual challenges, the Bureau issues a warning: servicers unprepared to effectively handle that increase in demand can expect harsh treatment from the CFPB. Put simply, “companies that are unable to adequately manage loss mitigation can expect the Bureau to take enforcement or supervisory action to address violations under Regulation X, CFPA, or other authorities.”
In its bulletin, the CFPB confirms that it plans to “prioritize mortgage servicing oversight work in deploying its enforcement and supervision resources in the coming year.” The CFPB then highlights eight broad servicing areas where it will focus its attention. This includes:
- Reasonable diligence efforts for borrowers who need additional assistance;
- Contacting borrowers towards the end of their forbearance plans to assess their needs
- Complying with the Equal Credit Opportunity Act’s anti-discrimination requirements, particularly for borrowers with limited English proficiency and when evaluating income sources in the loss mitigation context;
- Promptly handling loss mitigation inquiries and ensuring there aren’t unreasonably long wait times during phone calls (in this regard, the CFPB specifically notes that it will scrutinize servicers whose hold times are significantly longer than industry averages);
- Policies and procedures that ensure effective continuity of contact processes;
- Compliance with Regulation X’s loss mitigation requirements;
- Compliance with all federal and state foreclosure restrictions; and
- Compliance with the CARES Act’s amendments to the Fair Credit Reporting Act for borrowers who have received a COVID-19-related payment accommodation.
In somewhat of a surprising move, the CFPB also reiterated its commitment to the April 3, 2020, joint policy statement regarding leniency and flexibility when evaluating COVID-19 practices that implicated the mortgage servicing rules. This was unexpected, given the CFPB’s acting director’s prior commitment to revoking these types of policy statements that were issued during the Kraninger era, and the fact that the CPFB just this week revoked numerous policies that provided similar flexibilities. In this regard, the CFPB bulletin explains that “the Bureau intends to look at a servicer’s overall effectiveness at helping consumers manage loss mitigation, along with other relevant factors, when using its discretion to address violations of Federal consumer financial law in supervisory and enforcement matters.” It seems plausible that the CFPB could be saying, “If you meet our expectations going forward, we may grant you some leniency for past failures.” We’ll have to wait and see how this actually works in future examinations and investigations.
The takeaways from the CFPB’s bulletin are clear. Servicers must plan and prepare right now and over the coming months for what is likely to come later in the year. Servicers would be wise to invest their time and resources now in an effort to ensure that a robust framework is in place and functional when the influx of applications and borrower inquiries inevitably comes. Moreover, if the CFPB’s response to the last financial crisis is predictive, merely being prepared for the spike in demand will not be sufficient to avoid CFPB scrutiny. To minimize enforcement risk, servicers should closely monitor their performance, identify problems in implementation (especially if those problems surface in consumer complaints), and make necessary adjustments in real time.