The COVID-19 pandemic has been a focal point for the Consumer Financial Protection Bureau (CFPB) – especially with regard to mortgage servicers and loss mitigation programs. In its Fall Supervisory Highlights, the CFPB noted the increase in borrowers needing loss mitigation assistance in light of the COVID-19 pandemic, and cited mortgage servicers for two violations relating to loss mitigation: charging fees in violation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and failure to evaluate complete loss mitigation applications in violation of Regulation X.
CARES Act Violations
The CARES Act prohibits a mortgage servicer from imposing “fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract” if the mortgage is in a CARES Act forbearance plan. Despite this prohibition, the CFPB found that mortgage servicers charged late fees and default-related fees to borrowers in CARES Act forbearance plans. The CFPB also highlighted that these mortgage servicers failed to refund some of the fees until almost a year later.
Regulation X Violations
Regulation X requires a mortgage servicer to evaluate a borrower’s complete loss mitigation application and provide a written response within 30 days, stating the servicer’s determination of whether a borrower qualifies for a loss mitigation option, and if so, which options are available to the borrower. The CFPB found that mortgage servicers violated Regulation X by not providing the required written notice to borrowers within 30 days of receiving the complete application. Although mortgage servicers cited increased assistance requests, lack of availability of key vendors, and economic slowdown due to shelter-in-place requirements as partially responsible for the delays, the CFPB found that the servicers did not make good faith efforts to comply with the 30-day timeline.
In light of the COVID-19 pandemic, the CFPB has made it abundantly clear that mortgage servicer loss mitigation programs must be compliant, fully staffed, and prepared to handle the influx of requests in a timely manner. The CFPB contends that servicers have had ample time to prepare, and it is no longer permitting excuses based on staffing and increased volume. It is also abundantly clear that the CFPB will not excuse violations due to system errors. Mortgage servicers are expected to have programs in place to ensure that the technology used is monitored and updated to meet its regulatory compliance obligations under the CARES Act and Regulation X.