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.

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Photo of Shelby D. Lomax Shelby D. Lomax

Shelby Lomax is an associate in Bradley’s Banking and Financial Services Practice Group.

Shelby received her J.D. from Belmont University College of Law, where she served as associate editor for the Belmont Law Review, treasurer of the Student Bar Association, and president…

Shelby Lomax is an associate in Bradley’s Banking and Financial Services Practice Group.

Shelby received her J.D. from Belmont University College of Law, where she served as associate editor for the Belmont Law Review, treasurer of the Student Bar Association, and president of the Women’s Law Organization. Shelby earned a B.S. in Sport Management from Florida State University.

Photo of Christy W. Hancock Christy W. Hancock

Christy Hancock’s practice is dedicated to financial services regulatory compliance and litigation. Her work with mortgage servicing and financial institution clients has given her a broad base of knowledge regarding laws affecting the mortgage servicing business, including bankruptcy and foreclosure best practices, payment…

Christy Hancock’s practice is dedicated to financial services regulatory compliance and litigation. Her work with mortgage servicing and financial institution clients has given her a broad base of knowledge regarding laws affecting the mortgage servicing business, including bankruptcy and foreclosure best practices, payment application, correspondence requirements, allowable fees, loan modifications, escrow requirements, and property preservation. In recent years, the majority of her practice has focused on advising large financial institutions on bankruptcy-related regulatory matters and large-scale remediation projects.

Photo of Christopher K. Friedman Christopher K. Friedman

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated…

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated sector. Chris focuses on both small business lenders and alternative business finance products and has helped non-bank small business lenders, banks who make small business loans, commercial credit counselors, lead generators, and others in the industry. He helps clients launch new products, conduct due diligence, engage in compliance reviews, evaluate litigation risk, and solve some of the unique legal problems faced by companies who work with small businesses. In that vein, Chris has written extensively about the upcoming rulemaking related to Dodd-Frank 1071, which will require data collection and reporting by companies making loans to certain small businesses.