Consumer Compliance Outlook: Third Issue 2021

Compliance Alert: Temporary Rule Under Regulation X to Help Mortgage Borrowers Affected by the COVID-19 Pandemic

On June 30, 2021, the Consumer Financial Protection Bureau (Bureau) issued a temporary final rule under Regulation X1 to help mortgage borrowers facing financial hardship from the COVID-19 pandemic.

The rule has two main provisions: 1) it requires servicers to follow procedural safeguards before initiating a foreclosure; and 2) it allows servicers to offer loss mitigation options based on an incomplete application. The rule also modifies existing early intervention live contact messages and reasonable diligence obligations. In the preamble, the Bureau noted that nearly 900,000 borrowers could be exiting forbearances by the end of 2021.2 The rule, which became effective on August 31, 2021, is designed to help ensure a smooth and orderly transition as other foreclosure protections end by providing borrowers with a meaningful opportunity to explore ways to resume making payments and avoid foreclosure.

The protections provided in the rule are temporary. The rule generally sunsets on January 1, 2022. A provision that specifies live contact requirements related to borrowers experiencing a COVID-19-related hardship expires on October 1, 2022.3

Procedural Safeguards

These provisions apply to a mortgage loan secured by a borrower’s principal residence, which was more than 120 days delinquent on or after March 1, 2020, and for which the statute of limitations under state law applicable to the foreclosure action being taken will not expire before January 1, 2022. Under §1024.41(f)(3)(ii), servicers (except small servicers) cannot make the first notice or filing to initiate a foreclosure on such mortgage loans unless one of the following circumstances applies:

Loss Mitigation Options for Incomplete Applications

The final rule also permits servicers to offer loss mitigation options based on an incomplete application in certain circumstances. Servicers are generally required to receive a complete loss mitigation application before they can offer loss mitigation options (aka the anti-evasion requirement).4 To help borrowers whose forbearance agreements expire in 2021, the final rule permits servicers receiving an incomplete application to offer a loss mitigation option that meets the following requirements:

The Bureau noted this approach will help mitigate a resource strain on servicers processing a large volume of loss mitigation applications, while still protecting consumers because streamlined options must conform to the previously-noted restrictions. The Bureau further noted that borrowers experiencing the effects of the COVID-19 emergency may be less likely to finish a complete loss mitigation application, which could put them at risk for foreclosure.5


1 See 86 Federal Register at 34848 (June 30, 2021).

2 See 86 Federal Register at 34852.

3 See 12 C.F.R. §1024.39(e).

4 See 12 C.F.R. §1024.41(c)(2)(i). An interim final rule issued in June 2020 temporarily permits mortgage servicers to offer certain loss mitigation options based on the evaluation of an incomplete loss mitigation application for borrowers experience a COVID-19 financial hardship. 85 Federal. Register 39055 (June 30, 2020). The new rule expands on the temporary exception.

5 See 86 Federal Register at 34868.