On June 28, 2021, the Consumer Financial Protection Bureau issued a final rule (2021 Rule) amending certain provisions of Regulation X. The 2021 Rule establishes temporary procedural safeguards to borrowers impacted by COVID-19 before a foreclosure can be noticed or commenced against their primary residence and provides for streamlined loss mitigation reviews. The CFPB stated that the 2021 Rule “will help ensure a smooth and orderly transition as the other Federal and State protections end by providing borrowers with a meaningful opportunity to explore ways to resume making payments and avoid foreclosure.”
The 2021 Rule, effective August 31, 2021, includes the following key amendments to Regulation X:
- servicers must meet temporary special procedural safeguards before initiating foreclosures for certain mortgages through the end of the year;
- servicers can offer streamlined loan modifications to borrowers with COVID-19-related hardships without making borrowers submit all the paperwork for every possible option. These streamlined loan modifications cannot increase borrowers’ payments and have other protections built into them; and
- servicers will be required to increase their outreach to borrowers before initiating foreclosure and tell borrowers key information about their repayment or other options when they communicate with borrowers who are exiting forbearance or struggling to make mortgage payments related to COVID-19.
Though the provisions of the 2021 Rule are not particularly surprising, the burden on servicers to quickly implement the requirements is notable. While the 2021 Rule does not apply exclusively to loans in COVID-19 related forbearance plans, the volume of homeowners remaining in such plans (21.8 million as of May) gives servicers a glimpse of the influx of loans that will require application of the 2021 Rule. The sheer volume of borrowers likely impacted by the 2021 Rule and the speed with which servicers will need to implement these changes creates a challenge for servicers not seen since Regulation X was last amended in 2013, and servicers had more time between the 2013 final rule and the effective date than is provided here. To avoid the litigation and enforcement activity that resulted from the 2013 amendments, servicers must act quickly and work with compliance counsel to analyze the 2021 Rule, create a plan to determine which loans are impacted by the 2021 Rule, and update templates, policies, and procedures to comply.
 The CFPB does not provide clarity as to how servicers should determine whether a mortgaged property is a “primary residence,” only clarifying that the 2021 Rule does not apply to abandoned properties.