On April 5, 2021, the Consumer Financial Protection Bureau (CFPB) issued a press release and proposed rule requesting public comment on proposed amendments to Regulation X which “would establish a temporary COVID-19 emergency pre-foreclosure review period until December 31, 2021, for principal residences.”  The proposed amendments would also “temporarily permit mortgage servicers to offer certain loan modifications made available to borrowers experiencing a COVID-19-related hardship based on the evaluation of an incomplete application.”

The purpose behind the amendments is to respond to the COVID-19 emergency in a way that would “help prevent avoidable foreclosures as the emergency federal foreclosure protections expire.”  The CFPB found that “[a]s of February 2021, there were nearly 3 million homeowners behind on their mortgages, with an estimated 2.1 million mortgages in forbearance and at least 90 days delinquent.”  According to the CFPB, the amendments are needed “to ensure that both servicers and borrowers have the tools and time they need to work together to prevent avoidable foreclosures, recognizing that the expected surge of borrowers exiting forbearance in the fall will put mortgage servicers under strain.”

The proposed amendments serve three primary purposes:

(1) To provide a “pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 31, 2021.” The CFPB seeks public input on both the December 31, 2021 date, and also “whether there are more limited ways to achieve the same purpose,” such as by permitting servicers to pursue earlier foreclosures in situations where the “servicer has taken certain steps to evaluate the borrower for loss mitigation or made efforts to contact an unresponsive borrower.”

(2) To provide servicers the means to consider a greater number of borrowers for loan modifications, by permitting them “to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application.” This provision is intended to give greater flexibility to loan servicers.  “This provision would only be available for modifications that do not increase a borrower’s monthly payment and that extend the loan’s term by no more than 40 years from the modification’s effective date.”

(3) To provide information to borrowers, through “temporary changes to certain required servicer communications to make sure that, during this crisis, borrowers receive key information about their options at the appropriate time.”

The amendments follow an April 1, 2021 Compliance Bulletin, warning mortgage servicers “to take all necessary steps now to prevent a wave of avoidable foreclosures this fall.”  The CFPB has requested comment on the proposed amendments from interested members of the public by May 10, 2021.