ABA Letter to CFPB re: Treatment of COVID-19 Related Loss Mitigation Options Under RESPA and Reg X - Interim Final Rule

Comment Intake
Bureau of Consumer Financial Protection
1700 G Street NW
Washington, DC 20552

Ladies and Gentlemen,

The American Bankers Association (ABA) appreciates the opportunity to comment on the Consumer Financial Protection Bureau’s (Bureau) interim final rule (IFR) affecting the treatment of certain COVID-19 related Loss Mitigation Options under RESPA and Reg. X. ABA appreciates the Bureau’s understanding of the complex issues facing mortgage borrowers and servicers during the COVID-19 pandemic and the Bureau’s initiative to offer temporary solutions that facilitate servicer options to assist pandemic-affected borrowers. ABA believes that the IFR provides an effective balance of borrower protections and servicer flexibility, which will benefit both consumers and industry considerably.

Summary of the Comment:

ABA strongly supports the IFR’s provisions that amend Regulation X to permit mortgage servicers to offer temporarily certain loss mitigation options without obtaining a complete loss mitigation application. These temporary accommodations will greatly assist servicers by resolving regulatory doubts concerning the application of Regulation X to post-forbearance processes, and they will significantly reduce burdens associated with requirements to process complete loss mitigation applications for loan deferrals. Given the high volumes of loans that are currently in COVID-related forbearances, we think the benefits of this rule are substantial.

In addition, the clarifications in the IFR will remove many of the lingering compliance uncertainties surrounding Government Sponsored Enterprise (GSE) programs that feature streamlined application procedures.2 Because other mortgage investors and insurers have announced similar loss mitigation options, and since additional primary and secondary market entities are likely to use GSE models as templates for their own COVID forbearance programs, we think this IFR will have a robust positive impact on markets and consumers.

However, ABA recommends additional changes to the IFR that will further aid borrowers and servicers during this unprecedented time and better achieve the Bureau’s goals. We discuss these recommendations below.

Additional Recommendations:

First, 12 CFR 1024.41(c)(2)(v)(B) provides that a servicer does not have to send a loss mitigation application acknowledgment letter or comply with the reasonable diligence obligations to help a borrower complete an application “[o]nce the borrower accepts an offer made pursuant to” the IFR. While ABA fully supports the Bureau’s goal of reducing burdens on servicers during these uncertain times and believes this is wholly appropriate under the circumstances, we do not believe the rule, as written, will have the intended effect. Many, perhaps most, of the conversations wherein a servicer evaluates and offers a deferral plan will be considered a loss mitigation application pursuant to Regulation X, which would ordinarily trigger the requirement to send an acknowledgment letter within five business days. Following these conversations, servicers cannot wait to see if the borrower accepts the deferral offer before determining whether it needs to satisfy the acknowledgment letter requirements. Practically speaking, it would seem that the only time in which the interim final rule would allow a servicer to forgo the acknowledgment letter requirements is if the borrower is permitted to, and in turn does, accept the deferral offer on the initial telephone call with the servicer. To achieve what we presume to be the Bureau’s intent, ABA recommends that the Bureau shift the acknowledgment letter timeline to five business days after a borrower rejects any deferral offer.

Second, in order to qualify as a deferral under the IFR, a servicer must “waive[] all existing late charges, penalties, stop payment fees, or similar charges promptly upon the borrower’s acceptance of the loss mitigation option.” As written, it appears that servicers must waive all of these amounts, even if the charges or fees were accrued or assessed long before the COVID-19 pandemic. For instance, a borrower could have a late fee from 2018 that is outstanding. However, in order to qualify for this option under the IFR, the servicer will have to agree to waive that fee.

ABA believes that requiring the waiver of any amounts that were accrued or assessed pre-COVID is unreasonable, arbitrary, and will likely serve as a significant deterrent to offering a deferral plan. ABA urges the Bureau to clarify that the waiver applies only to amounts accrued or assessed as a result of a payment that was not paid because of a financial hardship due, directly or indirectly, to the COVID-19 emergency.

Additionally, the phrase “similar charges” in the IFR is ambiguous and is generating considerable confusion in the industry. ABA asks the Bureau to consider removing this phrase or, in the alternative, clarify it. ABA presumes that the Bureau did not intend for this provision to require servicers to waive third party expenses that are generally allowed to be passed onto borrowers—expenses such as property inspection fees, property preservation fees, foreclosure attorney fees, and the like. At a minimum, ABA respectfully requests that the Bureau consider clarifying that the provision does not cover these types of expenses/charges.

ABA Responses to Specific Requests for Comment:

The Bureau is particularly interested in whether the amendments appropriately balance providing flexibility to servicers to offer relief quickly during the COVID-19 emergency with providing important protections for borrowers engaged in the loss mitigation application process, such as protections from foreclosure.

ABA believes that the Bureau has appropriately balanced consumer protection and operational efficiency. ABA agrees with the Bureau’s assessment that additional flexibilities are appropriate during the extraordinary circumstances presented by the COVID-19 emergency. The streamlined application procedures set forth in the IFR help ensure that servicers have the resources to address the exceptionally large number of borrowers that will exit forbearances in the coming months. The rule adequately balances these streamlined processes with consumer protections. The special payment deferral programs advanced by the Federal Housing Finance Agency (FHFA) and other entities will allow eligible borrowers to avoid the risk of losing their homes, and allow them to resume repaying their mortgage loans without incurring a delinquency or additional fees or interest, and the programs offer options on how to repay the forborne amount that servicers have deferred. This interim rule assures that the consumer benefits and protections intended by these national programs are effectively guaranteed as a condition to any regulatory benefits provided.

The Bureau also seeks comment on whether to require written disclosures for this, or any similar exceptions that the Bureau may authorize in the future.

Most lenders memorialize the transaction with an offer letter to the borrower. This letter is a simple and concise confirmation of the loss mitigation solution and testimony that the payments deferred will result in the forborne amounts being due at refinance, sale, or payoff of the loan. ABA would not recommend a short-term offer disclosure as an additional requirement during disasters or emergencies. This requirement would increase the burden and slow the relief the servicer is offering to their borrowers. In addition, it may confound the consumer with unneeded forms at a stressful point in the process.

The Bureau also seeks comment on whether the Bureau should extend the exception established in new § 1024.41(c)(3)(v) to other post-forbearance loss mitigation options made available to borrowers affected by other types of disasters and emergencies.

ABA believes the benefits afforded under this IFR should be expanded to other post-forbearance loss mitigation options designed to relieve COVID-affected borrowers and also to borrowers affected by other types of disasters and emergencies. The VA, USDA and FHA offer viable loan modification options, such as streamline modifications, that are not covered under this exemption, as well other Fannie Mae and Freddie Mac loss mitigation solutions, such as Flex Mods. We believe these options are all beneficial to the consumer and should be available in an efficient and streamlined manner during this emergency and other disasters and emergencies.

These other modification options would not qualify under the interim rule primarily because of the prohibition on interest accrual on delayed payments and the requirement that the covered amounts must be repaid at the end of the loan term. We see no valid reason to exclude these valuable COVID-19 programs from the menu of options available to consumers based upon an incomplete loss mitigation application. Some borrowers will not qualify for the payment deferral options, and additional options will be crucial to assure relief for all consumers.

ABA recommends that the Bureau modify the criteria under 1024.41(c)(2)(v)(A)(2) so that the relief provided by the rule can be used for other types of loss mitigation solutions. This small clarification would significantly expand borrower options that are necessary during the COVID-19 pandemic as well as other disasters and emergencies.

The Bureau has no reason to believe that the additional flexibility offered to covered persons by this interim final rule would differentially affect consumers in rural areas. The Bureau requests comment regarding the impact of the amended provisions on consumers in rural areas and how those impacts may differ from those experienced by consumers generally.

ABA does not see the need for additional flexibility in the IFR for servicers in rural areas.

Conclusion:

ABA appreciates the opportunity to comment on this proposal. If you have any questions about the content of this letter, please contact Sharon Whitaker at 202-663-5321 or Rod Alba at 202-663-5592.

Respectfully submitted,

Sharon Whitaker
VP, Commercial Real Estate & Finance
American Bankers Association

Rod Alba
SVP, Real Estate Finance
& Senior Regulatory Counsel
American Bankers Association