The American Bankers Association (ABA) values the chance to comment on the Consumer Financial Protection Bureau's (Bureau) interim last rule (IFR) affecting the treatment of certain COVID-19 related Loss Mitigation Options under RESPA and Reg. X. ABA values the Bureau's understanding of the intricate concerns dealing with mortgage debtors and servicers during the COVID-19 pandemic and the Bureau's initiative to provide short-term solutions that help with servicer alternatives to help pandemic-affected customers. ABA believes that the IFR offers an effective balance of borrower protections and servicer flexibility, which will benefit both customers and market significantly.
Summary of the Comment:
ABA highly supports the IFR's arrangements that change Regulation X to allow mortgage servicers to provide momentarily specific loss mitigation options without getting a total loss mitigation application. These short-lived lodgings will considerably help servicers by fixing regulatory doubts concerning the application of Regulation X to post-forbearance processes, and they will substantially lower problems related to requirements to process complete loss mitigation applications for loan deferrals. Given the high volumes of loans that are presently in COVID-related forbearances, we believe the benefits of this rule are substantial.
In addition, the explanations in the IFR will eliminate a number of the sticking around compliance uncertainties surrounding Government Sponsored Enterprise (GSE) programs that feature structured application procedures.2 Because other mortgage investors and insurance providers have actually announced similar loss mitigation choices, and because additional primary and secondary market entities are likely to use GSE models as templates for their own COVID forbearance programs, we believe this IFR will have a robust favorable effect on markets and consumers.
However, ABA recommends additional changes to the IFR that will even more help customers and servicers during this unmatched time and better attain the Bureau's goals. We talk about these suggestions below.
Additional Recommendations:
First, 12 CFR 1024.41(c)( 2 )(v)(B) offers that a servicer does not have to send a loss mitigation application acknowledgment letter or abide by the sensible diligence commitments to help a customer finish an application" [o] nce the debtor accepts a deal made pursuant to" the IFR. While ABA fully supports the Bureau's objective of reducing problems on servicers during these unsure times and believes this is completely suitable under the circumstances, we do not think the guideline, as composed, will have the intended effect. Many, maybe most, of the conversations wherein a servicer assesses and uses a deferral plan will be considered a loss mitigation application pursuant to Regulation X, which would ordinarily activate the requirement to send an acknowledgment letter within 5 business days. Following these discussions, servicers can not wait to see if the debtor accepts the deferral offer before figuring out whether it needs to satisfy the recommendation letter requirements. Practically speaking, it would seem that the only time in which the interim last guideline would allow a servicer to pass up the recommendation letter requirements is if the debtor is allowed to, and in turn does, accept the deferment deal on the preliminary phone conversation with the servicer. To attain what we presume to be the Bureau's intent, ABA recommends that the Bureau shift the recommendation letter timeline to five organization days after a debtor declines any deferment deal.
Second, in order to certify as a deferral under the IFR, a servicer should "waive [] all existing late charges, penalties, stop payment costs, or similar charges without delay upon the borrower's acceptance of the loss mitigation alternative." As composed, it appears that servicers must waive all of these quantities, even if the charges or costs were accrued or assessed long before the COVID-19 pandemic. For example, a borrower might have a late cost from 2018 that is exceptional. However, in order to receive this choice under the IFR, the servicer will need to agree to waive that cost.
ABA thinks that requiring the waiver of any amounts that were accumulated or assessed pre-COVID is unreasonable, arbitrary, and will likely act as a significant deterrent to using a deferral strategy. ABA urges the Bureau to clarify that the waiver applies just to quantities accumulated or examined as an outcome of a payment that was not paid since of a financial difficulty due, straight or indirectly, to the COVID-19 emergency situation.
Additionally, the phrase "similar charges" in the IFR is ambiguous and is producing considerable confusion in the industry. ABA asks the Bureau to think about removing this expression or, in the option, clarify it. ABA presumes that the Bureau did not mean for this provision to require servicers to waive 3rd party expenses that are usually enabled to be passed onto borrowers-expenses such as residential or commercial property evaluation fees, residential or commercial property conservation costs, foreclosure lawyer charges, and the like. At a minimum, ABA respectfully requests that the Bureau consider clarifying that the arrangement does not cover these types of expenses/charges.
ABA Responses to Specific Requests for Comment:
The Bureau is especially interested in whether the changes properly balance providing flexibility to servicers to provide relief quickly throughout the COVID-19 emergency situation with offering essential securities for borrowers taken part in the loss mitigation application procedure, such as protections from foreclosure.
ABA thinks that the Bureau has properly well balanced consumer security and operational efficiency. ABA concurs with the Bureau's evaluation that additional versatilities are proper throughout the extraordinary circumstances presented by the COVID-19 emergency situation. The structured application treatments set forth in the IFR help ensure that servicers have the resources to deal with the remarkably big number of borrowers that will exit forbearances in the coming months. The rule effectively balances these structured processes with customer protections. The special payment deferral programs advanced by the Federal Housing Finance Agency (FHFA) and other entities will permit eligible borrowers to avoid the threat of losing their homes, and enable them to resume repaying their mortgage loans without sustaining a delinquency or extra fees or interest, and the programs use alternatives on how to pay back the forborne amount that servicers have deferred. This interim rule ensures that the customer advantages and securities planned by these national programs are successfully guaranteed as a condition to any regulative advantages offered.
The Bureau likewise seeks discuss whether to need written disclosures for this, or any comparable exceptions that the Bureau might authorize in the future.
Most loan providers memorialize the transaction with a deal letter to the debtor. This letter is a basic and succinct confirmation of the loss mitigation service and testament that the payments postponed will lead to the forborne amounts being due at re-finance, sale, or payoff of the loan. ABA would not suggest a short-term offer as an additional requirement during catastrophes or emergency situations. This requirement would increase the burden and slow the relief the servicer is using to their borrowers. In addition, it may confound the customer with unneeded types at a stressful point in the process.
The Bureau likewise seeks discuss whether the Bureau ought to extend the exception developed in brand-new § 1024.41(c)( 3 )(v) to other post-forbearance loss mitigation alternatives made offered to customers affected by other kinds of catastrophes and emergency situations.
ABA believes the benefits paid for under this IFR ought to be expanded to other post-forbearance loss mitigation alternatives created to alleviate COVID-affected customers and likewise to customers affected by other kinds of catastrophes and emergency situations. The VA, USDA and FHA use viable loan adjustment options, such as enhance adjustments, that are not covered under this exemption, as well other Fannie Mae and Freddie Mac loss mitigation solutions, such as Flex Mods. We think these alternatives are all advantageous to the customer and needs to be offered in an efficient and structured way throughout this emergency situation and other disasters and emergencies.
These other adjustment alternatives would not qualify under the interim rule mainly since of the restriction on interest accrual on delayed payments and the requirement that the covered amounts need to be paid back at the end of the loan term. We see no legitimate reason to omit these valuable COVID-19 programs from the menu of choices readily available to consumers based upon an incomplete loss mitigation application. Some debtors will not get approved for the payment deferral options, and additional options will be important to guarantee relief for all customers.
ABA advises that the Bureau customize the criteria under 1024.41(c)( 2 )(v)(A)( 2) so that the relief offered by the rule can be used for other kinds of loss mitigation options. This little explanation would significantly broaden debtor choices that are necessary during the COVID-19 pandemic in addition to other disasters and emergencies.
The Bureau has no factor to believe that the additional versatility offered to covered individuals by this interim final rule would differentially affect consumers in rural areas. The Bureau demands comment relating to the effect of the modified provisions on consumers in backwoods and how those effects might differ from those experienced by consumers typically.
ABA does not see the need for extra flexibility in the IFR for servicers in rural areas.
Conclusion:
ABA values the opportunity to talk about this proposition. If you have any concerns about the content of this letter, please contact Sharon Whitaker at 202-663-5321 or Rod Alba at 202-663-5592.
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