The primary post-CARES Act forbearance option for Fannie, Freddie and FHA loans (detailed here), which many servicers and investors have mimicked for non-federally-backed loans as well, is designed to allow borrowers to defer forborne payments to a non-interest bearing balance that need not be repaid until the loan matures or is otherwise paid off.Neither Fannie Mae, Freddie Mac, nor FHA require servicers to ask borrowers to complete full loss mitigation applications for COVID-19 payment deferrals; rather, the eligibility requirements are simple and streamlined. Recognizing that servicers may be whipsawed between Fannie, Freddie and FHA requirements on the one hand and Regulation X's requirement that servicers collect "complete loss mitigation applications" on the other, the CFPB, through the IFR, is amending Regulation X by:Creating a new, temporary exception to the "anti-evasion" requirement for complete loss mitigation applications for servicers offering COVID-19 payment deferrals, 12 CFR 1024.41(c)(2)(i); andRelieving servicers from two other requirements associated with collecting a "complete loss mitigation application:" 1) The requirement to "exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application," 12 CFR 1024.41(b)(1); and2) The requirement to review an application for completeness, and to provide an acknowledgment letter within five days of receiving an application notifying the borrower whether the application is complete and, if incomplete, what documents and information the borrower must submit to complete the application, 12 CFR 1024.41(b)(2).New Anti-Evasion Exception, 12 CFR 1024.41(c)(2)(v)(A)Currently, servicers may only "evade the requirement to evaluate a complete loss mitigation application for all loss mitigation options available to the borrower" in two circumstances:(1) Where the borrower delays completing a loss mitigation application for a significant period of time; and(2) For "short-term" loss mitigation o

(Short Term Loss Mitigation Options FAQ 1.) As such, some procedural loss mitigation requirements do not apply, or do not immediately apply.These include:Servicers need not collect a “complete” loss mitigation application in order to extend CARES Act forbearance relief. 12 CFR 1024.41(c)(2)(iii). Servicers may also extend forbearance relief, or any loss mitigation option, to borrowers who have not submitted an application at all.

On June 23, 2020, the Consumer Financial Protection Bureau (CFPB) issued an interim final rule permittingmortgage servicers to offer certain loss mitigation options based on the evaluation of an incomplete loss mitigation application. The rule amends existing loss mitigation requirements under Regulation X. (12 CFR § 1024.41(c)(2)(v)(A)). The interim final rule is effective July 1st. Comments on it are due 45 days after publication in the Federal Register.Regulation X Loss Mitigation Requirements and Prior GuidanceRegulation X, which implements the Real Estate Settlement Procedures Act, typically requires servicers to obtain a complete loss mitigation application before evaluating a mortgage borrower for loss mitigation options.

”Application Completeness and Foreclosure Alternatives:In complying with RESPA Regulation X, servicers generally must implement loss mitigation processes which (i) inform borrowers of the documents and information they must provide to complete the application; (ii) provide borrowers a reasonable date to submit the documents and information; (iii) evaluate complete applications received early enough in the foreclosure process for all alternatives to foreclosure; and (iv) provide certain foreclosure protections to borrowers. 12 C.F.R. § 1024.41.Notice and Follow Up Request:Within 5 days of receipt, servicers must provide a written notice receipt of a loss mitigation application along with clear information as to whether the application is complete or incomplete. 12 C.F.R. § 1024.41(b)(2)(i)(B). If not complete, the notice must flag for the consumer which additional documents and information are required and provide a reasonable date for submission.

The plaintiff in this case sued the defendants for alleged violations of certain servicing requirements under RESPA, implemented by Regulation X, and the Texas Debt Collection Act (TDCA), among other claims, in connection with the processing of his loss mitigation applications. 12 C.F.R. § 1024.41 generally requires a mortgage servicer to evaluate a borrower for all loss mitigation options available to the borrower and to provide a notice stating the servicer’s determination of such options, if any, upon receipt of a complete loss mitigation application. However, the rule also provides that a servicer is required to comply with these requirements only once for a single complete loss mitigation application for a borrower’s mortgage loan account.

According to the order, the prolonged trial plans resulted in an increased loan amount under the permanent modification, as well as unnecessary delinquency reporting to the credit bureaus. Violations of the Mortgage Servicing RulesRegarding activities that occurred after January 10, 2014, the CFPB alleges violations of the Mortgage Servicing Rules, namely the loss mitigation requirements under 12 C.F.R. § 1024.41. These alleged activities are generally continuations of the alleged unfair acts and practices discussed above.

The Bank, however, allegedly kept borrowers in trial plans for 120 to 150 days from the first trial payment in some cases. According to the order, the prolonged trial plans resulted in an increased loan amount under the permanent modification, as well as unnecessary delinquency reporting to the credit bureaus.Violations of the Mortgage Servicing Rules Regarding activities that occurred after January 10, 2014, the CFPB alleges violations of the Mortgage Servicing Rules, namely the loss mitigation requirements under 12 C.F.R. § 1024.41. These alleged activities are generally continuations of the alleged unfair acts and practices discussed above.

According to the order, the prolonged trial plans resulted in an increased loan amount under the permanent modification, as well as unnecessary delinquency reporting to the credit bureaus. Violations of the Mortgage Servicing RulesRegarding activities that occurred after January 10, 2014, the CFPB alleges violations of the Mortgage Servicing Rules, namely the loss mitigation requirements under 12 C.F.R. § 1024.41. These alleged activities are generally continuations of the alleged unfair acts and practices discussed above.

at 18851–53.15 12 C.F.R. § 1024.41(c)(2)(i).16Id. at § 1024.41(c)(2)(v); see also 86 Fed. Reg. at 18,845.17 86 Fed. Reg. at 18878–79.18Id. at 18879.19Id. at 18855.20Id. at 18849.21Id. at 18857.

The Bullet Point: Under Regulation X, when a loan servicer receives a loss mitigation application, it is required to promptly “review the loss mitigation application to determine” whether it is complete. 12 C.F.R. § 1024.41(b)(2)(i)(A). A complete loss mitigation application is one “with which a servicer has received all the information that the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower.”