Note: The following is a general discussion on the specified topic or issue and may not be relied on as legal advice in any specific case or matter you encounter. The regulations below may change or may not be enacted. You should review any applicable case, or matter you have with counsel experienced in this area of law and should not generally rely on the discussion in this Alert.
Date: April 5, 2021
To: All Scheer Law Group Clients and Affiliates:
Subject: It has Gone Well Beyond COVID19: New Proposed CFPB Regulations.
Vaccinations, potential for “herd immunity”, warmer weather and a marked decrease in C-19 cases may have led you to think that there may be a return to normal. Think again. New proposed CFPB regulations (See attached) prove the point.
There is a growing body of “believers” who see C-19 as the catalyst for an a socioeconomic “reset” See e.g. https://www.weforum.org/great-reset. Conversely, capitalism, which has by and large has served this nation well over the years, is coming under attack. Traditionally, market forces would dictate the ultimate result of any economic turbulence i.e. increasing delinquency, increasing defaults, foreclosures and evictions, and the market resets. There are winners and losers. Government helps, but does not dictate the outcome.
C-19 provided an exception to the rule: Nobody asked for the pandemic. Lockdowns occurred and the cry became that “ the government will save us”. Trillions and Trillions of stimulus payments, and forbearance later, and it is now clear that there is no end to government intervention in sight.
The CFPB now proposes to:
1. Establish an: Emergency COVID-19 Response and Review Period. NOTE: Small servicers exempted.
2. No new Foreclosures until after 12.31.21 on Loans Secured by Principal Residences Until C-19 Hardship Review Completed or Excused (Note: this is in addition to the general 120 day waiting period per 12 CFR 1024.41(f)).
a. During the 120 day period, you must review the loan for C-19 hardships. Note Proposed Exceptions: CFPB is seeking comments on proposed exceptions which would allow a Servicer to proceed with foreclosure before 12.31.21 if : (1) servicer has completed a loss mitigation review of the borrower and the borrower is not eligible for any non-foreclosure option, or (2) has made required efforts to contact the borrower and the borrower has not responded.
b. Live contact requirements would include review for C-19 hardships (12 CFR 1024.39((a), if: First: A Borrower is not in a forbearance program at the time live contact established, and the owner of the loan makes a forbearance program available to borrowers experiencing a C-19 hardship. Second: If the Borrower is in a forbearance program related to C-19, the servicer must advise when it ends and any other loss mitigation options, including extension of the current forbearance and how to be evaluated. Other proposed disclosures required. Proposed Provisions would sunset 8.31.22.
Note: So you must wait 120 days to initiate foreclosure on covered loans, but you must also show that there has been a C-19 hardship review during this period, and must wait until 12.31.21, to foreclose unless the above exceptions are approved and the servicer shows an allowed exception.
3. Servicer C-19 Review Obligations and Authority to Enter Into Modification Agreements:
Assuming servicers can contact their borrowers to discuss C-19 hardships, they will have authority to streamline the loss mitigation review process. Servicers can:
A. Review incomplete loss mitigation applications, and allow the servicer to provide a C-19 hardship loan modification.
B. C-19 Modifications: must include:
a. Showing of C-19 hardship.
b. No increase in P&I payment; no extension of term beyond 480 mos.
c. No capitalization of arrearages.
d. No Fees for loan modifications. Must waive late charges and penalties.
Worth noting is the CFPB’s rationale for the proposed regulations: Increasing strain on the system if servicers are faced with as many as 800,000 borrowers exiting current forbearance programs after 18 months of forbearance in September or October 2021; and the disparate impact on minority and law income borrowers. Worthy goals, but at what cost?
It is clear that longer the debt payment is forestalled the greater the cry will be to wipeout/forgive/reset the debt. Taking loans that have already been in forbearance for as long as 18 months and then adding the accumulated payments to the principal for as long as 40 years only forestalls the “day of reckoning”. If the resultant equity asset bubble does not continue to inflate, borrowers will not pay, even on the modified loans, as who wants to pay on a loan where there is no equity or negative equity?
Some indications of a response are in the works: The state of Texas has already refused to follow the current CDC eviction moratorium. It is questionable whether the CDC moratorium carries the force of law, as the DOJ may or may not enforce it. The CFPB’s regulations if enacted are federally mandated and do not allow voluntary non-compliance.
However, it is clear that the tension between the government response to the COVID-19 crises and the need to return to a “normal” that includes the requirement to pay rent, mortgage payments and other contractual obligations is increasing. This “tension” is playing out over the entire social and economic fabric of this nation. Even, bankruptcy laws, which reflect a humane way to reset economic woes, are now including accommodation of C-19 social policies. We have gone well beyond a COVID-19 emergency. This is public policy. Stay tuned.
Please call or email if questions.