An interim final rule detailing how mortgage servicers can provide COVID-19-related forbearance based on their evaluation of limited information collected from a borrower – and which took effect July 1 – is outlined in a Regulatory Alert issued Tuesday by credit unions’ federal regulator.
The National Credit Union Administration (NCUA), in alert 20-RA-06, notes that the interim final rule, issued in June by the Consumer Financial Protection Bureau (CFPB), added a temporary exception in Subpart C to Regulation X (Real Estate Settlement Procedures Act, or RESPA) for certain COVID-19-related loss mitigation options. The interim rule, if certain criteria are met, allows a loan mortgage servicer to offer a borrower a loss mitigation option based on its evaluation of limited information collected from a borrower (rather than a “complete” application). NCUA notes the exception allows credit unions and their affiliates to align their loss mitigation programs with the criteria of the Federal Housing Finance Agency’s (FHFA) COVID-19 payment deferral or other comparable programs.
To qualify for this exception, the NCUA said, a credit union must:
- Allow a borrower to delay paying all forborne principal and interest payments, and all principal and interest payments that are due and unpaid, until:
- the mortgage loan is refinanced,
- the mortgaged property is sold,
- the term of the mortgage loan ends, or
- for a mortgage insured by the Federal Housing Administration (FHA), the mortgage insurance terminates.
- Not charge or accrue interest on any amounts a borrower may delay paying through the loss mitigation option; not charge any fee in connection with the loss mitigation option; and waive all existing late charges, penalties, stop payment fees, or similar charges promptly upon a borrower’s acceptance of the loss mitigation option.
- Terminate any pre-existing delinquency when a borrower accepts the loss mitigation offer.
The NCUA notes that credit unions must comply with other Reg X requirements after a borrower accepts a loss mitigation offer. For example, if a mortgage loan becomes delinquent again (at any time), a credit union would have to satisfy the rule’s early intervention requirements; if the borrower submitted a new loss mitigation application, the credit union would have to comply with the usual loss mitigation procedures, the agency notes.
The agency also notes that credit unions that qualify as small servicers under Reg X – entities that service 5,000 or fewer loans that they or their affiliates own or originated – are not subject to relevant portions of the reg and aren’t affected by the interim final rule on COVID-19 relief. But they are subject to the Reg X prohibition on certain foreclosure activities.
Reg X bars small servicers from making the first notice of filing required for any foreclosure process unless the borrower is more than 120 days delinquent. Reg X also prohibits them from initiating foreclosure “and shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale” if a borrower is satisfying the terms of a loss-mitigation agreement, according to the language of the rule.