CFPB Issues Interpretive Rule on Determining Underserved Areas; Final Rule on Loss Mitigation Options for Homeowners with COVID-Related Hardships

The Consumer Financial Protection Bureau issued an interpretive rule to provide guidance to creditors and other persons involved in the mortgage origination process about the way in which the Bureau determines which counties qualify as “underserved” for a given calendar year.

Additionally, the Bureau issued today an interim final rule designed to make it easier for consumers to transition out of financial hardship caused by the COVID-19 pandemic and easier for mortgage servicers to assist those consumers.

The Bureau’s annual list of rural and underserved counties and areas is used in applying various provisions under Regulation Z, which implements the Truth in Lending Act. These provisions include the exemption from the requirement to establish an escrow account for a higher-priced mortgage loan and the ability to originate balloon-payment qualified mortgages and balloon-payment high cost mortgages.

Regulation Z states that an area is “underserved” during a calendar year if, according to Home Mortgage Disclosure Act data for the preceding calendar year, it is a county in which no more than two creditors extended covered transactions secured by first liens on properties in the county five or more times. The Bureau previously interpreted how HMDA data would be used to determine which areas meet this standard using a method set forth in the commentary to Regulation Z. 

However, the CFPB said portions of this method have become obsolete because they rely on data elements that were modified or eliminated by certain 2015 amendments to the Bureau’s HMDA regulations, which became effective in 2018. The interpretive rule describes the HMDA data that will instead be used in determining that an area is “underserved” for purposes of the standard described in Regulation Z. This interpretation supersedes the outdated methodology set forth in the commentary to Regulation Z.

The list of rural and underserved counties, using the HMDA data described in the interpretive rule, can be found on the Bureau’s website at https://www.consumerfinance.gov/policy-compliance/guidance/mortgage-resources/rural-and-underserved-counties-list/.   

The interpretive rule can be found at https://files.consumerfinance.gov/f/documents/cfpb_interim-final-rule_respa_covid-19-related-loss-mitigation-options.pdf.

The Bureau also issued an interim final rule designed to make it easier for consumers to transition out of financial hardship caused by the COVID-19 pandemic and easier for mortgage servicers to assist those consumers.

The CARES Act provides forbearance relief for consumers with federally backed mortgage loans. The mortgage industry has developed different options for borrowers to repay the payments that were forborne under the CARES Act.  For example, the Federal Housing Finance Agency, Fannie Mae and Freddie Mac may permit some borrowers to defer repayment of the forborne amounts until the end of the mortgage loan. The Federal Housing Administration has a similar program. These programs require the servicer to collect only minimal information from the borrower before offering the option.

The interim final rule makes it clear that servicers do not violate Regulation X by offering certain COVID-19-related loss mitigation options based on an evaluation of limited application information collected from the borrower. Normally, with certain exceptions, Regulation X would require servicers to collect a complete loss mitigation application before making an offer.

The IFR specifies that the loss mitigation option must meet certain criteria to qualify for an exception from the typical requirement to collect a complete application.  Among other things, the option must allow the borrower to delay paying all principal and interest payments that were forborne or became delinquent as a result of a financial hardship due, directly or indirectly, to the COVID-19 emergency. Servicers may not charge any fees to borrowers in connection with the option, and the borrower’s acceptance ends any preexisting delinquency. The exception is not limited to payments forborne under the CARES Act.

The IFR also provides servicers relief from certain requirements under Regulation X that normally would apply after a borrower submits an incomplete loss mitigation application.  Once the borrower accepts an offer for an eligible program under the IFR, the servicer need not exercise reasonable diligence to obtain a complete application and need not provide the acknowledgment notice that is generally required under Regulation X when a borrower submits a loss mitigation application.

The CFPB said servicers still must comply with Regulation X’s other requirements after a borrower accepts a loss mitigation offer. For example, if the borrower becomes delinquent again after accepting the offer, the servicer would have to satisfy Regulation X’s early intervention requirements. Similarly, if the servicer receives a new loss mitigation application from the borrower, the servicer would have to comply with Regulation X’s loss mitigation procedures.

To read the interim final rule, click https://files.consumerfinance.gov/f/documents/cfpb_interim-final-rule_respa_covid-19-related-loss-mitigation-options.pdf.