Bulletin 2021-02 Supervision and Enforcement Priorities Regarding Housing Insecurity

BILLING CODE: 4810-AM-P

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1024

Bulletin 2021-02: Supervision and Enforcement Priorities Regarding Housing Insecurity

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Compliance bulletin and policy guidance.

SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is issuing this

Compliance Bulletin and Policy Guidance (Bulletin) on Supervision and Enforcement priorities

regarding housing insecurity in light of heightened risks to consumers needing loss mitigation

assistance in the coming months as the COVID-19 foreclosure moratoriums and forbearances

end. Consequently, the Bureau will be paying particular attention to how mortgage servicers

respond to borrower requests for loss mitigation assistance and process loss mitigation

applications. The Bureau urges servicers to dedicate sufficient resources and staff to ensure they

can communicate clearly with borrowers, effectively manage borrower requests for assistance,

promote loss mitigation, and ultimately reduce avoidable foreclosures and foreclosure-related

costs. Accordingly, the Bureau intends to consider a servicer’s overall effectiveness at achieving

such goals, along with other relevant factors, in using its discretion to address violations of

Federal consumer financial law in supervisory and enforcement matters. The Bureau recognizes

that some homeowners will not be able to resume making payments on their mortgages and that

some foreclosures are unavoidable; nonetheless, the Bureau will hold mortgage servicers

accountable for complying with Regulation X with the aim of ensuring that homeowners have

the opportunity to be evaluated for loss mitigation prior to the initiation of foreclosure.

DATES: This bulletin is applicable on [INSERT DATE OF PUBLICATION IN THE

FEDERAL REGISTER].

FOR FURTHER INFORMATION CONTACT: Allison Brown, Deputy Assistant Director,

Office of Supervision Policy, Division of Supervision, Enforcement, and Fair Lending, at (202)

435-7107, or James Savage, Senior Counsel, Office of Enforcement, at (202) 734-2777. If you

require this document in an alternative electronic format, please contact

CFPB_Accessibility@cfpb.gov.

SUPPLEMENTARY INFORMATION:

I. Background

Mortgage servicers play a vital role in assisting borrowers when they face challenges in

paying their mortgages. The Bureau is committed to using its authorities, including its authority

under Regulation X mortgage servicing requirements and under the Consumer Financial Protection

Act (CFPA), to ensure that homeowners facing the ongoing economic impact of the Coronavirus

Disease (COVID-19) national emergency receive the benefits of critical legal protections and that

avoidable foreclosures are avoided.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

was signed into law.

Among other things, the CARES Act provides borrowers with “Federally

backed mortgage loans” with access to forbearance options regardless of whether they are delinquent.

The Bureau understands from its market monitoring that many private investors have also provided

Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116-136, 134 Stat. 281 (Mar. 27, 2020).

The CARES Act defines a “Federally backed mortgage loan” as any loan which is secured by a first or subordinate

lien on residential real property (including individual units of condominiums and cooperatives) designed principally

for the occupancy of from one-to-four families that is insured by the Federal Housing Administration under title II

of the National Housing Act (12 U.S.C. 1707 et seq.); insured under section 255 of the National Housing Act (12

U.S.C. 1715z–20); guaranteed under section 184 or 184A of the Housing and Community Development Act of 1992

(12 U.S.C. 1715z–13a, 1715z–13b); guaranteed or insured by the Department of Veterans Affairs; guaranteed or

insured by the Department of Agriculture; made by the Department of Agriculture; or purchased or securitized by

the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association. CARES Act, Pub. L.

116-136, section 4022(a)(2).

forbearances on similar terms to those provided by servicers of Federally backed loans.

Since the CARES Act was enacted, 6.9 million borrowers have entered a forbearance

program. As of January 2021, more than 2.1 million borrowers in forbearance programs were

more than 90 days behind on their mortgage payments (including borrowers who have forborne

three or more payments), and they could still be experiencing severe hardships when their

payments are to resume.

Black and Hispanic homeowners were more than two times as likely

to be behind on housing payments as of December 2020.

Of the borrowers not in forbearance programs, as of January 2021, around 242,000 were

90 days or more delinquent. Both populations of delinquent borrowers are at heightened risk of

referral to foreclosure soon after the foreclosure moratoria end if they do not resolve their

delinquency or reach a loss mitigation agreement with their servicer. If borrowers who are

currently in an eligible forbearance program request an extension to the maximum time offered

by the government agencies, those loans that were placed in a forbearance program early in the

pandemic (March and April 2020) will reach the end of their forbearance period in September

and October of 2021. Black Knight data suggests there could be just under 1.7 million borrowers

still in forbearance in September 2021, with roughly 800,000 borrowers exiting their forbearance

programs after 18 months of forborne payments in September and October of 2021.

Borrowers facing more permanent hardships will likely need to apply for loss mitigation

options as the end of the forbearances periods approach.

Therefore, as consumers approach the

Bureau of Consumer Fin. Prot., Housing insecurity and the COVID-19 pandemic (March 2021),

https://files.consumerfinance.gov/f/documents/cfpb_Housing_insecurity_and_the_COVID-19_pandemic.pdf

Id.

Black Knight Mortg. Monitor, January 2021 Report at 9 (Jan. 2021), https://cdn.blackknightinc.com/wp-

content/uploads/2021/03/BKI_MM_Jan2021_Report.pdf (Black Jan. 2021 Report). It is unclear how many

borrowers in a forbearance program will exit forbearance at 12 months rather than exercising any additional

extensions.

Mortgage Market COVID 19 Collaborative: Forbearance and Delinquency Among Agency Mortgage Loans,

Housing Finance Policy Center, Urban Institute (March 2021).

end of forbearance periods in the coming months, the Bureau expects an extraordinarily high

volume of loans needing loss mitigation assistance at relatively the same time. During this

period in which there may be large increases in requests for loss mitigation assistance, the

Bureau is specifically concerned that some borrowers may not be receiving effective

communication from servicers and that some borrowers may be at risk of not having their loss

mitigation applications adequately processed.

In the wake of the COVID-19 pandemic, the Bureau has taken numerous steps to protect and

assist mortgage borrowers. The Bureau has created and disseminated extensive consumer education

resources in coordination with Federal agencies and State regulators. The Bureau plans to use all of its

tools, including consumer and industry outreach and regulatory initiatives, to protect homeowners and

assist those mortgage servicers who are also working to reduce avoidable foreclosures. The Bureau

recognizes that mortgage servicers have also experienced challenges as a result of the pandemic and

intends to support servicers in their efforts to provide timely assistance to mortgage borrowers.

II. Supervision and Enforcement Priorities

The Bureau plans to monitor servicers’ engagement with borrowers at all stages in the

process in the coming months and prioritize mortgage servicing oversight work in deploying its

enforcement and supervision resources in the coming year. The Bureau expects servicers to plan

for the expected increase in loans exiting forbearance programs and related loss mitigation

applications, as well as applications by borrowers who are delinquent but not in forbearance.

The Bureau expects servicers to resource those activities appropriately and urges servicers to

dedicate sufficient resources and staff to ensure they can communicate clearly with borrowers,

effectively manage borrower requests for assistance, and thereby reduce foreclosures.

Accordingly, the Bureau intends to look at a servicer’s overall effectiveness at helping

consumers manage loss mitigation, along with other relevant factors, when using its discretion to

address violations of Federal consumer financial law in supervisory and enforcement matters.

On the other hand, consistent with the flexibilities announced in the April 3, 2020 joint

statement, companies that are unable to adequately manage loss mitigation can expect the Bureau

to take enforcement or supervisory action to address violations under its Regulation X, CFPA, or

other authorities.

In its oversight work, the Bureau plans to pay particular attention to:

1. Whether servicers are providing clear and readily understandable information to

borrowers about their options for payment assistance;

2. Whether servicers are complying with the outreach requirements in Regulation X to

ensure that borrowers are getting needed information about loss mitigation options,

including:

• For borrowers who request further assistance, whether servicers are promptly

resuming reasonable diligence in obtaining documents and information to complete

loss mitigation applications;

• For borrowers in forbearance, whether servicers are contacting borrowers before the

end of the forbearance period to determine if the borrower wishes to complete the

loss mitigation application and proceed with a full loss mitigation application;

See Bureau of Consumer Fin. Prot., Joint Statement on Supervisory and Enforcement Practices Regarding the

Mortgage Servicing Rules in Response to the COVID-19 Emergency and the CARES Act, available at

https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_mortgage-servicing-rules-covid-19.pdf.

See Regulation X, 12 CFR 1024.41(c)(2)(iii); comments 41(b)(1)-4.iii; 41(c)(2)(i)-1; 41(c)(2)(iii)-1 through -6.

See Regulation X, comment 41(b)(1)-4.iii.

3. Whether servicers are complying with the Equal Credit Opportunity Act’s (ECOA’s)

prohibition against discriminating against any applicant, with respect to any aspect of a

credit transaction, including:

• Whether servicers are managing communications with limited English proficiency

borrowers while maintaining compliance with applicable laws;

• For applicants who are recipients of income derived from part-time employment,

alimony, child support, separate maintenance payments, retirement benefits, or

public assistance, whether servicers evaluate such income in accordance with the

ECOA and Regulation B when determining eligibility for loss mitigation options, to

the extent the servicer is otherwise required to use income in determining eligibility

for loss mitigation options;

4. Whether servicers promptly handle loss mitigation inquiries and avoid unreasonably long

hold times on phone lines; for example, the Bureau plans to scrutinize servicer conduct

where hold times are significantly longer than industry averages;

15 U.S.C. 1691(a). The ECOA prohibits discrimination based on race or color, religion, national origin, sex,

marital status, age (provided the applicant has the capacity to contract), because all or part of the applicant’s income

derives from any public assistance program, and because the applicant has in good faith exercised any right under

the Consumer Credit Protection Act (Consumer Credit Protection Act, 15 U.S.C. 1601 et seq.).

See Bureau of Consumer Financial Protection, “Statement Regarding the Provision of Financial Products and

Services to Consumers with Limited English Proficiency,” 86 FR 6306 (Jan. 21, 2021) (encouraging financial

institutions to better serve LEP consumers in languages other than English and providing key considerations and

guidelines financial institutions can use to develop related compliance solutions).

For example, the ECOA and Regulation B prohibit creditors from automatically discounting or excluding from

consideration the public assistance income of an applicant or the spouse of an applicant. See 15 U.S.C. 1691(b)(2),

12 CFR 1002.6(b)(5); 12 CFR part 1002, Supp. I, ¶ 6(b)(5)-(3)(ii); see id. at 6(b)(5)-(1) (“A creditor must evaluate

income derived from . . . public assistance on an individual basis . . . .”); see also Consumer Financial Protection

Bureau, Supervisory Highlights, Summer 2020, https://files.consumerfinance.gov/f/documents/cfpb_supervisory-

highlights_issue-22_2020-09.pdf.

5. Whether servicers maintain policies and procedures that are reasonably designed to achieve

the continuity of contact objectives to ensure that delinquent borrowers receive accurate

information about their loss mitigation options;

6. For borrowers who submit complete loss mitigation applications, whether servicers

evaluate the applications consistent with the Regulation X requirements to promote

timely and consistent evaluations;

7. Whether servicers comply with foreclosure restrictions in Regulation X and other Federal

or State foreclosure restrictions;

and

8. Whether servicers are complying with the Fair Credit Reporting Act’s requirements to

report the credit obligation or account appropriately.

IV. Conclusion

The Bureau issues this policy statement to highlight supervisory and enforcement

priorities with respect to mortgage servicing and to confirm that the Bureau will hold servicers

accountable if they are unable to manage an expected increase in borrowers needing loss

mitigation assistance.

V. Regulatory Requirements

The Bulletin constitutes a general statement of policy exempt from the notice and

comment rulemaking requirements of the Administrative Procedure Act (APA). It is intended to

See Regulation X, 12 CFR 1024.40; see also 12 CFR 1024.38(b)(2)(i) (requiring policies and procedures

reasonably designed to ensure that the servicer can provide accurate information regarding loss mitigation options

available to a borrower from the owner or assignee of the borrower’s mortgage loan); 12 CFR 1024.38(b)(2)(ii)

(requiring policies and procedures reasonably designed to ensure that the servicer can identify with specificity all

loss mitigation options for which borrowers may be eligible pursuant to any requirements established by an owner or

assignee of the borrower’s mortgage loan).

See Regulation X, 12 CFR 1024.41.

See Regulation X, 12 CFR 1024.41(f) and (g).

CARES Act, Pub. L. 116-136, sec. 4021 (2020) (amending section 623(a)(1) of the FCRA).

provide information regarding the Bureau’s general plans to exercise its supervisory and

enforcement discretion for institutions under its jurisdiction and does not impose any legal

requirements on external parties, nor does it create or confer any substantive rights on external

parties that could be enforceable in any administrative or civil proceeding. Because no notice of

proposed rulemaking is required in issuing the Bulletin, the Regulatory Flexibility Act also does

not require an initial or final regulatory flexibility analysis. The Bureau has also determined that

the issuance of the Bulletin does not impose any new or revise any existing recordkeeping,

reporting, or disclosure requirements on covered entities or members of the public that would be

collections of information requiring approval by the Office of Management and Budget under the

Paperwork Reduction Act.

Dated: March 31, 2021.

/s/ David Uejio

__________________________________

David Uejio,

Acting Director, Bureau of Consumer Financial Protection.