The Center for Responsible Lending (CRL) and the National Community Stabilization Trust (NCST) appreciate the opportunity to comment on the Consumer Financial Protection Bureau’s proposed rule on Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X.
Our organizations strongly support the Bureau’s goals of preventing avoidable foreclosures and maximizing home retention. However, we believe the proposed rule as drafted will not achieve the stated goals. The Bureau proposes a pre-foreclosure review period through the end of 2021 for primary residences to give mortgage servicers an opportunity to engage in loss mitigation. However, other than postponing the date of foreclosure initiation, that period in and of itself does nothing to alter servicer behavior.
Specifically, without a strong incentive for servicers to engage in loss mitigation, the pre-foreclosure review period simply becomes a temporary moratorium and has the effect of setting up an artificial cliff that encourages a large number of foreclosure filings in a short period of time as soon as the review period ends, which will have negative consequences both for the foreclosure system and for communities.
At the same time, a rule that pauses foreclosures until December 31 would do nothing for those whose forbearance runs through or beyond that cutoff and who also face a risk of an avoidable home loss. We believe a 120-day grace period for loans coming out of forbearance plus enabling servicers to offer streamlined payment reduction modifications would be a more effective and beneficial resolution for the vast majority of loans that are delinquent.
However, if the Bureau declines to provide for a 120-day grace period and instead elects to move forward with the pre-foreclosure review period, it should include carefully crafted off-ramps that drive effective loss mitigation and incentivize servicers to offer streamlined payment reduction modifications to borrowers. These off-ramps should be stronger than the ones described in the proposed rule, and we describe our recommendations in detail in Section IV. That way the pre-foreclosure review period can live up to its name for those borrowers not in forbearance or whose forbearance ends after the rule takes effect and before the expiration of the review period. Moreover, before servicers file for foreclosure, they should also satisfy early intervention requirements and, where the borrower commences the loss mitigation process, reasonable diligence requirements as well.