Dear Boards of Directors and Chief Executive Officers:
The NCUA has issued this alert to notify credit unions that the Consumer Financial Protection Bureau’s interim final rule (opens new window) that amends parts of Regulation X (opens new window) became effective July 1, 2020.1 This interim final rule added a temporary exception in Subpart C to Regulation X for certain COVID-19-related loss mitigation options. This document outlines important changes that may impact credit unions that service mortgages regulated by Regulation X.
Under this rule, a loan mortgage servicer may offer a borrower a loss mitigation option based on its evaluation of limited information collected from a borrower, if certain criteria (described in the rule) are met. The new exception permits credit unions and their affiliates to align their loss mitigation programs with the criteria of the FHFA COVID-19 payment deferral or other comparable programs.
Exception from Requirement to Evaluate a Complete Loss-Mitigation Application
Regulation X generally requires credit unions that service mortgage loans to evaluate a complete loss mitigation application before they make an offer to a borrower. A credit union must exercise reasonable diligence in obtaining the documents and information required to complete an application. Exceptions include failure of the borrower to make progress toward completing the application after passage of a significant period of time and providing short-term mitigation options.2
The interim final rule provides an additional exception from the requirement to evaluate a complete loss-mitigation application if a credit union meets three criteria.
To qualify, 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.3
- 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.
These criteria maintain important protections for borrowers, and are intended to align with the Federal Housing Finance Agency’s (FHFA’s) COVID-19 payment deferral option (opens new window) and other comparable programs.
Additional Relief and Other Regulation X Requirements
Under the interim final rule, when a borrower accepts a loss mitigation offer, a credit union is not required to comply with requirements of 1024.41(b)(1) and (2), which apply to an application a borrower submitted before the credit union made its loss mitigation offer.
Credit unions must comply with other Regulation 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 early intervention requirements of 1024.39; if the borrower submitted a new loss mitigation application, the credit union would have to comply with the usual loss mitigation procedures.
Small Servicer Exemption and the Prohibition on Certain Foreclosure Activities
Many credit unions engaged in servicing mortgage loans qualify as a small servicer for purposes of the mortgage servicing rules because they service 5,000 or fewer loans, all of which they or an affiliate own or originated.4
Credit unions that qualify as a small servicer are not subject to the relevant portions of Regulation X, and are not affected by the amendment in the interim final rule. However, a small servicer is subject to the prohibition on certain foreclosure activities in Regulation X.5
Credit unions should read the provisions of the interim final rule (opens new window) and Regulation X (opens new window) to determine the effect on their operations. You can find additional resources on the NCUA’s Consumer Compliance Regulatory Resources page and on the Consumer Financial Protection Bureau’s website (opens new window).
If you have questions about the information in this Regulatory Alert, please contact the NCUA’s Office of Consumer Financial Protection at 703.518.1140 or ComplianceMail@ncua.gov, or contact your NCUA regional office or state supervisory authority.
Rodney E. Hood
1 Regulation X implements the Real Estate Settlement Procedures Act. The Consumer Financial Protection Bureau published the interim final rule on June 30, 2020.
3 The amounts must be without limitation and made available to borrowers experiencing a financial hardship due (directly or indirectly) to the COVID-19 emergency. This includes a payment forbearance program made pursuant to the CARES Act, 15 U.S.C. § 9001, et seq (opens new window).