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1.5.2.2 Minimum Rules Applicable to All Homeowners in Disaster Areas

The rules implemented by the Consumer Financial Protection Bureau (CFPB) are applicable to all mortgages. Regulation X (implementing the Real Estate Settlement Procedures Act) provides the most relevant regulations.

Regulation X does allow a servicer to offer loss mitigation (also known as “workout”) options to a borrower who has not submitted an application. A servicer also may offer loss mitigation options to a borrower when the offer is not based on any evaluation of information submitted by the borrower in connection with a loss mitigation application.111

The CFPB has said that “[t]his regulatory flexibility permits servicers to offer relief to borrowers affected by a major disaster or emergency without first having to collect a complete application. These borrowers in particular may have difficulty timely obtaining and submitting application documents and information.”112

In contrast, the general rule is that servicers obtain a complete loss mitigation application before evaluating a mortgage borrower for a loss mitigation option, such as a loan modification or short sale. Servicers generally may not offer a loss mitigation option based upon an evaluation of any information provided in connection with an incomplete application.113 However, Regulation X permits servicers to offer certain short-term options based upon an evaluation of an incomplete application.114

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