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Mortgage Servicing and Loan Modifications: 3.8.2.4 Reasonable Deadline for Completing an Incomplete Application

In setting a “reasonable date” in the section 1024.41(b)(2) notice for completing the application, the CFPB’s official interpretations issued in connection with the 2013 rule instructed servicers that the deadline should preserve the “maximum borrower rights,” except when the selection of a particular deadline would be “impracticable” for the borrower to comply.984 The CFPB suggested that, generally, it would be impracticable to require a borrower to obtain and submit documents in less than seven days.

Mortgage Servicing and Loan Modifications: 3.8.2.5 Servicer’s Duties upon Receipt of “Facially Complete” Application

A loss mitigation application is considered “facially complete” when the borrower submits all the missing documents and information as stated in the section 1024.41(b)(2) five-day notice of application status, when no additional information is requested in the notice, or once the servicer is required to send a notice of complete application under section 1024.41(c)(3).991 If a servicer later discovers that it incorrectly concluded that the application was complete, that more information is needed, or that corrections are required to be made t

Mortgage Servicing and Loan Modifications: 3.8.2.6 Notice of Complete Application

Although the 2013 RESPA servicing rule required a servicer to notify the borrower about the documents and information that were needed to make an application complete, it did not require the servicer to inform the borrower as to whether the application became complete upon submission of the additional requested documents.

Mortgage Servicing and Loan Modifications: 3.8.2.8 Duty to Evaluate for All Available Options

The servicer’s evaluation must consider all loss mitigation options that are “available” for a particular borrower and loan.1020 The official interpretations of Regulation X are unambiguous in specifying that once an application is “complete,” the servicer must review the borrower not only for any specific option for which the borrower asked, but for all options offered by the owner or assignee of the borrower’s mortgage.1021 A “loss mitigation option” is defined as “an alternative to forecl

Mortgage Servicing and Loan Modifications: 3.8.2.9 Non-RESPA Requirements to Evaluate Application Submitted Within Thirty-Seven Days of Foreclosure

As mentioned above, the duty to evaluate the borrower for all loss mitigation options applies if the borrower submits a complete loss mitigation application more than thirty-seven days before a foreclosure sale. However, a servicer may be obligated under non-RESPA applicable law to evaluate a borrower’s application submitted thirty-seven days or less before a foreclosure sale.

Mortgage Servicing and Loan Modifications: 3.8.2.10.1 Overview

The CFPB loss mitigation regulation emphasizes that a servicer shall not evade the duty to evaluate the borrower for all loss mitigation options by offering the borrower an option based on an incomplete application.1034 However, the regulation contains four limited exceptions to this anti-evasion provision. The first exception applies to an application that remains incomplete over an extended period, and the second exception applies to a short-term loss mitigation option.

Mortgage Servicing and Loan Modifications: 3.8.2.10.2 Exception when application remains incomplete

The first exception provides that a servicer may, in its discretion, evaluate an incomplete loss mitigation application and offer a borrower a loss mitigation option if the servicer exercises reasonable diligence in obtaining the needed information and the application remains incomplete for a significant period of time under the circumstances without any progress by the borrower to complete the application.1035 A servicer may consider the timing of the foreclosure process in determining whether an application is incomplete for a significant

Mortgage Servicing and Loan Modifications: 3.8.2.10.3 Exception for short-term loss mitigation options

The second exception in section 1024.41(c)(2)(iii) applies to short-term loss mitigation options. This provision allows a servicer to offer a borrower a short-term payment forbearance program based on an incomplete loss mitigation application.1039 The exception was expanded by the 2016 mortgage servicing rule, effective October 19, 2017, to include a short-term repayment plan. A servicer may offer a short-term payment forbearance program in conjunction with a short-term repayment plan pursuant to this provision.

Mortgage Servicing and Loan Modifications: 3.8.2.10.4 Exception for COVID-19-related emergency payment deferral option

In response to the COVID-19 pandemic, the CFPB created a third exception to the anti-evasion requirement that permits servicers to offer borrowers a specific COVID-19-related loss mitigation option without obtaining a complete loss mitigation application. This exception in section 1024.41(c)(2)(v) applies only to a payment deferral option that permits a borrower to delay repayment of amounts that were (1) forborne during a COVID-19-related loan forbearance or (2) were not paid because of the borrower’s financial hardship due to the COVID-19 emergency.

Mortgage Servicing and Loan Modifications: 3.8.3.1 Generally

Many servicing problems occur at or near the time of transfer of servicing, often caused by servicers’ inability to communicate with each other and reconcile account records. In the loss mitigation context, problems often arise when the servicing of the loan is transferred in the midst of an application review or trial loan modification. The 2013 RESPA servicing rule recognized that the requirements for responding to a loss mitigation application may continue to apply even after the servicing of the borrower’s loan has been transferred.

Mortgage Servicing and Loan Modifications: 3.8.6 Written Notices to Borrowers Required by Loss Mitigation Rules

Review of written notices can be an important tool for assessing whether a servicer complied with various requirements under the loss mitigation rules. Regulation X requires that a servicer give the borrower written notices at distinct stages in the loss mitigation and foreclosure process. The servicer’s failure to comply with any one of these notice requirements may give rise to a private right of action for the borrower. Failure to give the notice in and of itself is a violation of the rules.

Mortgage Servicing and Loan Modifications: 3.8.7.1 Generally

Regulation X’s loss mitigation rule limits mortgage servicers’ “dual tracking” practices. Dual tracking refers to a common servicer practice of proceeding with foreclosure while evaluating a borrower for loss mitigation options.1224 As a consequence of this practice borrowers lose their homes, or are subjected to emotional distress related to the fear of losing their homes, before proper evaluations for foreclosure alternatives have been completed.

Mortgage Servicing and Loan Modifications: 3.8.7.2 The 120-Day Preforeclosure Review Period

During the initial 120 days of a delinquency, a borrower should be insulated from foreclosure activity.1225 Section 1024.41(f)(1) prohibits servicers from taking the first step to initiate foreclosure proceedings under state law during this time period.1226 Instead, during the early months of a delinquency Regulation X mandates that servicers take affirmative steps through verbal and written solicitation to engage borrowers in the process of submitting a loss mitigation application for evalu