PUB. 11 2021-2022 Issue 2

July • August 2021 17 moratoriums are a moving mark, as they have been extended for one month, about one week before the prior moratorium ends. Thus, this July 31 deadline could potentially be revised. Private loans are not subject to the federal moratoria but may be subject to state protections, such as in California. Criteria for Foreclosure under the CFPB’s Temporary Foreclosure Rule Once moratoria lift, the CFPB’s newly issued foreclosure rule will apply from Aug. 31, 2021, through Dec. 31, 2021. The rule covers all primary residences subject to RESPA that are delinquent due to the pandemic, i.e., where “the borrower’s mortgage loan obligation became more than 120 days delinquent on or after March 1, 2020.” To protect investors, however, the rule carves out delinquent loans where the statute of limitations applicable to a foreclosure action expires before Jan. 1, 2022. Accordingly, once the moratoriums lift, initial foreclosure notices may issue for properties that were more than 120 days behind on their mortgage before March 1, 2020, or if the statute of limitations expires before Jan. 1, 2022. For loans covered by the CFPB’s rule, foreclosures may begin if the borrower: • Has abandoned the property; • Is more than 120 days behind on their mortgage payments and has not responded to specifically required outreach from the mortgage servicer for 90 days; or • Has been evaluated for all options after submitting a completed loss mitigation application and there are no available options to avoid foreclosure. The CFPB’s Rule Adds Flexibility for Investors and Servicers For the population that engages with their servicer, the rule “permits servicers to offer certain streamlined loan modification options made available to borrowers with COVID-19-related hardships based on the evaluation of an incomplete loss mitigation application.” If the borrower accepts an offer made pursuant to this new exception for incomplete applications, the rule temporarily relieves servicers of specific timing and notice obligations so they can more quickly move to a resolution. Documentation Requirements for Short Sales and Deeds in Lieu Unlike 2009, our economy has a field of ready buyers waiting to acquire newly available properties. Prices for new and existing homes are at record levels, and increases are accelerating at the fastest clip in over 15 years. With teleworking on the rise, distressed homeowners are less tied to expensive markets. In 2021, short sales and deeds in lieu of foreclosure could be an equitable solution for homeowners and investors alike. To comply with the temporary rule when offering non- retention foreclosure relief options, the borrower must first indicate a preference not to retain the property. Second, the servicer must collect documents and information from the borrower about available home retention options until the servicer confirms that the borrower has an applicable hardship that qualifies for a non-retention solution under requirements established by the loan’s owner or assignee. The CFPB’s foreclosure rule requires servicers to rely on investor guidelines when offering loss mitigation options, of which short sales and deeds in lieu are two. Particularly for recently purchased homes, hardship criteria for non- retention loss mitigation have centered on employer- mandated relocations. But now that workers can telework from less-expensive locations, mandatory employment transfers may be outdated criteria. Accordingly, to take advantage of increased flexibility in determining optimal loss mitigation outcomes, including short sales and deeds in lieu of foreclosure, private investors with significant delinquency exposure who can manage short sales or owned real estate may wish to reexamine their home retention loss mitigation options to include voluntary relocation. Adjusting guidelines to allow more short sales and deeds in lieu may be a win-win for investors and homeowners alike. Unlike 2009, our economy has a field of ready buyers waiting to acquire newly available properties. Prices for new and existing homes are at record levels, and increases are accelerating at the fastest clip in over 15 years. With teleworking on the rise, distressed homeowners are less tied to expensive markets.