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Lender Requirements in Loan Modifications Related to COVID-19

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Cook County Debt Collections LawyerFor most of 2020 and 2021, mortgage lenders have been unable to pursue foreclosures in cases where homeowners have federally-backed loans. The CARES Act placed a moratorium on foreclosures, and it also allowed borrowers who have been affected by the COVID-19 pandemic to receive a forbearance of mortgage payments. This moratorium ended on July 31, 2021, allowing lenders to pursue foreclosures in certain cases. However, the Consumer Financial Protection Bureau (CFPB) has created new rules requiring lenders to meet certain requirements before initiating foreclosure proceedings, including providing loan modification options for borrowers.

Requirements for Mortgage Loan Servicers

Under the CFPB’s rule, mortgage lenders and servicers will need to meet certain requirements before they can initiate a foreclosure prior to January 1, 2022. A borrower must be given the opportunity to complete a loss mitigation application, and after an application has been submitted, a lender can only pursue foreclosure if the borrower is not eligible for loss mitigation, rejects all loss mitigation options, or does not meet their requirements to complete a loan modification. Foreclosures can also be initiated if a property has been abandoned or if a borrower does not respond to a lender’s loss mitigation outreach attempts for 90 days.

For borrowers who have received a forbearance due to hardship related to COVID-19, the lender must contact the borrower at least 10 days but no more than 45 days before the end of their forbearance period and advise them of their loss mitigation options. Lenders are required to use reasonable diligence to help a borrower complete a loss mitigation application. Even if a borrower does not fully complete an application, a lender may offer loan modification options. However, certain restrictions apply to these modifications:

  • The term of a loan can be extended by no more than 480 months from the effective date of the loan modification.

  • A loan modification cannot result in an increase of a borrower’s monthly principal and interest payment above the amount the borrower paid before receiving a loan modification.

  • If any amounts in arrears are moved to the end of a loan, interest cannot accrue on these amounts until the borrower refinances the loan, the property is sold, or the loan modification matures. For FHA loans, interest may begin accruing once mortgage insurance terminates.

  • Loss mitigation options offered by a lender must end the borrower’s delinquency or be designed to end delinquency once the borrower meets the requirements of a trial loan modification plan.

  • No fees can be charged by a lender for making loan modifications, and existing late fees, penalties, and related charges that the borrower incurred after March 1, 2020, must be waived. 

Contact Our Chicago, IL Mortgage Lender Loan Modification Attorneys

Lenders who have been unable to pursue foreclosures against delinquent borrowers for the past year may now have options, but they will need to be sure they are following all applicable requirements when addressing these issues. The attorneys of Walinski & Associates, P.C. can help creditors determine their options in these cases, including addressing loss mitigation applications, completing loan modifications, and pursuing foreclosures when possible. Contact our Chicago mortgage foreclosure lawyers at 312-704-0771 to learn more about how we can help with these cases.

Sources:

https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2021/07/cfpb-makes-temporary-revisions-of-default-servicing-rules-to-assist-borrowers.pdf

 

https://www.federalregister.gov/documents/2021/06/30/2021-13964/protections-for-borrowers-affected-by-the-covid-19-emergency-under-the-real-estate-settlement

Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
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