Interplay of the Cares Act's Forbearance Framework and Regulation X's Loss Mitigation Rules

On March 13, 2020, President Donald Trump declared a national emergency in response to the novel coronavirus disease (COVID-19).¹ Shortly thereafter, to assist consumers impacted by the COVID-19 pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).² Although the law provides relief to various industries and populations of United States citizens, for mortgage loan borrowers, the CARES Act established a streamlined forbearance framework.³ Many borrowers experiencing a financial hardship due directly or indirectly to COVID-19 were afforded the opportunity to request and obtain forbearance of mortgage payments for up to 360 days.⁴ However, the CARES Act does not work in isolation. Agreeing to forbear upon mortgage payments in lieu of foreclosure is a form of loss mitigation, which directly implicates certain federal mortgage servicing laws. Regulation X, the implementing legislation for the Real Estate Settlement Procedures Act (RESPA), contains detailed procedural requirements that mortgage servicers must abide by when interacting with borrowers in connection with loss mitigation applications and negotiations.⁵ The CARES Act and the loss mitigation rules in Regulation X working in tandem certainly helped in some ways. However, it also posed challenges and created a more complicated and confusing experience for mortgage loan borrowers needing assistance during the pandemic.

This Article will provide an overview of the CARES Act's payment forbearance program and the relevant loss mitigation requirements in Regulation X. It will also explain the interplay of the two laws and how servicers have to navigate both sets of requirements. Finally, the Article will examine ways in which the dual framework of the CARES Act and Regulation X created positive outcomes and ways in which it may have further complicated an already delicate situation for mortgage loan borrowers and servicers alike.

1. Proclamation No. 9994, 85 Fed. Reg. 15,337 (Mar. 18, 2020).
2. Coronavirus Economic Stabilization (CARES Act), 15 U.S.C. §§ 9001–9141
(2020).
3. Id. § 9056(b).
4. Id.
5. See 12 C.F.R. § 1024.41 (2021).

Republished with permission. The original article, "Interplay of the Cares Act's Forbearance Framework and Regulation X's Loss Mitigation Rules" was published in CCFL's Quarterly Report Vol. 75, Nos. 1-2 (membership login required).