On May 15, 2025, the Consumer Financial Protection Bureau (CFPB) filed an interim final rule in the Federal Register that will rescind its prior 2021 COVID-19 mortgage servicing final rule. The interim final rule is set for publication in the Federal Register on May 16, 2025, and would become effective 60 days after publication. Comments will be accepted for 30 days after publication.
As a refresher, the 2021 COVID-19 final rule added the following to Regulation X:
- Temporary enhanced early intervention live contact requirements;
- Temporary “procedural safeguards” that had to be satisfied before making the first notice or filing to initiate foreclosure; and
- An exception to the anti-evasion provision that allows “[c]ertain COVID-19-related loan modification options” to be offered to a borrower based upon an evaluation of an incomplete loss mitigation application.
The CFPB’s stated rationale for rescinding the 2021 COVID-19 final rule is twofold. First, it explains that much of the 2021 final rule was intended to be temporary. For example, the enhanced early intervention live contact requirements contained an expiration date of October 1, 2022. Similarly, the procedural safeguards only applied to first notices or filings made prior to January 1, 2022. Therefore, those provisions “have been sunset by their own terms, and . . . [t]hus, borrowers and servicers are no longer utilizing these safeguards.” Furthermore, as these were COVID-19-related protections added to the law, the CFPB notes that former President Biden formally ended the COVID-19 national emergency when he signed a joint resolution of Congress on April 10, 2023.
With respect to the anti-evasion exception for certain loan modification options, the CFPB notes that it has already proposed a rule that would provide servicers with flexibility to offer loss mitigation options more freely. “As part of the revised framework, the proposal would have removed the provisions implemented in response to the COVID-19 pandemic, and the Bureau did not receive public comments on the proposed removal of those provisions.”
The second reason for this interim final rule is, as the CFPB explains, that “it is the policy of the Bureau to streamline regulatory requirements to reduce burdens on the American public. The Bureau has determined that, in light of the end of the COVID-19 pandemic, these regulations needlessly complicate Regulation X without commensurate benefits.”
Takeaways and Observations
The CFPB’s decision to rescind the enhanced early intervention live contact requirements and the foreclosure procedural safeguards is almost certainly inconsequential, as those provisions have sunset and no longer have any effect. However, in our opinion, the CFPB is understating the impact of rescinding the anti-evasion exception for some loan modifications. While that provision was enacted in response to COVID-19 and the pandemic is over, the wording chosen by the CFPB in the 2021 final rule was intentionally (albeit subtly) broader in scope and has allowed servicers to continue offering certain loan modification options in a streamlined fashion (i.e., without having to receive a complete loss mitigation application). Therefore, rescinding that provision and only providing servicers with 60 days to change internal processes is going to be a significant challenge.
In that regard, it is noteworthy that the Section 1022 analysis portion of the interim final rule states that “[t]his rule does not impose any costs to consumers or covered persons or have any direct impact on consumers’ access to consumer financial products or services.” To the contrary, this rule is likely to impose implementation costs on servicers and will reduce consumers’ access to loan modification options. That is certainly relevant when thinking about the cost-benefit analysis associated with this rulemaking.
It is also notable that this interim final rule does not rescind the anti-evasion exception for COVID-19-related deferral and partial claim loss mitigation options in 1024.41(c)(2)(v). That exception was separately enacted as a part of the CFPB’s June 30, 2020, interim final rule, and so we will be watching to see whether the CFPB takes separate action to rescind that provision in the future since it also deals with COVID-19.
In sum, while the CFPB arguably suggests that this interim final rule is uncontroversial and will have minimal impact that is very likely not the case. Servicers should immediately consider the impact of this interim final rule on their internal processes and consider whether to submit comments to the CFPB and/or begin making necessary changes to their business.