The Consumer Financial Protection Bureau (CFPB) recently rescinded a pandemic-era Mortgage Servicing Final Rule (Federal Register, Docket No. CFPB-2025-0014). The interim final rule (IFR) rescinds the final rule “Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X,” originally issued June 25, 2021.
“The Bureau finds that it has good cause to remove, without prior notice and comment, language relating to the COVID-19 pandemic added by the 2021 COVID RESPA Rule, as prior notice and comment is unnecessary,” states the new rule. “Both the temporary additional early intervention live contact requirements and the temporary special COVID-19 loss mitigation procedural safeguards have been sunset by their own terms, and the COVID-19 Public Health Emergency expired on May 11, 2023.”
In June of 2021, the CFPB issued a rule to amend Regulation X to assist mortgage borrowers impacted by COVID-19. The rule established temporarily procedural safeguards to help ensure that borrowers have an opportunity to be reviewed for loss mitigation before a servicer can issue the first notice or filing required for foreclosure on certain mortgages. In addition, the rule would temporarily permit mortgage servicers to offer certain loan modifications made available to borrowers experiencing a COVID-related hardship based on the evaluation of an incomplete application.
MortgagePoint had the opportunity to chat with Foreclosure Attorney Nicholas Perciballi, Partner with Syosset, N.Y-based law firm Roach & Lin P.C., about the new rule and its impact on the mortgage servicing space. Roach & Lin has experience representing mortgage servicers and financial institutions in foreclosure, bankruptcy, loss mitigation, evictions, and REO sales. Roach & Lin is also a member of Legal League, a professional association of financial services law firms positioned to drive progress in the mortgage servicing industry.
Specializing in foreclosures, evictions, and real estate, Perciballi is a member of the New York City Bar Association and New York City Bar Association’s Mortgage Foreclosure Task Force, a committee charged with analyzing all factors affecting foreclosures in the State of New York, recommending new initiatives, appropriate legislation, and creating various forms, processes and procedures.
Q: What are the immediate legal and compliance challenges that mortgage servicers might face with the rescission of the pandemic-era mortgage servicing rule? How should servicers adjust their practices to remain compliant under the reinstated pre-pandemic regulations?
Perciballi: While it likely would not require an adjustment, mortgage servicers should remain mindful of already existing individual state requirements, as well as compliance with Regulation X (i.e., Section 39(b), 45-day Written Notice provision to borrowers who are delinquent).
Q: The rescinded rule included provisions for streamlined loan modifications and procedural safeguards against foreclosure. How might the removal of these protections affect borrowers, particularly those still recovering from pandemic-related financial hardships?
Perciballi: While the rescission of provisions for streamlined loan modifications might negatively impact a borrower still recovering from pandemic-related financial hardships, mortgage servicers are still obligated to review substantially completed loss mitigation applications at most stages of foreclosure prior to foreclosure sale. By supplying such an application, this may potentially delay the commencement of a foreclosure or the execution of a foreclosure judgment (i.e., require the servicer to delay a foreclosure sale in anticipation of finalizing a review of the application).
Q: With the federal rollback of these protections, do you anticipate any conflicts or challenges arising from state-level regulations that may have adopted similar or more stringent borrower protections during the pandemic?
Perciballi: In the event that a set of state-level regulations that contain more stringent protections exist, then the state level protections should be followed by the mortgage servicer provided they do not directly conflict with the federal rule(s). In the event of a true conflict, federal rules should be complied with.
Q: Could the rescission of the rule lead to an increase in litigation from borrowers who feel disadvantaged by the sudden policy change? What steps can servicers take to mitigate potential legal risks during this transition?
Perciballi: This is unlikely since the CFPB seems to be following usual protocol to move forward with the rule change (i.e., a commentary period prior to issuing a final rule), but litigation is always possible. Servicers should maintain accurate records showing full compliance with the pandemic-era mortgage servicing rule through the expiration date of said rule.
Q: Given the CFPB’s actions, what do you foresee for the future of mortgage servicing regulations? Are there indications that the Bureau might introduce new rules to address ongoing borrower concerns, or is this rescission indicative of a broader regulatory shift?
Perciballi: The pandemic era protections coming to an end might have been foreseeable, but in terms of a general regulatory shift, it is very hard to predict. Future economic conditions, events and other key statistics may play a role in whether there is further regulatory shift in either direction, namely whether borrower protections are increased or relaxed.
Click here for more on the CFPB canceling its pandemic-era servicing rule.
