27 December 2021 / Larry R. Rothenberg

A Vigilant Compliance Alert for Mortgage Servicers: The CARES Act, Regulation X, and the Servicemembers Civil Relief Act

Topics: Real Estate

The Consumer Financial Protection Bureau (CFPB)’s December 2021 notification letter to mortgage servicers is not only a good reminder of the mortgage servicer’s obligations under various laws and regulations, but it is also a warning. The CFPB’s letter describes several complaints it has received, which the CFPB is reviewing to determine if further investigation is warranted.

The letter focuses on servicemember and veteran homeowner protections. Although the servicemembers and veterans are entitled to additional protection under the Servicemembers Civil Relief Act, all consumers are entitled to protection under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and Regulation X.


The CFPB expresses concern regarding compliance with the CARES Act’s requirements relating to credit reporting for loans that are (or were) in a COVID-19 hardship forbearance. If those loans were current before entering forbearance under the CARES Act, they must be reported to credit reporting agencies as current.

If a loan was delinquent when entering forbearance but was brought current during forbearance, it must also be reported to the credit reporting agencies as current. The government-sponsored enterprises (GSE) have directed that if a borrower in a federally-backed loan indicates that they cannot afford to repay their forbearance amount in a lump sum, they cannot be required to do so when exiting forbearance.

Regulation X

The CFPB’s Final Rule (effective August 31, 2021), amending certain provisions in Regulation X, established temporary protections for borrowers experiencing financial hardships due to the COVID-19 pandemic. For example, the Final Rule created procedural safeguards that are in effect until December 31, 2021. These safeguards help ensure that borrowers have a meaningful opportunity to be reviewed for loss mitigation before the servicer is permitted to commence a foreclosure. The Final Rule also established temporary early intervention obligations to ensure that servicers communicate critical information to borrowers about their options.

The Servicemembers Civil Relief Act

When it comes to mortgages taken out by a servicemember prior to entering military service, a default judgment may not be taken against them in a foreclosure action unless the plaintiff files an affidavit regarding the borrower’s military service with the court.

If it appears that the defendant is (or recently was) on active duty, the court must appoint an attorney to represent the servicemember. The court must also stay the foreclosure action for at least 90 days if the appointed attorney has been unable to contact the servicemember or if there may be a defense to the action that requires that the defendant be present.     

Weltman’s standard operating procedure is to check the person’s military status with the Department of Defense, not only prior to filing a motion for default but at multiple other milestones during the case, including before a judicial sale of the property.

Vigilant Compliance is the Watchword

The CFPB’s notification letter does not impose any new requirements. It serves as a pointed reminder regarding the existing requirements. The fact that the CFPB has sent the letter should be taken as a warning that it will likely apply strict scrutiny to the mortgage servicer’s overall policies and its compliance for each loan, and that the CFPB intends to prosecute violations zealously.

Weltman’s Real Estate Default Group constantly monitors these updates. If you have questions, connect with shareholder Larry Rothenberg at any time. You can find a copy of the CFPB’s notification letter here.

For more comprehensive information and insights, watch our Foreclosures and Loss Mitigation webinar. 

This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.

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