CFPB proposes new servicing rules that would focus on foreclosure assistance

The Consumer Financial Protection Bureau (CFPB) on Wednesday announced a newly proposed rule that would amend Regulation X and require mortgage servicers to emphasize borrower assistance and loss-mitigation options over foreclosure when a borrower struggles to make their required mortgage payments.

“The proposed changes would also make it simpler for servicers to offer assistance by reducing paperwork requirements, improve communication with borrowers, and ensure critical information is provided in languages borrowers understand,” the bureau explained in its announcement. “The CFPB is requesting comment about several other topics, including possible approaches it could take to ensure servicers are furnishing accurate and consistent credit reporting information for borrowers undergoing review for assistance.”

CFPB Director Rohit Chopra said the move is being made in an effort to more aggressively stand against preventable instances of foreclosure.

“When struggling homeowners can get the help they need without unnecessary obstacles, it is better for borrowers, servicers, and the economy as a whole,” Chopra said in a statement. “The CFPB’s proposal would reduce avoidable foreclosures and make the mortgage market more resilient during future crises.”

The Mortgage Bankers Association (MBA) and American Bankers Association (ABA) released a joint statement that praised the plan.

“We have long advocated for modernizing the loss mitigation framework under Regulation X and appreciate the Bureau’s efforts to simplify and streamline the process,“ the statement read. “Servicers have helped more than eight million families stay in their homes since the beginning of the COVID-19 pandemic while adapting to new and rapidly changing loss mitigation programs implemented by government agencies.

“… The Bureau’s proposal represents a substantial overhaul of the current framework, and we hope they will take into careful consideration the recommendations and feedback from our members who are serving millions of borrowers every day. We look forward to reviewing the specific details of the proposal — including the items pertaining to Limited English Proficiency — to ensure any updated framework is operationally feasible and does not negatively affect consumers.”  

The newly proposed rule has four key components: to stop dual tracking and limit fees — which requires an emphasis on borrower assistance before initiating a foreclosure and limiting fees levied by the servicer as borrowers explore loss-mitigation options; reducing paperwork requirements so that servicers can assess borrower needs more quickly without a “complete application”; requiring more tailored communication notices to borrowers so that potential action on their part is more clearly defined; and more flexibility on the languages in which borrowers can receive notices.

In 2022, the bureau requested public comment regarding “ways to reduce risks for consumers who experience disruptions in their financial situation that could interfere with their ability to remain current on their mortgage payments,” adding that feedback from both the mortgage industry and the wider public emphasized a need for simplification and flexibility in the loss-mitigation process.

The bureau also related that it gained positive feedback about loss-mitigation options made available to borrowers during the COVID-19 pandemic, when the CFPB adjusted its rules to “permit, temporarily, borrowers to receive assistance without comprehensive review, even when the result was a year-long payment pause or a permanent change to the loan terms.”

The Housing Policy Council (HPC) also released a statement in support of the new proposal.

“[HPC] appreciates the CFPB’s announcement of proposed updates to the mortgage servicing regulations. This effort is well overdue,” the organization said. “For years now, the industry has been requesting that the Bureau adopt sensible revisions to Reg X, to align the rules with government agency and GSE loss mitigation program improvements. Thus, we welcome the CFPB’s recognition that it is time for the Bureau’s Reg X to match and reinforce these efforts, so that the Bureau’s servicing rules support the successful foreclosure prevention work performed by servicers.”

HPC also cited the loss-mitigation efforts undertaken during the pandemic, echoing the CFPB’s contention about prior public comments it has received.

“At the outset of the COVID pandemic, industry and government officials worked together with a common goal of helping homeowners and this collaboration sent a powerful message to those in need,” HPC said. “Homeowners are apt to trust both industry and government more when the private and public sectors are seen as working together, to promote and protect the rights of consumers and lenders alike, in a fair and balanced way.”

Commenters during the 2022 feedback period highlighted that borrowers and servicers alike benefited from these practices, encouraging a more permanent approach to foreclosure assistance in the future.

Comments on the new proposal are due by Sept. 9, 2024, and can be submitted through the CFPB’s website.