On July 10, the CFPB announced proposed rules for mortgage servicers, aimed at helping homeowners avoid foreclosures. The new rules, which would modify RESPA and Regulation X's existing mortgage servicing framework, are designed to streamline the process for obtaining mortgage assistance, and incentivize servicers to prioritize borrower aid over foreclosure.
The current rules that govern mortgage servicing were developed in response to the severe spike in foreclosures following the 2008 financial crisis. These rules in many cases require adherence to more rigid timing requirements. For example, Regulation X requires borrowers to submit all required documents before a servicer can begin its review to pause foreclosure proceedings.
The proposed rules, which the Bureau foreshadowed in its Spring 2024 edition of Supervisory Highlights (discussed here), would relax some of those requirements and codify certain adjustments to the mortgage servicing rules made in response to the COVID-19 pandemic. For example, during the COVID-19 pandemic, the CFPB made temporary adjustments to the 2014 framework to allow borrowers to receive loss mitigation assistance without a comprehensive loan review.
Key changes the proposed rules would effectuate, include:
- Early Intervention Changes. Under the proposed rules, the Bureau seeks to enhance the requirements of 12 C.F.R. § 1024.39(e) by expanding the early intervention notification efforts for borrowers in forbearance. At least 30 days, but no more than 45 days, before the scheduled end of the forbearance, the proposed rule would require that the servicer establish, or make good faith efforts to establish, live contact with the borrower.
- Foreclosure Procedural Safeguards. The Bureau proposes to remove most of the existing application-based loss mitigation framework from § 1024.41 and replace it with a new framework based on foreclosure procedural safeguards. Once loss mitigation has begun, a servicer must ensure that one of the following procedural safeguards has been met before advancing to foreclosure: (1) the servicer has reviewed the borrower for all available loss mitigation options and no options remain, the borrower has been sent all required notices, and the borrower has not requested an appeal; or (2) the borrower has not communicated with the servicer for 90 days despite the servicer's efforts.
- Easier Loss Mitigation Application Process. The proposed rules amend 12 C.F.R. § 1024.41 and allow servicers flexibility in assessing loss mitigation efforts. The proposed rules state that servicers are not required to collect a complete loss mitigation application for all available options prior to making a determination about whether to deny or to offer a loss mitigation option to a borrower. As a result, a servicer may, but is not required to, review a borrower for loss mitigation options sequentially rather than simultaneously.
- Limit Fees. The proposed rules also aim to cap fees during a loss mitigation review cycle. A servicer cannot charge fees beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time.
- Improve Communication. The proposal would require enhanced and tailored notices to inform borrowers of available actions and options.
- Language Accessibility. Borrowers who received marketing materials in another language could request mortgage assistance communications in that language. The proposal would also require servicers to provide notices in Spanish in addition to English, and make oral interpretation services available during telephone calls with borrowers.
Comments on the proposed rules must be received by September 9. 2024.
Putting it into Practice: The proposed rules are the latest in the CFPB's efforts in the mortgage servicing realm. It released prior guidance in its April 2024 edition of Supervisory Highlights (previously discussed here). If finalized, the proposed rules would mark a significant shift in the mortgage servicing regulatory landscape. Mortgage servicers should continue to closely monitor this development, as compliance requirements may soon change.
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