On July 10, the CFPB released proposed rules for mortgage servicers aimed at helping homeowners avoid foreclosure. The new rules, which amend the existing mortgage servicing framework in RESPA and Regulation X, are intended to streamline the process of obtaining mortgage assistance and encourage servicers to prioritize assisting borrowers over foreclosures.
Current mortgage servicing rules were developed in response to the surge in foreclosures following the 2008 financial crisis. These rules often impose stricter timing requirements. For example, Regulation X requires borrowers to submit all required documentation before a servicing company can begin a review to suspend foreclosure proceedings.
The proposed rule, which the Bureau previewed in its Spring 2024 Supervisory Highlights edition (discussed here), would relax some of these requirements and codify certain adjustments to mortgage servicing rules made in response to the COVID-19 pandemic. For example, during the COVID-19 pandemic, the CFPB made temporary adjustments to its 2014 framework to allow borrowers to receive loss mitigation assistance without a comprehensive loan review.
The key changes effected by the proposed rule are:
Early Intervention Changes. In the proposed rule, the Bureau seeks to strengthen the requirements of 12 CFR § 1024.39(e) by expanding early intervention notification efforts for borrowers in forbearance. The proposed rule would require servicers to directly contact or make good faith efforts to contact borrowers at least 30 days, but no less than 45 days, prior to the scheduled end date of forbearance. 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, servicers must ensure that one of the following procedural safeguards is met before proceeding with foreclosure: (1) the servicer has reviewed the borrower for all available loss mitigation options and no options remain, all required notices have been sent to the borrower, and the borrower has not filed an appeal, or (2) despite the servicer's efforts, the borrower has not contacted the servicer for 90 days. Streamlining the loss mitigation application process. The proposed rule would amend 12 CFR § 1024.41 to allow servicers flexibility in evaluating loss mitigation efforts. The proposed rule provides that servicers are not required to collect complete loss mitigation applications for all available options before deciding whether to deny or offer a loss mitigation option to a borrower. As a result, servicers may review a borrower's loss mitigation options sequentially rather than simultaneously, but are not required to do so. Fee limitations. The proposed rule also seeks to cap fees during a loss mitigation review cycle. Servicers may not charge fees in excess of the amount scheduled or calculated assuming the borrower made all contractual payments on time. Improved communication. The proposal would require enhanced and customized notifications to inform borrowers of available actions and options. Language accessibility. Borrowers who receive marketing materials in another language could request mortgage assistance communications in that language. The proposal would also require servicers to provide notifications in Spanish in addition to English and to make oral interpretation services available during phone calls with borrowers.
Comments on the proposed rule must be received by September 9, 2024.
In Practice: The proposed rule is the latest in the CFPB's efforts in the mortgage servicing space. The CFPB issued previous guidance in its April 2024 Supervisory Highlights (previously discussed here). If finalized, the proposed rule would represent a significant change to the mortgage servicing regulatory environment. Mortgage servicing companies should continue to monitor developments closely, as compliance requirements could change quickly.