"This effort is well overdue," says housing council
The Consumer Financial Protection Bureau (CFPB) has proposed overhauling how mortgage servicers handle struggling borrowers to make it easier for homeowners to receive assistance and avoid foreclosure.
If implemented, the proposed changes would require mortgage servicers to prioritize helping borrowers rather than rushing to foreclose. The new rules will not apply to small servicers.
“When struggling homeowners can get the help they need without unnecessary obstacles, it is better for borrowers, servicers, and the economy as a whole,” said CFPB head Rohit Chopra. “The CFPB’s proposal would reduce avoidable foreclosures and make the mortgage market more resilient during future crises.”
CFPB’s proposed rules follow the bureau’s 2022 request for public input on how to better protect borrowers facing financial hardships.
Feedback from mortgage groups showed that a more flexible and straightforward approach would benefit both borrowers and servicers. This proposal builds on successful pandemic-era practices where temporary rule adjustments allowed for quicker assistance without comprehensive reviews.
What will change?
Key elements of the proposal include preventing servicers from moving forward with foreclosures before all assistance options are exhausted and limiting the fees that can be charged during this review process.
The proposal also aims to streamline paperwork requirements, allowing servicers to evaluate borrowers for assistance more quickly and efficiently. Improved communication is another focal point, with servicers required to provide more detailed and tailored notices to borrowers about their options and next steps.
Read more: CFPB unveils new servicing rules to prevent avoidable foreclosures
Additionally, the rules would mandate that essential information be available in both English and Spanish, with borrowers able to request communications in the language used in marketing materials they receive.
The mortgage servicing rules currently in place were established in 2014 in response to the foreclosure crisis that saw millions of homes lost between 2006 and 2014. These rules required borrowers to submit all necessary documentation before servicers could review their cases or pause foreclosure proceedings.
Industry reacts
Industry groups have responded positively to the CFPB’s proposal. The American Bankers Association (ABA) and Mortgage Bankers Association (MBA) issued a joint statement supporting the modernization of the loss mitigation framework.
The groups emphasized the importance of evolving servicing practices to better support struggling homeowners.
“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.
“Servicing practices to help struggling homeowners have evolved since 2014, and we support updates that inform borrowers of all their options in a clear and timely manner, remove unnecessary barriers, better prepare for future national emergencies, and ultimately facilitate seamless resolutions for those who need it.
“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 about Limited English Proficiency – to ensure any updated framework is operationally feasible and does not negatively affect consumers.”
The Housing Policy Council (HPC) also welcomed the proposed updates.
“This effort is well overdue,” the HPC stated, highlighting the need for the CFPB’s regulations to align with improvements made by government agencies and GSEs.
“The Housing Policy Council appreciates the CFPB’s announcement of proposed updates to the mortgage servicing regulations,” the trade association 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.”
The CFPB is inviting public comments on the proposed rules until September 9, 2024. The full proposal, “Streamlining Mortgage Servicing for Borrowers Experiencing Payment Difficulties,” is available for review, and stakeholders are encouraged to provide feedback.
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