CFPB proposes streamlining mortgage servicing for borrowers having difficulties

The CFPB yesterday announced proposed new rules to make it easier for homeowners to get help when they are struggling to pay their mortgage. The proposed amendments to Regulation X, if finalized, would require mortgage servicers to focus on helping borrowers, not foreclosing, when a homeowner asks for help. 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 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.

• Proposed rule
• Unofficial redline of the proposed Regulation X amendments
• Fast Facts about the proposal

The current regulations governing mortgage servicing took effect in 2014. The rules have rigid timing and other requirements that servicers must follow in all cases. The rules also rely on borrowers submitting all their documents before the servicer begins its review or pauses foreclosure proceedings. In 2022, the CFPB asked the public for input on improving protections for borrowers facing financial hardships. The CFPB heard from both the mortgage industry and borrower advocates that a simpler, more flexible approach to mortgage assistance would be helpful.

Yesterday's proposal, if finalized, would—

• Stop dual tracking and limit fees: The proposed rule would require servicers to try to help borrowers first, before foreclosing, when they request assistance. Servicers would generally only be allowed to move ahead with foreclosure after all possibilities for assistance are exhausted or the borrower has stopped communicating with the servicer. The proposal would also limit the fees a servicer can charge a borrower while the servicer is reviewing possible options to help the borrower.
• Reduce delays by streamlining paperwork requirements: Currently, a servicer cannot evaluate whether a borrower is eligible for assistance without a “complete application” that includes all information needed to assess eligibility for all available options. This can delay assistance offers, hurting both homeowners and servicers. Under the proposal, servicers would have more flexibility to review borrowers for each option individually, potentially enabling quicker assistance.
• Improve borrower-servicer communications: The proposed rule would require servicers to provide more tailored notices to borrowers, so they know what actions they can take if they want to. This includes changing the notices that borrowers get shortly after missing a payment to include information about who the loan investor is and how to get information about available assistance.
• Ensure borrowers receive critical information in languages they understand: Under the proposal, borrowers who received marketing materials in another language could request mortgage assistance communications in that same language. The proposed rule would also require servicers to provide the improved notices in both English and Spanish to all borrowers, as well as make available oral interpretation services in telephone calls with borrowers.

The new provisions would not apply to small servicers. All existing requirements remain in effect until the effective date of a final rule. Comments must be received by September 9, 2024.