Preparing for the Proposed Regulation X Rule to Streamline Loss Mitigation-ICE’s Vicki Vidal
Vicki Vidal is Senior Regulatory Counsel at ICE Mortgage Technology. In this role, Vicki works with the servicing technologies and product innovation teams to review regulatory requirements and identify upcoming regulatory changes. Vicki also works with key federal agencies to help ICE respond to significant and frequent regulatory changes in the servicing arena. She provides regulatory expertise on a variety of laws and regulations that affect servicing.
Prior to joining ICE, Vicki was with the Mortgage Bankers Association for 23 years and was the Associate Vice President for Public Policy and Industry Relations. She was responsible for the trade association’s residential servicing policy and regulatory lobbying activities.
One thing that is constant in the mortgage industry is change, requiring lenders and servicers to remain agile in the face of new regulations. Adding to the significant changes in loss mitigation products and policies this year, the Consumer Financial Protection Bureau has published a proposed rule that revamps the current loss mitigation rules.
The CFPB’s Streamlining Mortgage Servicing for Borrowers Experiencing Payment Difficulties Notice of Proposed Rulemaking would amend various sections of Regulation X, 12 CFR Part 1024, to streamline loss mitigation, strengthen borrower protections and recognize current industry practices. The rule would also revise certain early intervention requirements, clarify error resolution provisions and require communication in languages other than English.
The most significant change proposed is to apply protections against foreclosure (and now certain fees) when the borrower requests loss mitigation assistance instead of when the servicer receives a complete loss mitigation application. The CFPB introduces the new concept of a loss mitigation review cycle that would grant these protections from the time the borrower requests loss mitigation assistance until the borrower becomes current or exhausts all the foreclosure procedural safeguards outlined.
While the proposed loss mitigation rule is under review with comments due on September 9, 2024, mortgage servicers can take this time to prepare their technology and operations for the potential changes. The impact of the proposed rule spans beyond the servicer’s loss mitigation team and will affect other areas that have contact with distressed borrowers. Servicers will need to adapt their processes and technology to meet the new requirements for capturing loss mitigation requests and communicating with the borrower.
Proposed Loss Mitigation Evaluation Processes
The CFPB is proposing to remove most of the existing application-based loss mitigation framework and replace it with the new concept of a loss mitigation review cycle for determining when the borrower protection period starts and ends. The loss mitigation review cycle would begin the moment a borrower requests loss mitigation assistance — regardless of whether they have completed a formal application. The cycle would end when the borrower becomes current, no available loss mitigation options remain and the borrower has not requested an appeal, all the borrower’s appeals have been denied, or the borrower has not communicated with the servicer for at least 90 days. During the loss mitigation review cycle, servicers would be prohibited from advancing a foreclosure action, including scheduling or completing a foreclosure sale, if a borrower requests loss mitigation assistance more than 37 days before the foreclosure sale.
Under the proposal, a request for loss mitigation assistance would mean any oral or written communication, occurring through any usual and customary channels for mortgage servicing communications. This would require anyone who has borrower contact to be educated about what it means to request assistance, how to capture the required information within the system and how to communicate within the servicing organization. Enhanced communication and data sharing using integrated servicing technology will be required to capture and share information about loss mitigation requests and cases across departments and with third-party services.
One of the operational impacts ICE has identified from the proposed rule is the need for cross-training between departments to prepare for the procedural changes. The clock would start ticking the moment a borrower mentions needing loss mitigation assistance, which could come through various channels and departments, including bankruptcy attorneys. It is essential that everyone is aware of their responsibilities and that integrated technology is in place to capture information, initiate the evaluation process, and facilitate communication both internally and with the borrower
Loss Mitigation Determination Notice Requirements
The proposal would remove specific timelines currently required for notices acknowledging receipt of an application and communicating results of the loss mitigation evaluation. Once a loss mitigation determination is made, servicers must provide borrowers with an expanded notice to cover both offers and denials of loss mitigation options evaluated.
In addition to information on the amount of time the borrower has to accept or to reject an offer and the borrower’s right to appeal, the determination notice requires the disclosure of specific reasons for, not only modification denial, but all loss mitigation offers and denials. The notice must include key borrower inputs used in the determination, along with information about all other loss mitigation options that are still available and previously offered options that the borrower did not accept but remain available. Borrowers must also be given a phone number, mailing address and website address to access non-borrower inputs that served as the basis for the loss mitigation determination and a phone number and website where the borrower can obtain a list of all loss mitigation options available and specific to the owner/investor of that loan.
The CFPB is looking for servicers to leverage technology to provide key pieces of information. If finalized, servicers should consider ways to leverage borrower portals for this highly customized loss mitigation information. To support servicers with implementing the final requirements, ICE will make enhancements to Servicing Digital, a borrower-centric application that can provide the status of a loss mitigation request and other data points
Selecting and Presenting Loss Mitigation Options
The proposed rule moves away from having to evaluate borrowers for all loss mitigation options concurrently in favor of permitting sequential reviews. Instead of requiring the collection of documents necessary to evaluate the borrower for all home retention and liquidation options, servicers can use a waterfall approach.
Automating the eligibility analysis with rules-based logic is one area that can save servicers time by helping them quickly determine which loss mitigation option is best for each borrower by weighing both borrower and non-borrower inputs in the decision. The proposed rule also requires capturing those determination inputs and providing that information to the borrower, which can be part of the automated process.
Appeals on Offers and Denials
Instead of just covering denials of modifications, the proposed rule allows the borrower to appeal both offers and denials of loss mitigation options within 14 days of getting the determination notice. The borrower might appeal a denial claiming the wrong information was used or could use the error resolution process in Reg X to effectuate this appeal, as clarified by the CFPB in the proposed rule. If an error resolution is requested, the servicer has 30 days to respond under the proposed rule. Servicers must consider the interplay of the loss mitigation appeals provision with the error resolution scope and timing.
Early Intervention Contact
To improve borrower awareness and communications, the proposed rule makes changes to early intervention contact requirements. The CFPB proposes to require investor-specific loss mitigation information in early intervention notices in lieu of generic loss mitigation descriptions. Furthermore, the CFPB is adding a new live contact and written notice requirement to inform borrowers 30-45 days prior to the end of their forbearance plans of the forbearance expiration date and available loss mitigation options. Also, the CFPB is removing the early intervention requirements if a borrower is performing under a forbearance plan. This will avoid confusion currently expressed by borrowers in forbearance.
Foreign Language
Probably the most controversial component of the proposed rule is the CFPB’s stated intent to implement foreign language requirements for loss mitigation. While not part of the proposed regulatory text, the CFPB proposes to require that servicers provide early intervention and loss mitigation written communications in Spanish and English and make available, upon request, translation services of certain written and oral communications in five other servicer-selected languages. Servicers would need to have real-time connections to oral translation services in those servicer-selected languages upon a borrower’s request. Also, the CFPB proposes that if the borrower was marketed in a foreign language at origination, and the servicer knows or should have known of such marketing, the servicer must provide translation services of certain written and oral communications to that borrower in that foreign language even if not one of the servicer-selected languages.
What Can Servicers do to Prepare for the Proposed Regulation X Rule?
While the CFPB’s Proposed Rulemaking is currently open for comment, it will have a significant effect on servicing operations once finalized. The proposed loss mitigation requirements represent a more informal process that does not require a full application to initiate loss mitigation activities like in the past.
The impact will span beyond the loss mitigation and default departments and require cross-training and data sharing with any area that could potentially receive a loss mitigation request from a borrower. Everyone needs to know what to do when borrowers make requests for assistance, how to capture their information, and how to communicate it properly.
Servicers will need to ensure they have the integrated technology and APIs in place to capture the loss mitigation request, share data and seamlessly communicate both internally and externally with the borrower and third parties. Automation can play a key role in helping servicers streamline eligibility analysis, rules-based decisioning, customized communication using data-driven templates, and compliance tracking. Personalized digital portals can provide the centralized repository required to provide easy access to highly customized loss mitigation information for each borrower.
At ICE, we are following the proposed rule closely to explore its potential impact on our servicing customers. We are already evaluating our core products’ existing features that support the proposed requirements as well as identifying potential product enhancements. Many of the new requirements can be simplified if servicers have the right processes and integrated technology in place – and there is time to look at your operations and prepare for this before the rule becomes final.
This article is intended for general informational purposes only and are not intended to provide legal and/or any other professional advice to any individual or entity. We urge you to consult with your legal and professional advisors before taking any action based on information appearing in this article.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
