CFPB Proposes Mortgage Servicing Changes

The Consumer Financial Protection Bureau yesterday proposed a set of rule changes it said are intended to help prevent “avoidable foreclosures” as emergency federal foreclosure protections expire.

The proposal seeks to ensure that both servicers and borrowers have the tools and time they need to work together to prevent avoidable foreclosures, “recognizing that the expected surge of borrowers exiting forbearance in the fall will put mortgage servicers under strain.”

“The nation has endured more than a year of a deadly pandemic and a punishing economic crisis.  We must not lose sight of the dangers so many consumers still face,” said CFPB Acting Director Dave Uejio. “Millions of families are at risk of losing their homes to foreclosure in the coming months, even as the country opens back up. Last week we warned that servicers need to be prepared for a high volume of borrowers exiting forbearance, and today we are proposing additional guardrails and tools for servicers as they navigate the coming months. We will do everything in our power to ensure servicers work with struggling families to find solutions that prevent avoidable foreclosures.”

The proposal, if finalized, would:

• Give borrowers time: The Bureau said the nearly three million borrowers behind on their mortgages should have a chance to explore ways to resume making payments and avoid foreclosure. To make sure borrowers aren’t rushed into foreclosure when a potentially unprecedented number of borrowers exit forbearance at around the same time this fall, the proposed rule would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 31. The CFPB is seeking public input on that date, as well as whether there are more limited ways to achieve the same purpose. For example, the CFPB is considering whether to permit earlier foreclosures if the servicer has taken certain steps to evaluate the borrower for loss mitigation or made efforts to contact an unresponsive borrower. This provision, like the rest of the proposal, would only apply to loans secured by a borrower’s principal residence.
• Give servicers options: The proposed rule would permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application. The Bureau said allowing this flexibility could allow servicers to get borrowers into an affordable mortgage payment faster, with less paperwork for both the servicer and the borrower. This provision would only be available for modifications that do not increase a borrower’s monthly payment and that extend the loan’s term by no more than 40 years from the modification’s effective date. 
• Keep borrowers informed of their options: The CFPB also proposes temporary changes to certain required servicer communications to make sure borrowers receive key information about their options at the appropriate time.

In a compliance bulletin issued last week, the CFPB warned mortgage servicers to dedicate resources and staff to prepare for a surge in requests for assistance. The CFPB said it will closely monitor how servicers engage with borrowers, respond to borrower requests and process applications for loss mitigation. The CFPB will consider a servicer’s “demonstrated effectiveness” in helping borrowers in addressing compliance issues that arise.

The Bureau requested comments be submitted before May 11.

Read the Notice of Proposed Rulemaking issued today.

Read a Fast Facts summary of the Notice of Proposed Rulemaking.