CFPB Proposes Tightening Mortgage Servicer Foreclosure Requirements
The CFPB proposed amending mortgage servicing rules and the responsibilities owed to borrowers in times of stress.
The proposed amendments would:
- Add requirements for foreclosures and limit fees. Before pursuing foreclosure, a servicer would be required to "try to help borrowers" exhaust all available options. The amendments are intended to put an end to so-called "dual tracking." Servicers would also be limited in the fees they can charge to borrowers while reviewing the borrower's options.
- Reduce paperwork requirements. Borrowers would not be required to complete a full application before a servicer could review available options.
- Require tailored communications between servicers and borrowers. Servicers would be required to provide more tailored notices to borrowers.
- Reduce language barriers between servicers and borrowers. In certain communications, servicers must communicate with borrowers "in languages other than English."
In addition, the CFPB is soliciting public comment regarding possible approaches the agency "could take to ensure servicers are furnishing accurate and consistent credit reporting information for borrowers undergoing review" for assistance.
The proposed amendments exempt mortgage servicers who service less than 5,000 loans, provided that the loan was originated by, or is owned by, the servicer or an affiliate.
According to the CFPB, existing mortgage servicing requirements will remain in effect until the effective date of a final rule.
Comments are due by September 9, 2024.
Commentary
The issuance and substance of this proposed rule should not come as a surprise. The CFPB has been focused on all things servicing, such as consumer treatment and consumer experience–including in the mortgage sector–for some time.
In addition to enforcement actions involving mortgage servicers, the agency issued a report detailing borrower experiences with mortgage servicing during the pandemic. In 2022, the CFPB had solicited public input "on ways to improve mortgage refinances for homeowners who would benefit from refinancing, especially for borrowers with smaller loan balances," and "to support automatic short-term and long-term loss mitigation assistance for homeowners who experience financial disruptions." According to the CFPB, public input from both the mortgage industry and consumer advocates supported "a simpler, more flexible approach to mortgage assistance," and the CFPB received "a positive response about pandemic-related approaches to helping struggling borrowers." The CFPB adjusted its mortgage servicing rules during the pandemic to temporarily allow borrowers "to receive assistance without comprehensive review, even when the result was a year-long payment pause or a permanent change to the loan terms," and the CFPB stated that many commenters "encouraged the CFPB to adopt permanently some aspects of those adjustments to the rule made during the COVID-19 pandemic."
If the rule is finalized as proposed, it is likely the industry will face not only significant compliance costs, but also some potential financial impacts which would also extend to the secondary market.