CFPB Proposes Foreclosure Rules for Owners

WASHINGTON -- The Consumer Financial Protection Bureau (CFPB) proposed new rules to make it easier for homeowners to get help when they are struggling to pay their mortgage. The proposal, 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. Comments on the proposed rule are being accepted until September 9, 2024.The CFPB is also requesting comments 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.

The American Bankers Association (ABA) and Mortgage Bankers Association (MBA) issued a joint statement praising the proposed changes,

“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 statement said. “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 pertaining to Limited English Proficiency – to ensure any updated framework is operationally feasible and does not negatively affect consumers.”

Mortgage servicers are the companies that handle the day-to-day management of mortgage loans, the CFPB said.  The companies collect monthly payments, maintain loan records, and help find options for homeowners who are struggling to make their payments. In general, the faster a servicer gets a borrower into one of these options, the smaller the losses for investors and the more likely foreclosure is avoided. These options can include temporarily pausing payments or extending the loan term to lower monthly payments.

The current regulations governing mortgage servicing took effect in 2014. They were developed in response to the severe foreclosure crisis that saw 7.5 million homes lost to foreclosure between 2006 and 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.

In order to allow servicers to quickly help the large number of borrowers seeking help during the pandemic, the CFPB adjusted its rules to permit, temporarily, 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

If the new proposal is finalized, it 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. This is intended to create strong incentives for servicers to act quickly and fairly when reviewing borrowers' requests for help.

• 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. Studies show streamlined loan modifications with fewer paperwork requirements lead to more homeowners receiving modifications and ultimately staying in their homes.

• 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.

"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 Director Rohit Chopra. "The CFPB's proposal would reduce avoidable foreclosures and make the mortgage market more resilient during future crises."

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