CFPB Proposes to Amend Loss Mitigation Servicing Rules

The CFPB issued proposed amendments to its rules governing how mortgage servicers must conduct the loss mitigation process while also creating additional requirements before a servicer may initiate foreclosure.

The CFPB’s existing rules under Regulation X require mortgage servicers to undertake various steps as part of the loss mitigation process, with a focus on requiring servicers to meet certain minimum communication standards with delinquent borrowers and on obtaining a “complete” loss mitigation application from a borrower before making a decision on what loss mitigation options it may offer to the borrower.  In turn, most foreclosure protections under the existing rules only apply after the servicer receives a complete loss mitigation application.

Under the new proposed rule, if the servicer receives a request from a borrower for loss mitigation more than 37 days before a scheduled foreclosure sale, the rule’s foreclosure protections automatically come into effect, and the servicer cannot advance the foreclosure process until one of two conditions are met—either: 1) the servicer has reviewed the borrower for all available loss mitigation options and no other options remain, the servicer has sent the borrower all notices required under the proposed rule, and the borrower has not requested an appeal of the loss mitigation decisions or all such appeals have been denied; or 2) the borrower has not communicated with the servicer for at least 90 days despite the servicer having regularly attempted to communicate with the borrower about the loss mitigation process.

The proposed rule also changes other aspects of the loss mitigation process, including:

• Allowing the servicer to consider loss mitigation options before receiving a complete loss mitigation application, and allowing the servicer to consider different loss mitigation options sequentially instead of having to decide on all simultaneously;
• Prohibiting the servicer from charging the borrower any fees other than those which would normally be charged if the borrower was making all payments in full and on time;
• Providing the borrower with specific notices throughout the loss mitigation process, including on account information and account status, early intervention options, determinations on loss mitigation options and the basis for the determinations, and the forbearance process;
• Expanding protections with respect to error resolution processes and appeals related to loss mitigation; and
• Requiring that certain written communications related to loss mitigation be provided in both English and Spanish and that servicers provide written translations and interpreter services for other common languages upon borrower request (including any language which was used for pre-origination marketing to the borrower).

The CFPB also requested comment on issues regarding how information related to loss mitigation is provided to credit reporting agencies, processes related to second mortgages (referred to by the CFPB as “zombie mortgages”), keeping borrowers informed on accrued and deferred payment amounts, treatment of successors in interest on a mortgage, and interplay with state laws on mortgage servicing.

The proposed rule would not apply to certain smaller servicers who service 5,000 or fewer loans that they own or originated.  Most aspects of the rule would go into effect 12 months after the final rule is published, except that the requirements related to language access and translation would go into effect after 18 months.

Comments on the proposed rule and the other issues raised by the agency are due by September 9, 2024.