Last Thursday, the CFPB announced in a blog post that it is considering revising its mortgage servicing rules. This development follows a request for information from the CFPB last fall seeking public input on, among other things, streamlined loss mitigation options. The CFPB’s current mortgage servicing rules were promulgated in the wake of the foreclosure crisis and took effect in 2014. Among other things, the rules create a framework for default servicing under which servicers must evaluate loss mitigation applications according to a prescribed process with deadlines and notice requirements. The COVID-19 pandemic put this loss mitigation framework to the test as the number of borrowers who had trouble paying their mortgages skyrocketed.
While the CFPB’s mortgage servicing rules have undoubtedly enhanced servicing in certain respects, the rules have been criticized as limiting the ability of servicers to be nimble and get help to borrowers quickly. For example, Regulation X generally prohibits servicers from offering loss mitigation to borrowers based on an evaluation of an incomplete loss mitigation application, instead requiring servicers to collect and then evaluate a complete loss mitigation application. This requirement is designed to ensure that the loss mitigation evaluation process is efficient and that borrowers are evaluated for all available loss mitigation options at the same time rather than being required to apply multiple times for different options. While these are worthy goals, they trade off with the ability of servicers to offer more streamlined options. Completing a loss mitigation application can be time-consuming, and this requirement may delay or even prevent a borrower’s entry into a loss mitigation program.
The Bureau amended the servicing rules twice during the pandemic to allow servicers to offer loss mitigation to borrowers based on an incomplete application. These amendments, however, were temporary and narrowly tailored to make it easier for servicers to offer particular types of loss mitigation to borrowers during the COVID-19 pandemic based on the specific options that were created by certain investors and governmental agencies. Borrowers could continue to benefit from the ability to obtain loss mitigation without submitting a complete loss mitigation application even after the pandemic has subsided and, importantly, in future economic downturns or unexpected events. Along these lines, the CFPB acknowledged in its blog post that “there were places where the rules could be revised to reduce unnecessary complexity.”
In addition to concerns about the complexity of the loss mitigation process, the CFPB stated that it has received public comments addressing servicing fees borrowers incur and negative credit reporting consequences borrowers experience while waiting for servicers to review their loss mitigation options. While it is not clear exactly how or when the CFPB will seek to amend the mortgage servicing rules, the CFPB indicated that it aims to “propose ways to simplify and streamline” them. The Bureau further stated that it continues to welcome petitions on potential amendments to the servicing rules. Stay tuned for additional updates on this topic.