The Consumer Financial Protection Bureau (CFPB) has proposed new rules to simplify the process for homeowners to get help when struggling to pay their mortgage.
“Streamlining Mortgage Servicing for Borrowers Experiencing Payment Difficulties,” 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. The CFPB is requesting comment about several other topics, including possible approaches it could take to ensure that mortgage servicers are furnishing accurate and consistent credit reporting information for borrowers undergoing review for assistance.
Current regulations governing mortgage servicing took effect in 2014, and were developed in response to the severe foreclosure crisis that saw 7.5 million homes lost to foreclosure between 2006 and 2014.
The new provisions would not apply to small servicers, and all existing requirements remain in effect until the effective date of a final rule.
Wading through loss mitigation
“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.”
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. The Bureau received a positive response about pandemic-related approaches to helping struggling borrowers. 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. Many commenters noted that both borrowers and servicers benefited from this departure from the 2014 regulatory framework and encouraged the CFPB to adopt permanently some aspects of those adjustments to the rule made during the COVID-19 pandemic.
Benefits to borrowers
If finalized, the CFPB’s “Streamlining Mortgage Servicing for Borrowers Experiencing Payment Difficulties” proposal 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: Currently, a servicer cannot evaluate whether a borrower is eligible for assistance without a completed application that includes all information needed to assess eligibility for all available options. Under the CFPB 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: “Streamlining Mortgage Servicing for Borrowers Experiencing Payment Difficulties” would require servicers to provide more tailored notices to borrowers, so they know what actions they can take. 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 that 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.
“We have long advocated for modernizing the loss mitigation framework under Regulation X and appreciate the Bureau’s efforts to simplify and streamline the process. Servicers have helped more than eight million families stay in their homes since the beginning of the COVID-19 pandemic while adapting to new and rapidly changing loss mitigation programs implemented by government agencies. 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,” said the American Bankers Association (ABA) and Mortgage Bankers Association (MBA) in a statement. “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.”
State of foreclosures in the U.S.
According to ATTOM’s May 2024 Foreclosure Market Report, there were a total of 32,621 U.S. properties with foreclosure filings during the month—default notices, scheduled auctions, or bank repossessions—up 3% from April 2024, but down 7% from a year ago.
Breaking things down further, the share of Fannie Mae and Freddie Mac (GSE) loans in forbearance declined one basis point from 0.12% to 0.11%. Ginnie Mae loans in forbearance dropped one basis point from 0.40% to 0.39%, and the forbearance share for portfolio loans and private-label securities (PLS) remained the same at 0.31%.
By reason, 71.1% of borrowers were in forbearance for reasons such as a temporary hardship caused by job loss, death, divorce, or disability, while 11.5% of borrowers were still in forbearance due to COVID-19-related instances.
By stage, 57.3% of total loans in forbearance in the initial forbearance plan stage, while 22.7% are in a forbearance extension. The remaining 20% are forbearance re-entries, including re-entries with extensions.
Total loans serviced that were current (not delinquent or in foreclosure) as a percentage of servicing portfolio volume (#) increased to 96.09% (on a non-seasonally adjusted basis) in April 2024, up 17 basis points from 95.92% in March 2024.
The CFPB encourages comments from the public and all interested stakeholders on “Streamlining Mortgage Servicing for Borrowers Experiencing Payment Difficulties” to be received by September 9, 2024.
