CFPB Proposes New Foreclosure Servicing Rules

The Consumer Financial Protection Bureau proposed new servicing rules geared towards saving homeowners from foreclosure.

If finalized, the proposal would require mortgage servicers to prioritize helping borrowers make payments over foreclosure.

The Bureau is requesting comments on this topic and possible approaches to ensuring that servicers are producing accurate credit reporting data for borrowers undergoing review for assistance.

“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.”

The rules are influenced by commentary from both the public and the mortgage industry, which derived from the CFPB asking for input on improving protections for borrowers facing financial hardships in 2022.

The current regulations stem from the foreclosure crisis between 2006 and 2014, and the CFPB says they have “rigid timing” and burden homeowners by making them collect all necessary documentation upfront.

The new rules would stop dual tracking, with servicers only allowed to instigate a foreclosure after all assistance possibilities have been exhausted or if the borrower stops communicating with the servicer. They would also limit the fees a servicer can charge a borrower.

Servicers would also be required to provide borrowers with more “tailored” notices explaining their options to avoid foreclosure, as well as give them the opportunity to request mortgage assistance communications in their native language.

The American Bankers Association and Mortgage Bankers Association reacted with cautious optimism to the proposal.

“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… 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,” they wrote 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.”

Foreclosure activity was down in the first six months of 2024, but real estate data company ATTOM says further monitoring is necessary to determine if the sector is indeed stabilizing.

Donna Schmidt, owner and president of DLS Servicing, says inflation has affected the budgets of people who are holding mortgages.

“Excessive obligations have been the primary reason for mortgage default and while many of the streamlined loss mitigation options offer automatic payment relief, for some borrowers that relief is insufficient,” Schmidt said.

She added that some borrowers are repeatedly seeking loss mitigation assistance year after year as a means of coping with budget constraints.

“At some point, the assistance spigot gets turned off (either through the exhaustion of deferral allotments or limits on lifetime loan modifications/deferrals), then the mortgagor must face the fact that they cannot afford their home and their current lifestyle. A budget reckoning has finally occurred, and the only option for many will be to exit the property,” Schmidt said.

Fannie Mae has put out information about performing due diligence prior to considering foreclosure. Schmidt said this is timely, as it teaches servicers how to help mortgagors exit their mortgage obligations gracefully through a short sale.

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