Looking forward to a post-financial crisis and post-HAMP mortgage marketplace, the CFPB has issued a document outlining principles intended to “provide a framework for discussion about the future of loss mitigation.”  The four principles discussed are Accessibility, Affordability, Sustainability, and Transparency.  This release by the CFPB echoes the principles discussed in the recent white paper issued by the Treasury, HUD, and the FHFA titled: “Guiding Principles for the Future of Loss Mitigation: How the Lessons Learned from the Financial Crisis can Influence the Path Forward.”

According to the document these principles build on, but are distinct from, the CFPB’s mortgage servicing rules, supervisory authority and enforcement authority.  The CFPB further notes that the document does not establish binding legal requirements, and is instead meant to “complement ongoing discussions among industry, consumer groups and policy makers on the development of loss mitigation programs.”  Notably, the document cautions that while the principles have applicability to most loss mitigation programs, certain recommendations may not align with government insured lending programs, such as those offered by FHA, VA, or Rural Housing Service.

Many of the principles are reflective of positions the CFPB has taken in the past, through guidance bulletins, supervisory highlights, or more specifically in the mortgage servicing rules.  Notably, however, certain of these principles are aimed at the terms of loss mitigation options made available to borrowers.  We note that the loss mitigation-related requirements under Regulation X give deference to the investor in terms of the loss mitigation options available.  Now, with HAMP’s expiration upcoming, it appears that the CFPB and other regulators will further seek to influence the types of loss mitigation options offered by private investors in terms of “affordability” and “sustainability.”

The principles provided in the document are set forth below.

Accessibility

• Consumers can easily obtain and use information about loss mitigation options and application procedures from their servicers.
• Consumers can submit a request for loss mitigation using a common and readily available form of application in order to expedite consideration and to better enable housing counselors and others to support consumers in the loss mitigation process.
• Consumers are asked to submit only documentation necessary to enable consideration for available options, and servicers make appropriate efforts to obtain and verify information within the servicer’s control.
• Consumers have ready access to individuals, including housing counselors and others, who can help them seek loss mitigation and understand the effect of the terms they are being offered.
• Consumers’ requests for loss mitigation assistance are responded to timely and effectively by servicers.
• Consumers have access to clear and effective escalation options.
• Consumers are considered for appropriate loss mitigation options from imminent default through late stages of delinquency.
• Consumers who are similarly situated receive fair and equal consideration for loss mitigation options within similar timeframes.
• Servicers should generally be aware of and consider how they will meet the needs of those with limited English proficiency.

Affordability

• When repayment plans and modifications are offered, they are generally designed to produce a payment and loan structure that is affordable for consumers.
• Modifications for consumers with hardships provide a meaningful payment reduction.
• Loss mitigation options are flexible enough to assist special populations (e.g., pre-crisis subprime loans) or unique circumstances (e.g., disasters).
• Consumers are not required to pay upfront costs or fees to obtain a loss mitigation option from their servicer.

Sustainability

• The loss mitigation option offered is designed to resolve the delinquency.
• Deficiency balances are not imposed on consumers experiencing hardship as a condition of a short sale or deed-in-lieu on their principal residence.
• When modification options are used, they are designed to provide affordability throughout the remaining or extended loan term.
• Where trial modifications are used, successful trials are converted to permanent modifications timely and efficiently.
• Servicers and investors should consider modification options that reduce principal when doing so may benefit the investor, unless prohibited by statute.
• Loss mitigation options are defined and made available for consumers who decline a loan modification offer.
• Loss mitigation options are available for borrowers who re-default.
• Loss mitigation outcomes are monitored by servicers and investors to determine their impact on re-default rates, and program terms are adjusted to achieve effective outcomes and respond to economic conditions

Transparency

• All terms (e.g., deferred interest, future rate or term changes, and repayment of forbearance amounts) are clearly described in a manner consumers can understand. Plain language should be used to the extent reasonably feasible.
• Key loss mitigation vocabulary, e.g., hardship, imminent default, streamlined modification, etc., and data standards are defined and used consistently by mortgage servicers and investors.
• Consumers get clear, concise information and rationales about loss mitigation decisions.
• Consumers are not required to sign broad waivers of rights as a condition of receiving loss mitigation assistance.
• Key loss mitigation data is reported publicly on a regular basis to ensure that loss mitigation programs are effectively meeting consumer and market needs.