As we predicted here, the Consumer Financial Protection Bureau (CFPB or Bureau) last week proposed new and, in some cases, streamlined rules governing what mortgage servicers must do after a borrower becomes delinquent. The proposed rules incorporate some pandemic-era practices, such as allowing servicers to offer assistance without a comprehensive review of the borrower’s financial situation. According to the CFPB, the new rules would require mortgage servicers to prioritize loss mitigation over foreclosing, reduce paperwork requirements, improve communication with borrowers, and ensure critical information is provided in the borrowers’ preferred language.

The proposed rule, if finalized, would amend various sections of Regulation X (12 CFR Part 1024) and introduce several significant changes, including:

• New Defined Terms:
  • A “loss mitigation review cycle” would begin if a borrower made a request for loss mitigation more than 37 days before a foreclosure sale. The review cycle would end either when the borrower became current or when the borrower had exhausted the foreclosure procedural safeguards described in the proposed rulemaking.
  • A “request for loss mitigation assistance” would be defined as any oral or written communication, occurring through any usual and customary channel for mortgage servicing communications, whereby a borrower asks a servicer for mortgage relief.
• Foreclosure Procedural Safeguards:
  • Under the proposed rule, once a loss mitigation review cycle begins, a servicer must ensure that one of the following procedural safeguards is met before beginning or advancing the foreclosure process:
    • The servicer has reviewed the borrower for all available loss mitigation options, the servicer has sent the borrower all notices required by the proposed rule, and either the borrower has not requested any appeal within the applicable time period or all of the borrower’s appeals have been denied; or
    • The borrower has not communicated with the servicer for at least 90 days despite the servicer having regularly taken steps to communicate with the borrower regarding the loss mitigation review.
  • Streamlined Loss Mitigation Procedures:
    • The CFPB proposes to streamline the loss mitigation procedures by removing most existing requirements regarding incomplete and complete loss mitigation applications.
    • Under the proposed framework, a servicer would not be required to collect a complete application prior to making a loss mitigation determination. Servicers would have the flexibility to review borrowers for loss mitigation options sequentially rather than simultaneously.
    • During a loss mitigation review cycle, servicers would be prohibited from charging certain fees to the borrower.
  • Early Intervention Changes:
    • The proposed rule would require servicers to provide additional information in written early intervention notices, including the name of the owner or assignee of the borrower’s mortgage loan and a brief description of each type of loss mitigation option available.
    • Servicers would be partially exempt from the live contact and early intervention requirements while a borrower is performing under a forbearance. New live contact and written notice requirements would be introduced when a borrower’s forbearance is nearing its scheduled end.
  • Loss Mitigation Determination Notices and Appeals:
    • Servicers would be required to provide loss mitigation determination notices and appeal rights to borrowers for all types of loss mitigation options (including forbearances, deferrals, and partial claims), not just loan modifications.
    • Determination notices would need to include key borrower-provided inputs that served as the basis for the loss mitigation determination; a telephone number, mailing address, and website, where the borrower can access a list of non-borrower provided inputs used by the servicer in making the loss mitigation determination; information that would enable a borrower to access a list of all loss mitigation options that may be available from the investor; and information about all other loss mitigation options that may remain available, previously offered options that the borrower did not accept, and whether any offered option will remain available if the borrower requests review for additional options prior to accepting or rejecting the offer.
  • Language Access:
    • The proposed rule would require servicers to provide Spanish-language translations of certain written communications to all borrowers.
    • Servicers would also be required to make certain written and oral communications available in multiple languages upon borrower request and include brief translated statements in certain written communications notifying borrowers of the availability of translations and interpretations.
    • Borrowers who received marketing for a loan in a language other than English would receive specific early intervention and loss mitigation communications in that same language upon request.
  • Consumer Reporting:
    • While no regulatory changes are proposed at this time, the CFPB is seeking comments on possible approaches to ensure servicers furnish accurate and consistent consumer reporting information for borrowers undergoing loss mitigation review.

The new rules would not apply to “small servicers,” generally meaning those that service 5,000 or fewer mortgages all of which the servicer or affiliates own or originated.

The Bureau is accepting public comments until September 9, 2024. The proposed rule, if finalized, would generally become effective 12 months after publication in the Federal Register, with language access requirements becoming effective 18 months after publication.