The Consumer Financial Protection Bureau (CFPB) has proposed new rules aimed at helping homeowners struggling to pay their home loans by adding greater flexibility and requiring mortgage servicers to focus on helping borrowers, not foreclosing, when a homeowner asks for help.
The shift, according to the CFPB, stems from input received from both the mortgage industry and from borrower advocates about the steps taken to help borrowers who were having financial trouble during the COVID-19 pandemic. The current regulations governing loan servicing were developed in response to the housing bubble and foreclosure crisis that plagued the housing market between 2006 and 2014; those rules include rigid requirements regarding timing and documentation.
That rigidity was relaxed somewhat in the COVID era to allow servicers to render quick, meaningful assistance to the large number of borrowers seeking help. The CFPB adjusted its rules then to temporarily let borrowers receive assistance without comprehensive review, even if it resulted in a yearlong payment pause or a permanent change in loan terms.
The CFPB received many positive comments about this approach when it asked the public in 2022 about how to improve protections for borrowers with financial hardships. Those comments encouraged the Bureau to permanently adopt some of those rule adjustments.
If adopted, the proposal would only allow servicers to move ahead with foreclosure if all other possibilities for assistance have been exhausted, or if the borrower has stopped communicating with the servicer. Part of that involves the improvement of communication between servicer and borrower, including requiring servicers to provide notices to borrowers that are clearer about what loss mitigation actions they could take and how to get information about available assistance. Under the proposal, any borrowers who received marketing materials in a language other than English could also request mortgage assistance communications in that same language, and servicers would also be mandated to make oral interpretation services available in telephone calls.
Additionally, the new proposal would limit the fees a servicer can charge a borrower while possible options to help the borrower are being reviewed. The limit is intended both to reduce further financial burden to the borrower and to incentivize servicers to act quickly and fairly when reviewing borrowers’ requests for assistance.
The proposal also aims to reduce delays by streamlining paperwork. Under the current rules, servicers can’t assess whether a borrower qualifies for assistance without a “complete application” that includes all the information needed to determine eligibility for every available option. While all-inclusive, requiring such an application can also delay assistance offers. Servicers would have more flexibility under the new proposal to review borrowers for each option individually to speed up the delivery of 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 Rohit Chopra, director of the CFPB, of the new proposal. “The CFPB’s proposal would reduce avoidable foreclosures and make the mortgage market more resilient during future crises.”
Small servicers would be exempt from the new provisions, the CFPB clarified. All existing requirements remain in effect until the effective date of a final rule.
