The Consumer Financial Protection Bureau (CFPB) has proposed amendments to Regulation X to make it easier for homeowners to get help when they struggle to pay their mortgages. The proposed changes would streamline loss mitigation procedures, improve borrower-servicer communication, and enhance language access for borrowers with limited English proficiency.
“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.”
Foreclosure Procedural Safeguards and Fee Limits
Central to the CFPB’s proposal is a new “loss mitigation review cycle” framework. Once a borrower requests loss mitigation assistance, the cycle begins, and servicers are prohibited from initiating or advancing the foreclosure process or charging specific fees until the loan is brought current or certain procedural safeguards are met. This requirement is intended to stop dual tracking, where servicers pursue foreclosure while simultaneously working with the borrower on loss mitigation. It also aims to incentivize servicers to act quickly and fairly when reviewing borrowers’ requests for help.
Streamlined Process with Reduced Paperwork
The proposed rule would provide servicers more flexibility to review borrowers for loss mitigation options sequentially rather than simultaneously. This change eliminates the requirement that servicers obtain a complete application before offering assistance. “Studies show streamlined loan modifications with fewer paperwork requirements lead to more homeowners receiving modifications and ultimately staying in their homes,” the CFPB noted in its press release.
Improved Notices and Language Access
Servicers would be required to provide more tailored early intervention and determination notices, including additional information to help borrowers understand their options. For borrowers with limited English proficiency, the proposal would require servicers to provide specific notices in both English and Spanish, make available oral interpretation services, and provide translations upon request in the same language used to market the loan.
The CFPB’s proposal builds on its experience during the COVID-19 pandemic when it temporarily allowed streamlined assistance options. “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,” according to the Bureau.
Record Retention Clarified to Support Risk Management
The proposed rule also addresses the importance of record retention for effective risk management and regulatory compliance. The CFPB is proposing to amend 12 CFR 1024.38(c)(1) to say the requirement to retain records documenting actions taken on a borrower’s mortgage loan account includes “retention of records evidencing compliance with Regulation X.” This clarification is intended to emphasize that servicers must maintain documentation demonstrating adherence to all mortgage servicing rules, not just actions taken on individual loans. As the CFPB notes, this is already required, but the amendment addresses situations where servicers may interpret the requirement more narrowly.
Robust record retention is crucial for services, enabling them to review past actions, identify potential issues, and ensure regulatory compliance. It also supports the work of internal auditors and regulatory examiners. By clarifying this, the CFPB highlights the vital role of thorough record-keeping in effective risk management.
The proposed rule exempts small servicers from the new requirements. If finalized, the CFPB says these changes will help borrowers avoid foreclosure while providing servicers the flexibility to assist homeowners in need efficiently.
