RSSThe Consumer Financial Protection Bureau proposed a rule last week that would make it harder for mortgage servicers to foreclose on borrowers.
Introduced July 10, the rule would only allow mortgage servicers to move toward a foreclosure “after all possibilities for assistance are exhausted or the borrower has stopped communicating with the servicer,” according to the CFPB. The proposal would limit the fees a servicer can issue a borrower while the servicer reviews assistance options, which the CFPB says is meant to create “incentives for servicers to act quickly and fairly when reviewing borrowers’ requests for help.”
The proposal also streamlines paperwork requirements, offering servicers more flexibility to review borrowers for each individual loan repayment option to enable faster assistance. “Studies show streamlined loan modifications with fewer paperwork requirements lead to more homeowners receiving modifications and ultimately staying in their homes,” according to the CFPB.
Mortgage servicers would be required to change late payment notices to include information about the loan investor and how to get more details about available assistance. Servicers would be required to provide updated notices in English and Spanish to all borrowers, and make available oral interpretation options in telephone calls with borrowers.
“The proposal, if finalized, would require mortgage servicers to focus on helping borrowers, not foreclosing, when a homeowner asks for help,” according to the CFPB.
The provisions would not apply to small servicers.
“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.”
Current mortgage servicing regulations took effect a decade ago in response to the collapse of the mortgage market in the late 2000s. According to the CFPB, current mortgage servicing rules “have rigid timing and other requirements that servicers must follow in all cases.”
Two years ago, the CFPB requested public feedback on improving protections for borrowers facing financial challenges. According to the bureau, respondents provided positive feedback on a temporary pandemic-era policy allowing borrowers to receive assistance without comprehensive review, even in a year-long payment pause or permanent change to loan terms.
The American Bankers Association and Mortgage Bankers Association support the proposal.
“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,” they wrote in a July 10 joint statement. “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.”
