CFPB Announces Plans To Streamline Mortgage Servicing Rules – Financial Services

Last Thursday, the CFPB announced in a blog post that it is considering revising its
mortgage servicing rules. This development follows a request for information from the CFPB last
fall seeking public input on, among other things, streamlined loss
mitigation options. The CFPB’s current mortgage servicing rules
were promulgated in the wake of the foreclosure crisis and took
effect in 2014. Among other things, the rules create a framework
for default servicing under which servicers must evaluate loss
mitigation applications according to a prescribed process with
deadlines and notice requirements. The COVID-19 pandemic put this
loss mitigation framework to the test as the number of borrowers
who had trouble paying their mortgages skyrocketed.

While the CFPB’s mortgage servicing rules have undoubtedly
enhanced servicing in certain respects, the rules have been
criticized as limiting the ability of servicers to be nimble and
get help to borrowers quickly. For example, Regulation X generally
prohibits servicers from offering loss mitigation to borrowers
based on an evaluation of an incomplete loss mitigation
application, instead requiring servicers to collect and then
evaluate a complete loss mitigation application. This requirement
is designed to ensure that the loss mitigation evaluation process
is efficient and that borrowers are evaluated for all available
loss mitigation options at the same time rather than being required
to apply multiple times for different options. While these are
worthy goals, they trade off with the ability of servicers to offer
more streamlined options. Completing a loss mitigation application
can be time-consuming, and this requirement may delay or even
prevent a borrower’s entry into a loss mitigation program.

The Bureau amended the servicing rules twice during the pandemic
to allow servicers to offer loss mitigation to borrowers based on
an incomplete application. These amendments, however, were
temporary and narrowly tailored to make it easier for servicers to
offer particular types of loss mitigation to borrowers during the
COVID-19 pandemic based on the specific options that were created
by certain investors and governmental agencies. Borrowers could
continue to benefit from the ability to obtain loss mitigation
without submitting a complete loss mitigation application even
after the pandemic has subsided and, importantly, in future
economic downturns or unexpected events. Along these lines, the
CFPB acknowledged in its blog post that “there were places
where the rules could be revised to reduce unnecessary
complexity.”

In addition to concerns about the complexity of the loss
mitigation process, the CFPB stated that it has received public
comments addressing servicing fees borrowers incur and negative
credit reporting consequences borrowers experience while waiting
for servicers to review their loss mitigation options. While it is
not clear exactly how or when the CFPB will seek to amend the
mortgage servicing rules, the CFPB indicated that it aims to
“propose ways to simplify and streamline” them. The
Bureau further stated that it continues to welcome petitions on potential amendments to the
servicing rules. Stay tuned for additional updates on this
topic.

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