CFPB Proposes New Default Servicing Rule
Written by: Heather Papows, Senior Loan Servicing & Secondary Market Consultant
Why This Matters: The CFPB’s proposed rulemaking on default management changes, although not directed at small servicers, has the potential to bring about industry-wide impacts.
This week, the CFPB released a proposal aimed at streamlining mortgage servicing for borrowers experiencing payment difficulties. Although the new proposed provisions would not apply to small servicers (primarily defined as servicers of 5,000 or fewer mortgage loans[1]), the changes, if finalized, would require larger servicers to focus on workout options for providing assistance, not foreclosing, when a homeowner asks for help, of which a ripple effect down to small servicers would likely still be felt.
The Reg X mortgage servicing rules framework currently in place for loss mitigation efforts dates to 2014 and is considered to have “rigid timing and other requirements”, such as requiring a complete borrower assistance application or similar package to be received before reviewing or pausing foreclosure proceedings. The CFPB recognized the potential in permanently adopting some aspects of the adjustments made through the COVID-19 pandemic, reducing paperwork and speeding up the turnaround time to providing default assistance, which was a driving force behind this rule.
Though some of the proposed changes may be accepted with open arms, there are certainly other aspects where the feasibility of implementation could cause significant challenges. Highlights of the proposed rule include:
Servicers would only be permitted to proceed with foreclosure once all workout options are exhausted, or if the borrower ceases to communicate with the servicer.
Servicers would have a limitation on fees that could be charged to a borrower while reviewing possible options to help that borrower.
Servicers would have more flexibility in reviewing workout options individually, even without a complete assistance application package.
Servicers would be required to adjust early intervention practices, providing more tailored notices to borrowers sooner after missing a payment that included pertinent information about the investor on their loan and how to find more information about available workout options.
Borrowers would be able to request mortgage assistance communications in other languages. Additionally, the servicer would be required to provide notices in English and Spanish to all borrowers and make available oral interpretation services for all phone communications.
Part of this proposed rule is still undecided, regarding possible approaches for servicers to furnish accurate and consistent information to credit bureaus on borrowers undergoing review for assistance; the result of which could be another huge overhaul for the industry.
The CFPB continues to accept public comment on the topic through September 9, 2024.
SCA remains committed to keeping you in-the-know on industry-relevant news and events. You can continue to follow this and other news regularly on our blog. Contact our Director, Bill Dolan, at WDolan@scapartnering.com or by phone at (617) 694-2617 with questions or comments. We love to hear from you!
[1] Small servicers defined in Regulation Z § 1026.41(e)(4)(ii)
