Industry Update
July 10, 2024

Source: Consumer Financial Protection Bureau

Proposed rules would require servicers to help homeowners before foreclosing, give servicers more flexibility by reducing paperwork requirements, and improve communication with homeowners

The Consumer Financial Protection Bureau (CFPB) today proposed new rules to make it easier for homeowners to get help when they are struggling to pay their mortgage. The proposal, if finalized, would require mortgage servicers to focus on helping borrowers, not foreclosing, when a homeowner asks for help. The proposed changes would also make it simpler for servicers to offer assistance by reducing paperwork requirements, improve communication with borrowers, and ensure critical information is provided in languages borrowers understand. The CFPB is requesting comment about several other topics, including possible approaches it could take to ensure servicers are furnishing accurate and consistent credit reporting information for borrowers undergoing review for 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 CFPB Director Rohit Chopra. “The CFPB’s proposal would reduce avoidable foreclosures and make the mortgage market more resilient during future crises.”

Mortgage servicers are the companies that handle the day-to-day management of mortgage loans. They collect monthly payments, maintain loan records, and importantly, help find options for homeowners who are struggling to make their payments. In general, the faster a servicer gets a borrower into one of these options, the smaller the losses for investors and the more likely foreclosure is avoided. These options can include temporarily pausing payments or extending the loan term to lower monthly payments.

The current regulations governing mortgage servicing took effect in 2014. They were developed in response to the severe foreclosure crisis that saw 7.5 million homes lost to foreclosure between 2006 and 2014. The rules have rigid timing and other requirements that servicers must follow in all cases. The rules also rely on borrowers submitting all their documents before the servicer begins its review or pauses foreclosure proceedings.

In 2022, the CFPB asked the public for input on improving protections for borrowers facing financial hardships. The CFPB heard  from both the mortgage industry and borrower advocates that a simpler, more flexible approach to mortgage assistance would be helpful.

In particular, the CFPB received a positive response about pandemic-related approaches to helping struggling borrowers. In order to allow servicers to quickly help the large number of borrowers seeking help during the pandemic, the CFPB adjusted its rules to permit, temporarily, borrowers to receive assistance without comprehensive review, even when the result was a year-long payment pause or a permanent change to the loan terms. 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 to the rule made during the COVID-19 pandemic.