On Wednesday, July 10, 2024, the Consumer Financial Protection Bureau (CFPB) released its long-awaited and much anticipated proposal to amend Regulation X. As expected, the proposal focuses primarily on default servicing requirements and would impose an entirely new framework for regulating how loss mitigation is handled in the mortgage servicing industry. Other topics are addressed in the proposal as well, including important provisions governing translations and services for borrowers with limited English proficiency (LEP), and a series of questions related to credit reporting and other servicing issues. We’ll explain in detail what the CFPB is proposing in each of these areas during our free webinar on Monday, July 15 at 12:30 p.m. ET.

What is in the proposal?

Below is a high-level overview of the proposed rule, broken down into three primary categories: Loss Mitigation, LEP, and Credit Reporting and Other Servicing Issues. The proposed implementation period for the loss mitigation requirements is 12 months and the proposed implementation period for the LEP requirements is 18 months.

1. Loss Mitigation
   • Eliminates the existing framework that is structured around receipt of a loss mitigation application
   • Introduces two newly defined phrases:
     • “Loss mitigation review cycle”
     • “Request for loss mitigation assistance”
   • Triggers certain protections upon a borrower’s “request for loss mitigation assistance”
     • Protections include fee suppression and a complete pause on all foreclosure activity
   • Requires that protections remain in place until either all possibilities for assistance have been exhausted or the borrower is non-responsive for at least 90 days
   • Requires that loss mitigation appeals be handled similar to notices of error under RESPA and expands the appeal rights to all loss mitigation determinations (instead of just denials of loan modification options)
   • Enhances certain notice obligations, including revised content for the early intervention notice, a new notice at the end of any forbearance period, and specific requirements when making a loss mitigation offer or when denying a borrower
2. LEP
   • Rather than include proposed regulatory text, the proposed rule outlines what the CFPB is contemplating regarding LEP requirements and is seeking comment on how best to structure its priorities in a future final rule
   • Mandates that, if a mortgage loan was marketed in a non-English language, the servicer make available translations or interpretations for that language
   • Requires that oral translation services on certain telephone calls with borrowers be made available upon request
   • Specified written notices must be provided in English and Spanish to all borrowers, and must be made available in at least five languages selected by the servicer
   • Servicers would have to inform borrowers of the availability of the translated written notices
3. Credit Reporting and Other Servicing Issues
   • Seeks public comments on credit reporting and numerous other servicing issues, including but not limited to, zombie mortgages and successors in interest

Fazit

The road to the proposed rule has been long and winding, starting nearly two years ago on September 22, 2022, when the CFPB issued a request for information on potential post-pandemic servicing reforms. That was followed by a June 15, 2023, blog post by CFPB director Rohit Chopra where he confirmed that the CFPB would evaluate the existing rules in light of lessons learned from the COVID-19 pandemic and identify opportunities to simplify and streamline the loss mitigation process. The proposed rule represents a recognition by the CFPB that the existing framework in Regulation X is in need of modernization.

While there is much work and analysis to be done before September 9, 2024, which is when comments are currently due, one question servicers and other market participants should consider is whether the proposed rulemaking goes too far and introduces new and unanticipated problems. Rather than make small adjustments to problem areas, the CFPB appears to have opted for a complete overhaul of the existing Regulation X framework, thereby putting the industry in the unenviable position of digesting these complex changes and identifying potential problems within a shortened comment period. 

The importance of the proposed rule is hard to understate. After more than a decade of dealing with the current framework, we now have an opportunity to help form the way loss mitigation works in the future. Join us on Monday, July 15 at 12:30 p.m. ET for a free webinar where we will explain what the CFPB is proposing. We’ll also provide our initial analysis of the proposed rule and set the stage for the upcoming comment period.

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