Regulation X: Proposed CFPB Mortgage Servicing Rule Updates

Regulation X – RESPA Servicing Proposed Rule 

In the interest of knowing what is on the horizon, compliance officers and executives should monitor not only final rules and implementation dates but also proposals likely to affect their institutions. A great example of this was recently released by the Consumer Financial Protection Bureau (CFPB) for a proposal to update the Mortgage Servicing Rules. 

The last time Regulation X rules changed, you likely recall, was to address the impact of COVID. We saw the introduction of new forbearance obligations, modification programs, and temporary (though they probably felt permanent) changes to accommodate struggling borrowers. To some extent, regulators liked the effect of those rules and proposed changes to modify Regulation X going forward. The redlined version of Regulation X in this proposal removes the COVID-related language and replaces it with a new, streamlined loss mitigation process.  

How the Revamped Mortgage Servicing Rules Impact Servicers 

Small servicers will be largely unaffected by this proposal if finalized. The rule leaves in place small servicer exemptions for those institutions servicing 5,000 or fewer mortgages. However, if you are a small servicer and model your loss mitigation process on Regulation X, this proposal should still be on your radar. These changes should be considered as you evaluate the effectiveness of your loss mitigation process going forward.  

Proposed rules are subject to change, but compliance teams need to anticipate potential changes and provide feedback during the finalization process. That ability to influence the final rule is short-lived and should not be ignored if you have concerns. Be prepared to evaluate significant proposed Regulation X rules and establish a process at your institution to submit comments and recommended changes to reduce the impact of the rule. In the subsequent sections, we’ll discuss the suggested changes and how you can make your voice heard. 

Focus on Process: Revisions to the Loss Mitigation Application 

First, and probably the most significant, is changing the standard for when a lender can offer a solution on a loss mitigation request. You may recall that in Regulation X today, the lender must receive a “completed” loss mitigation application to render a decision. The COVID rules modified this, creating the ability to act on partial loss mitigation applications. Regulators noted the positive effect this had on avoiding foreclosures. So now, the bulk of the rules on complete versus incomplete applications will be removed. Some of the associated notice material will also be removed so that may be a slight paperwork reduction, though added content in other places may offset that gain.  

Overall, this means that if you start the loss mitigation process with a borrower under the new rules and haven’t received all the material to constitute a “complete” application in the old world, you could still offer them a loss mitigation option. It may pull more borrowers out of the foreclosure pipeline sooner, reducing the losses to all parties. 

In terms of the details of these changes, the setup and a lot of heavy lifting are being done by the deletion of a sentence that defines a loss mitigation application. It no longer requires the request to include “any information required by a servicer.” In fact, all references to a loss mitigation application are removed and replaced with the term’s loss mitigation request, request for loss mitigation assistance, or loss mitigation review cycle. This review cycle is a continuous period that starts when your borrower asks for help, so long as they make that request at least 37 days before a foreclosure sale. That cycle only ends when the loan becomes current, or the procedural safeguards are met. 

The Nitty Gritty: Changes to Required Information and Timeframes 

Early intervention requirements have been updated to require more information in the 45 days of delinquency notice. Required information includes the phone number to get a list of all loss mitigation options and a website address with a list of all loss mitigation options. So rather than an “if applicable” or “call us” approach, now you must proactively provide all possibilities to your delinquent borrower.  

Once the request has been reviewed and a decision made, the revised rule also requires a detailed notice. The provided notice must outline the specific reason(s) for the decision to either offer or deny the loss mitigation options in question. The elements of the notice will provide as explicit a list as possible of everything the borrower could need to know to proceed, including:  

• All the available options  
• Options that were offered and not taken  
• The key things requested that the borrower did not provide 
• Owner or assignees of a mortgage loan 
• Any loss mitigation offer of forbearance with detailed terms 
• Contact information and follow-up steps for your borrower to take  

If you as a servicer choose to be proactive and send out a loss mitigation offer based on your own records before the borrower contacts you, that notice also has requirements under the proposed rule. The notice must be in writing and include the determination made, the time period for accepting or rejecting the offer, and the loss mitigation options previously required under a borrower-initiated request.  

Servicers’ permitted timeframe to try to obtain information from a party other than the borrower or servicer in this process also changes from a “significant period” to at least 90 days. This mirrors other deadlines for response in the servicing rule, but here places an endpoint on the servicer’s efforts with third parties. After the 90-day mark when the servicer has heard nothing from those parties, then they can send a notice of denial. The notice must include all the detailed content listed previously as well as an additional 14-day window for the documents to be obtained and the servicer to complete its evaluation of the assistance request. 

New Rule Focuses on Process, Not Application Completion 

It is important to remember that this proposed rule is almost entirely process-based and is not focused on a completed application for loss mitigation assistance. That process focus means consumer protections against foreclosure will not evaporate without a “completed loss mitigation application,” as they mostly do now.  

A lender must review the borrower for all available loss mitigation options, as long as they request the assistance at least 37 days before foreclosure. However, if you can prove you met the procedural safeguards, you’re off the hook and can proceed to foreclosure without further outreach efforts. Those safeguards are either:  

• Option 1: There are no remaining loss mitigation options, meaning the servicer has notified the borrower of all available options using all the required language and has provided all necessary notices on denials. The borrower has not appealed the denial, or all appeals were denied. 
• Option 2: The borrower is non-responsive for at least 90 days following the servicer taking regular steps to reach them. 

Some folks may have mixed feelings about the procedural safeguards and move away from a “completed loss mitigation application” to continue the loan forward through the process. However, the intention is to not cut off avenues for resolution prematurely. The goal is to ensure that if the loan can be salvaged, it is.  

Disclosure Language Changes with CFPB Mortgage Servicing Rules 

One additional significant change, depending on your market area, is in the language access provision. Under the proposed rule, the CFPB would require Spanish translations of certain written communications to be provided to all borrowers. As someone based in a state with more French speakers than Spanish, I consider this one of the requirements ripe for comments from institutions that may have other predominant second languages in their market areas.  

The intention is to ensure greater access to early intervention and loss mitigation information for those with limited English proficiency. However, given the geographical and cultural variations across the United States, specifying one language for dual printing versus providing the area’s predominant second language seems short-sighted. This could also create further confusion for borrowers who do not understand either written language well.  

The CFPB acknowledges language variations requiring those borrowers who received marketing communications in a language other than English should also receive early intervention and loss mitigation communications in that same language. Yet even this requirement doesn’t mandate it for everyone who received such marketing, but only upon the borrower’s request. So, there may be room for change in the proposed rule to reduce potential borrower confusion and lessen the translation cost for the institution as documents may not apply to a particular market area.  

It is far too early to know if all the technical requirement changes will remain the same as we move from proposal to comments closed status and final rule. With that in mind, processes should not be drafted or changed until there is a final status on the proposed rule. In the meantime, the best steps to manage possible change include speaking up and ensuring regulators know how the proposal would impact the institutions they regulate.  

How to Submit Comments on Regulation X 

The modifications to Regulation X were posted on July 10, 2024.  

The comment period closes on September 9, 2024. That gives you several weeks to read through the proposal, consider its impact, and compose a response. Exclude proprietary, private, or confidential information in your response. Note that any comments submitted become part of the public record and disclosure process and the CFPB does not edit submitted comments before publication. 

To send your comments to the CFPB, use one of the following methods: 

• By email to [email protected]. Include Docket No. CFPB-2024- 0024 or RIN 3170-AB04 in the subject line of the message. 
• Through the federal rulemaking portal. Follow the instructions for submitting comments.  
• Physical delivery via mail or courier. Address your Comment Intake—Mortgage Servicing, c/o Legal Division Docket Manager, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. 

If you have any questions or concerns about preparing for this new proposal, we’re here for you. Learn how to tailor your particular servicing program by reaching out to our Regulatory Compliance team today!