CFPB Proposes New Rules to Help Homeowners Avoid Foreclosure

In July, The Consumer Financial Protection Bureau (CFPB) proposed new rule changes to amend sections of the Real Estate Settlement Procedures Act that govern loss mitigation procedures for mortgage loan servicers. The new regulations could go into effect in late 2025 or early 2026, if adopted without major delay. These changes could give mortgage loan servicers more flexibility to review borrowers for loss mitigation options to reduce fees during assistance reviews, simplify application processes and improve communication. The proposal builds on conclusions the CFPB made about rules changes temporarily implemented during the COVID-19 pandemic, which may have helped servicers support borrowers more quickly and flexibly. The CFPB is now seeking to make these practices, outlined below, permanent.

1. Prioritizing Assistance Over Foreclosure

   • Assistance Requirements and Fee Limitations: Under the proposed rules, mortgage loan servicers would be required to focus on providing assistance before initiating foreclosure proceedings if a borrower requests help. According to the proposal, the foreclosure process could not be advanced until all available loss mitigation options have been considered, and none remain or if the borrower has stopped communicating with the servicer for at least 90 days despite regular attempts made to communicate. Additionally, while under review for loss mitigation options, (the proposed rules will define this period as the “loss mitigation review cycle”) no fees beyond the amounts scheduled as if the borrower made all on-time payments shall be allowed to be charged.
   • Expected Impact: The CFPB reports these proposed changes are intended to encourage servicers to act swiftly and fairly, giving borrowers a better chance to keep their homes and reducing the emotional and financial toll of foreclosure. By limiting fees and setting conditions for foreclosure, the CFPB aims to promote a more balanced approach to mortgage servicing that prioritizes borrower support.

2. Streamlined Assistance and Reduced Paperwork

   • Simplifying Application Requirements: Currently, borrowers must submit a “complete” loss mitigation application requiring the submittal and receipt of all requested income, asset and other documentation before servicers are allowed to determine which loss mitigation options, if any, it will offer a borrower. The CFPB seeks to mitigate this bottleneck both by allowing servicers to review eligibility before a complete package has been received and by giving flexibility to review a borrower for loss mitigation options sequentially rather than simultaneously.
   • Expected Impact: By streamlining the review processes, the CFPB’s proposal aims to increase approved modifications and other workout options and to decrease preventable foreclosures.

3. Improved Communication and Language Accessibility

   • Enhanced Notices: To ensure borrowers are well-informed, the proposed rules would require servicers to issue clear, customized notices about available assistance options. These tailored notices would include information on steps borrowers can take to seek help, as well as details about their loan investors and available options if a payment is missed.
   • Language Support: The proposal aims to address language barriers by mandating that servicers provide information in both English and Spanish, with additional language support as needed. Oral interpretation services would be made available during calls, allowing borrowers to fully understand their options regardless of language preferences.
   • Expected Impact: According to the CFPB, improved communication and language support are expected to reduce misunderstandings and enable borrowers to act more quickly and confidently. Ensuring that all borrowers have access to information in their preferred language would help reduce unnecessary foreclosures among non-English-speaking borrowers and improve the overall borrower experience.

Looking Ahead

The comment period for these proposed rules ended on September 9, 2024. In general, the CFPB typically takes between 6 months and 18 months after the comment period to issue a final rule, but it can be quicker for less complex issues or longer for controversial or complex regulations. Once the CFPB finalizes the rule, it must be published in the Federal Register. 

As the CFPB synthesizes feedback from the public and stakeholders, these proposed rules represent a significant shift toward borrower-centered mortgage servicing. If finalized, these changes aim to make it easier for families to stay in their homes, improve communication and accessibility in borrower-servicer interactions, and reduce preventable foreclosures. By addressing barriers to assistance and enhancing transparency, the CFPB’s proposal seeks to support stability in the housing market while prioritizing protections for homeowners facing financial challenges.  

Note that the new provisions would not apply to small servicers. All existing requirements remain in effect until the effective date of a final rule.