On Thursday, September 22, 2022, the Consumer Financial Protection Bureau (CFPB) released a new information request (RFI) regarding mortgage services, potentially opening the door to much-needed regulatory reforms. The RFI focuses on refinancing applications and, more generally, on ways to rationalize short- and long-term loss mitigation options. It includes 37 specific requests, giving the public 60 days to submit comments and responses.
Regarding refinancing, the CFPB generally states that it is trying to “better understand what barriers may prevent consumers from accessing declining interest rates and what interventions could reduce these barriers, particularly for borrowers with lower loan balances”. On the forbearance and loss mitigation front, the CFPB acknowledges the success of many of the COVID-19 era loss mitigation programs that have been put in place and, therefore, “requests feedback on the actions he or others can take or should consider”. take to stimulate automatic and simplified short- and long-term loss mitigation offers for borrowers whose mortgages are affected by temporary financial difficulties more generally. Additionally, the RFI notes that the CFPB is seeking input on “the features of these COVID-era short and long-term loss mitigation programs that should be made available to borrowers more generally, and in particular , whether there are ways to automate and streamline the delivery of short- and long-term loss mitigation solutions.
This is an important opportunity for the mortgage services industry to provide feedback to the CFPB on ways to improve the regulatory framework in the future. Especially as many in the industry are now reflecting on what lessons can be learned from the pandemic, it is a clear signal that the CFPB is doing the same and that significant change may yet occur at some point. in the future. For example, the RFI implies that borrowers affected by natural disasters should be able to receive prompt and effective assistance, just like borrowers who have been affected by COVID-19 in the last 2.5 years. This is encouraging (although long overdue) and hopefully a sign that mortgage management rules will appear again in the CFPB’s published regulatory agenda in the near future.
Nonetheless, this RFI offers good reason for optimism and is the first formal opportunity for the industry to broadly comment on mortgage servicing rules since early 2015, despite some notable moves since then. We will continue to post specific thoughts in the coming weeks on the lessons we have seen from the pandemic and how the Regulation X Default Service Areas (Early Intervention, Continuity of Contact, Loss Mitigation) can be improved. We will also detail specific areas of the law that may merit some attention.
Generally speaking, however, the pandemic has shown us that consumers and industry can all benefit if the following principles are kept in mind:
The success of COVID-19 forbearance programs shows that when things are kept simple and straightforward, the industry can implement them consistently and accurately, and consumers can better understand what their rights are and what might be available. . This same concept should be translated into the regulatory framework for loss mitigation: cumbersome – albeit well-intentioned – procedural requirements can unnecessarily hamper the likelihood of achieving the desired outcome. For example, navigating what constitutes a loss mitigation application, when an application is considered “complete”, and how to manage retention and non-retention options can be so nuanced and complex that it can actually do more harm than good.
Requiring borrowers to submit complete applications before they can receive assistance is often too burdensome and may prevent some borrowers from getting the assistance they are entitled to. Prolonged document search processes with significant back and forth can increase chargebacks and lead to the accumulation of additional fees and charges, and can sometimes be too onerous for a struggling homeowner. Allowing service agents the flexibility to offer assistance quickly and based on minimal information has proven to be incredibly effective in transitioning borrowers from forbearance to more permanent solutions. Options such as deferral, partial claim, or simplified modification have been key to getting borrowers impacted by COVID-19 back on track with their mortgage payments.
This theme encompasses a few different ideas. First, consumers are not advantaged when the law is ambiguous. Although different companies should be allowed to implement an obligation in different ways, we should all be certain of what is required. Clear guidelines and rules are important to promote this much-needed consistency. Consistency also means ensuring that the law applies the same standard to similarly situated consumers. For example, why do we have COVID-19 specific exceptions to loss mitigation provisions, but nothing for borrowers affected by natural disasters? The inaction has likely hurt consumers affected by a natural disaster who should be able to benefit from the same exceptions and protections that the CFPB has instituted for borrowers affected by COVID-19. And finally, the industry deserves a regulatory framework where the entire federal government, including other agencies and GSEs, understands and agrees to what is required of repairers. It is unacceptable that there continue to be conflicts between what is expected by agencies and GSEs and the existing laws that should be the baseline.
© 2022 Bradley Arant Boult Cummings LLPNational Law Review, Volume XII, Number 265