On Wednesday, the Consumer Financial Protection Bureau (CFPB) announced a proposed rule that would require mortgage servicers to help homeowners before foreclosure.
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The proposal, if finalized, would also make it simpler for servicers to offer assistance by reducing paperwork requirements, improving communications with borrowers and ensuring information is provided in a language borrowers understand. The CFPB is requesting comments on the proposed rule, as on other topics, including possible approaches it could take to ensure servicers provide accurate and consistent reporting information about borrowers to credit reporting bureaus.
“When struggling homeowners can get the help they need without unnecessary obstacles, it is better for borrowers, servicers, and the economy as a whole,” CFPB Director Rohit Chopra said. “The CFPB’s proposal would reduce avoidable foreclosures and make the mortgage market more resilient during future crises.”
Currently, mortgage servicers must adhere to rigid timing and other requirements put in place in 2014 in response to the severe foreclosure crisis between 2006 and 2014. Those rules require borrowers submitting documents when they are struggling to make their payments and ask for help, and require the servicers to receive those documents before they can begin mortgage reviews or pauses foreclosure proceedings.
In 2022, the CFPB asked the public for input on improving protections for borrowers struggling to make their payments. After receiving feedback from both the mortgage industry and borrowers, the CFPB was urged to adopt stipulations put in place because of the COVID-19 pandemic.
The proposed rule would require servicers to help borrower first before foreclosing and only allow servicers to move forward with foreclosure after all possibilities for assistance are exhausted. Additionally, it would limit the fees a servicer can charge while the servicer is reviewing options to help the borrower. The proposed regulation would also streamline paper work requirements and improve borrower-servicer communications.
The CFPB said the new provisions would not apply to small servicers and that all of the existing requirements would remain in effect until the effective date of a final rule.