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Proposed Rule2024-15475

Streamlining Mortgage Servicing for Borrowers Experiencing Payment Difficulties; Regulation X

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Published

July 24, 2024

Issuing agencies

Consumer Financial Protection Bureau

Abstract

The Consumer Financial Protection Bureau (Bureau or CFPB) is proposing a rule that would amend regulations originally issued in 2013 regarding the responsibilities of mortgage servicers. The proposed amendments would streamline existing requirements when borrowers seek payment assistance in times of distress, add safeguards when borrowers seek help, and revise existing requirements with respect to borrower assistance. The proposed rule would also require servicers to provide certain communications in languages other than English, such as when a borrower is seeking payment assistance with their mortgage. The proposed rule, if finalized, would increase the likelihood that investors and borrowers can avert the costs of avoidable foreclosure.

Full Text

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<title>Federal Register, Volume 89 Issue 142 (Wednesday, July 24, 2024)</title>
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[Federal Register Volume 89, Number 142 (Wednesday, July 24, 2024)]
[Proposed Rules]
[Pages 60204-60254]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-15475]

[[Page 60203]]

Vol. 89

Wednesday,

No. 142

July 24, 2024

Part IV

Consumer Financial Protection Bureau

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12 CFR Part 1024

Streamlining Mortgage Servicing for Borrowers Experiencing Payment
Difficulties; Regulation X; Proposed Rule

Federal Register / Vol. 89 , No. 142 / Wednesday, July 24, 2024 /
Proposed Rules

[[Page 60204]]

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CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1024

[Docket No. CFPB-2024-0024]
RIN 3170-AB04

Streamlining Mortgage Servicing for Borrowers Experiencing
Payment Difficulties; Regulation X

AGENCY: Consumer Financial Protection Bureau.

ACTION: Proposed rule; request for public comment.

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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) is
proposing a rule that would amend regulations originally issued in 2013
regarding the responsibilities of mortgage servicers. The proposed
amendments would streamline existing requirements when borrowers seek
payment assistance in times of distress, add safeguards when borrowers
seek help, and revise existing requirements with respect to borrower
assistance. The proposed rule would also require servicers to provide
certain communications in languages other than English, such as when a
borrower is seeking payment assistance with their mortgage. The
proposed rule, if finalized, would increase the likelihood that
investors and borrowers can avert the costs of avoidable foreclosure.

DATES: Comments must be received on or before September 9, 2024.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2024-
0024 or RIN 3170-AB04, by any of the following methods:
<bullet> Federal Rulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Follow the instructions for submitting comments. A brief summary of
this document will be available at <a href="https://www.regulations.gov/docket/CFPB-2024-0024">https://www.regulations.gov/docket/CFPB-2024-0024</a>.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#ccfefcfef8e1829c9e81e181a3beb8abadaba99fa9bebaa5afa5a2ab8cafaabcaee2aba3ba"><span class="__cf_email__" data-cfemail="f4c6c4c6c0d9baa4a6b9d9b99b868093959391a79186829d979d9a93b497928496da939b82">[email&#160;protected]</span></a>. Include
Docket No. CFPB-2024-0024 or RIN 3170-AB04 in the subject line of the
message.
<bullet> Mail/Hand Delivery/Courier: Comment Intake--Mortgage
Servicing, c/o Legal Division Docket Manager, Consumer Financial
Protection Bureau, 1700 G Street NW, Washington, DC 20552.
Instructions: The CFPB encourages the early submission of comments.
All submissions should include the agency name and docket number or
Regulatory Information Number (RIN) for this rulemaking. Because paper
mail is subject to delay, commenters are encouraged to submit comments
electronically. In general, all comments received will be posted
without change to <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
All submissions, including attachments and other supporting
materials, will become part of the public record and subject to public
disclosure. Proprietary information or sensitive personal information,
such as account numbers or Social Security numbers, or names of other
individuals, should not be included. Submissions will not be edited to
remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory
Implementation and Guidance Program Analyst, Office of Regulations, at
202-435-7700 or <a href="https://reginquiries.consumerfinance.gov/">https://reginquiries.consumerfinance.gov/</a>. If you
require this document in an alternative electronic format, please
contact <a href="/cdn-cgi/l/email-protection#53101503110c1230303620203a313a3f3a272a13303523317d343c25"><span class="__cf_email__" data-cfemail="3e7d786e7c617f5d5d5b4d4d575c5752574a477e5d584e5c10595148">[email&#160;protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Summary
A. Goals of the Rulemaking
B. Key Changes
II. Background
A. Mortgage Servicing During the Foreclosure Crisis
B. Early Standardization Efforts
C. CFPB's 2013 Mortgage Servicing Final Rule Aimed To Address
the Challenges Previously Observed Prior to and During the
Foreclosure Crisis
D. Streamlined Modifications and Other Borrower Protections
Emerge
E. Loss Mitigation During the COVID-19 Pandemic
F. Amendments to the Mortgage Servicing Rules
III. Legal Authority
A. RESPA
B. Dodd-Frank Act
IV. Discussion of the Proposed Rule
A. Foreclosure Procedural Safeguards (Sec. 1024.41)
B. Changes to Early Intervention Requirements (Sec. 1024.39)
C. Loss Mitigation Determinations--Covered Errors and Appeals
Process (Sec. Sec. 1024.35 and 1024.41)
D. Language Access
E. Credit Reporting Protections for Borrowers Undergoing Loss
Mitigation Review
F. Record Retention (Sec. 1024.38)
G. Removal of Regulations Implemented in Response to the COVID-
19 Pandemic
H. Other Conforming Changes
I. Other Servicing Issues-Requests for Comment
V. Proposed Effective and Compliance Dates
VI. CFPA Section 1022(b) Analysis
A. Data Limitations and Quantification of Benefits, Costs, and
Impacts
B. Small Servicer Exemption
C. Baseline for Analysis
D. Potential Benefits and Costs to Consumers and Covered Persons
of the Proposed Rule
E. Potential Specific Impacts of the Proposed Rule on Insured
Depository Institutions and Credit Unions with $10 Billion or Less
in Total Assets, As Described in CFPA Section 1026
F. Potential Specific Impacts of the Proposed Rule on Consumer
Access to Credit
G. Potential Specific Impacts of the Proposed Rule on Consumers
in Rural Areas
VII. Regulatory Flexibility Act Analysis
A. Application of the Proposed Rule to Small Entities
B. Certification
VIII. Paperwork Reduction Act
IX. Request for Comments
X. Severability

Abbreviations and Acronyms

The following abbreviations and acronyms are used in this proposed
rule:

ACS = American Community Survey
AFR = Americans for Financial Reform
ASMB = American Survey of Mortgage Bankers
CARES Act = Coronavirus Aid, Relief, and Economic Security Act
CDIA = Consumer Data Industry Association
CFPA = Consumer Financial Protection Act
CFPB = Consumer Financial Protection Bureau
CPI-U = Consumer Price Index for All Urban Consumers
CRA = Credit Reporting Agency
DI = Depository Institution
FAQ = Frequently Asked Question
FHA = Federal Housing Administration
FHFA = Federal Housing Finance Agency
FRFA = Final Regulatory Flexibility Analysis
FSOC = Financial Stability Oversight Committee
GSE = Government-Sponsored Enterprise
HAMP = Home Affordable Modification Program
HHS = United States Department of Health and Human Services
HUD = United States Department of Housing and Urban Development
ICE = Intercontinental Exchange, Inc.
ICR = Information Collection Request
IRFA = Initial Regulatory Flexibility Analysis
MBA = Mortgage Bankers Association
MHA = Making Home Affordable
NAICS = North American Industry Classification System
NCLC = National Consumer Law Center
NMDB = National Mortgage Database Program
Non-DI = Non-Depository Institution
OCC = Office of the Comptroller of the Currency
OMB = Office of Management and Budget
PRA = Paperwork Reduction Act
RESPA = Real Estate Settlement Procedures Act
RFA = Regulatory Flexibility Act
RFI = Request for Information
SBA = Small Business Administration
SIGTARP = Office of the Special Inspector General for the Troubled
Asset Relief Program

[[Page 60205]]

TILA = Truth in Lending Act
URLA = Uniform Residential Loan Application
USDA = United States Department of Agriculture
VA = United States Department of Veterans Affairs

I. Summary

A. Goals of the Rulemaking

Mortgage servicers handle the day-to-day management of mortgage
loans and work with borrowers when they need help making their
payments. Poor default servicing of home mortgages can have serious
repercussions for both individual borrowers and the larger economy. The
foreclosure crisis that began in 2007 demonstrated the risks. Leading
up to that crisis, servicers did not have robust default servicing
practices and generally lacked accountability when they failed to
address borrower needs. Between July 2007 and August 2009,
approximately 1.8 million homeowners lost their homes to foreclosure
while another 5.2 million homeowners faced foreclosure initiation.\1\
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\1\ Cong. Oversight Panel, October Oversight Report: An
Assessment of Foreclosure Mitigation Efforts After Six Months, at 1
(Oct. 9, 2009), <a href="https://www.congress.gov/111/cprt/JPRT52671/CPRT-111JPRT52671.pdf">https://www.congress.gov/111/cprt/JPRT52671/CPRT-111JPRT52671.pdf</a> (Oversight Panel Report). The impact of poor
default servicing led to a decline in overall economic activity.
John Weinberg, Fed. Rsrv. Bank of Richmond, Federal Reserve History:
The Great Recession and Its Aftermath, <a href="https://www.federalreservehistory.org/essays/great-recession-and-its-aftermath">https://www.federalreservehistory.org/essays/great-recession-and-its-aftermath</a> (written as of Nov. 22, 2013) (FRH Essay).
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In 2013, the CFPB finalized comprehensive mortgage servicing rules
in response to these widespread servicing failures.\2\ In the decade
since, the market has changed, and servicing practices in the event of
borrower default have further changed. Investors have increasingly
required use of loss mitigation options that require little or no
documentation. Streamlined loss mitigation options can improve overall
profitability for investors by reducing servicer costs, increasing the
rate at which borrowers resume making payments, and reducing
foreclosures, which are often costly for investors. Streamlined loss
mitigation options can also help borrowers to get help faster and free
servicer resources for borrowers who need greater assistance.
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\2\ The Consumer Financial Protection Bureau (CFPB) has made
several amendments to the mortgage servicing rules in the
intervening years. See part II.F for a discussion of amendments made
after the 2013 Mortgage Servicing Rule was issued.
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The COVID-19 pandemic demonstrated that approaches to loss
mitigation not contemplated in the 2013 Mortgage Servicing Final Rule
could be successful and necessary for borrowers, servicers, and
investors. During the COVID-19 pandemic, large numbers of borrowers
were placed in long-term forbearance, with the vast majority
successfully resuming payments. Additionally, macroeconomic factors,
such as shifts in interest rates, require new approaches to default
servicing practices. Loss mitigation approaches that were successful in
the wake of the foreclosure crisis, such as reducing the interest rate
to the current market rate in order to lower payments, are
significantly less successful under current market conditions.
The changes in default servicing and market conditions have
highlighted several areas where the prescriptive rules that the CFPB
initially put in place may no longer be optimally effective for
borrowers or servicers, and where more flexibility is needed in order
to respond to future changes in the macroeconomic environment. Thus,
the CFPB is proposing to remove certain prescriptive requirements from
the existing rules. At the same time, the CFPB recognizes the
continuing need to protect borrowers from harms such as unnecessary
fees and avoidable foreclosures that can occur due to default mortgage
servicing failures. Therefore, the CFPB is also proposing certain new
procedural safeguards designed to protect borrowers from these harms
while creating strong incentives for servicers to review borrowers for
loss mitigation assistance quickly and accurately.

B. Key Changes

To achieve these goals, the CFPB is proposing and seeking comment
on several topics, including four key groups of changes related to
assisting borrowers during loss mitigation and early intervention, as
well as seeking comment on a fifth key issue related to credit
reporting. None of the proposed new requirements would apply to small
servicers (as defined in Regulation Z Sec. 1026.41(e)(4)(ii)).)).
1. Streamlined loss mitigation procedures and foreclosure
procedural safeguards. The CFPB is proposing to streamline and simplify
Regulation X's loss mitigation procedures by removing most of the
existing requirements regarding incomplete and complete loss mitigation
applications and replacing them with a new framework based on
foreclosure procedural safeguards. Currently, a servicer generally must
collect a complete loss mitigation application for all available
options before making a determination about what loss mitigation
options, if any, it will offer a borrower, and a borrower's foreclosure
protections against initiation and sale are largely based on whether
and when the borrower has submitted a complete loss mitigation
application. Under the proposed framework, a servicer would not be
required to collect a complete application prior to making a loss
mitigation determination and would have flexibility to review a
borrower for loss mitigation options sequentially rather than
simultaneously, although a simultaneous review would be permitted.
Under the proposed framework, once a borrower makes a request for loss
mitigation assistance, the loss mitigation review cycle begins. It
continues until either the borrower's loan is brought current or one of
the following foreclosure procedural safeguards is met: 1) the servicer
reviews the borrower for all available loss mitigation options and no
available options remain, or 2) the borrower remains unresponsive for a
specified period of time despite the servicer regularly taking steps to
reach the borrower. During a loss mitigation review cycle, the servicer
may not begin or advance the foreclosure process and borrowers would
also be protected against the accrual of certain fees.
The CFPB is also proposing to remove currently required loss
mitigation notices that would no longer be necessary under the new
proposed framework, such as those notifying a borrower about whether a
loss mitigation application is complete or incomplete.
2. Early intervention changes. The CFPB is proposing to require
servicers to provide certain additional information in written early
intervention notices, including, among other things, the name of the
owner or assignee of the borrower's mortgage loan, a brief description
of each type of loss mitigation option that is generally available from
that owner or assignee, as well as a website to access a list of all
loss mitigation options that may be available from that owner or
assignee. The CFPB is also proposing a partial exemption for servicers
from early intervention requirements while a borrower is performing
under a forbearance, new live contact and written notice requirements
when a borrower's forbearance is nearing its scheduled end, and timing
for resuming compliance with early intervention when a borrower's
forbearance ends.
3. Loss mitigation determination notices and appeals. The CFPB is
proposing to require that servicers provide loss mitigation
determination notices and appeal rights to borrowers regarding all
types of loss mitigation options, instead of just loan modifications,
and for offers as well as denials. The CFPB also is proposing to

[[Page 60206]]

require servicers to include certain additional information in
determination notices, including the key borrower-provided inputs, if
any, that served as the basis for the determination; a list of other
loss mitigation options that are still available to the borrower, if
any, including a clear statement describing the next steps the borrower
must take to be reviewed for those options or, if applicable, a
statement that the servicer has reviewed the borrower for all available
loss mitigation options and none remain; and, if applicable, a list of
any loss mitigation options that the servicer previously offered to the
borrower that remain available but that the borrower did not accept.
The CFPB is also proposing to clarify that loss mitigation
determinations are subject to the notice of error procedures contained
in Sec. 1024.35.
4. Credit reporting. The CFPB is aware of a select number of
specific instances where mortgage servicers may be furnishing
information about borrowers undergoing loss mitigation review that
raise questions about accuracy and consistency. While the CFPB is not
proposing any regulatory changes at this time, the CFPB is requesting
comment about possible approaches it could take to ensure servicers are
furnishing accurate and consistent credit reporting information for
borrowers undergoing loss mitigation review.
5. Language access. The CFPB is proposing several requirements to
provide borrowers with limited English proficiency greater access to
certain early intervention and loss mitigation communications in
languages other than English so that they can access the information
they need, when they need it. In general, the proposed rule would
require mortgage servicers to provide Spanish-language translations of
certain written communications to all borrowers. The proposed rule also
would require servicers to make certain written and oral communications
available in multiple languages and to provide those translated or
interpreted communications upon borrower request. The proposed rule
would require servicers to include brief translated statements in
certain written communications notifying borrowers of the availability
of the translations and interpretations, and how they can be requested.
It also would require that borrowers who received marketing for a loan
in a language other than English receive specific early intervention
and loss mitigation communications in that same language upon the
borrower's request.

II. Background

A. Mortgage Servicing During the Foreclosure Crisis

The 2007 foreclosure crisis led to a broad downturn in the economy
and left lasting effects on the mortgage servicing industry. The
foreclosure crisis was brought on, in part, by mortgage servicing
failures and the lack of a standardized loss mitigation
infrastructure.\3\ As a result, between July 2007 and August 2009,
approximately 1.8 million homeowners lost their homes to foreclosure
and another 5.2 million homeowners faced foreclosure initiation.\4\
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\3\ See FRH Essay.
\4\ Oversight Panel Report at 1.
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A lack of regulatory oversight at the Federal level and fragmented
oversight at the State level also contributed to the crisis. The CFPB
was created in 2011 to increase accountability in government by
consolidating consumer financial protection authorities, which
previously existed across several different Federal agencies. The
creation of the CFPB increased Federal accountability with respect to
consumer financial protection, which had not been the primary focus of
any single Federal agency. Prior to the CFPB's creation, no Federal
agency had comprehensive tools to set the rules for and oversee all
consumer markets. The result was a system without effective rules or
consistent enforcement, which was a significant factor in the
foreclosure crisis.
Prior to 2007, the mortgage industry had never experienced such a
sizable number of loss mitigation applications and foreclosures
simultaneously.\5\ The mortgage industry lacked a standardized approach
and uniform structure to assist the millions of delinquent borrowers
who needed mortgage payment relief. At the time, mortgage servicers
were largely focused on managing the collection of mortgage payments
and the foreclosure process for defaulted borrowers.\6\ In addition,
investor guidance to servicers regarding default servicing was limited
and seldom provided meaningful standards for loss mitigation.\7\
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\5\ See FRH Essay.
\6\ Id.
\7\ Martin Neil Baily et al., Initiative on Bus. & Pol'y at
Brookings, The Origins of the Financial Crisis, at 20 (Brookings
Inst., Fixing Fin. Sers.--Paper 3, 2008), <a href="https://www.brookings.edu/wp-content/uploads/2016/06/11_origins_crisis_baily_litan.pdf">https://www.brookings.edu/wp-content/uploads/2016/06/11_origins_crisis_baily_litan.pdf</a>.
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In the period preceding the foreclosure crisis, loan modifications
were rare, and borrowers were unlikely to receive any redress, with
only approximately 3 percent of seriously delinquent loans obtaining a
loan modification.\8\ The loss mitigation processes at the time were
fragmented and lacked sufficient industry-wide standards and procedures
for servicers and investors to assist delinquent homeowners. Thus, the
foreclosure crisis exposed major flaws in default servicing and created
a need for permanent loss mitigation assistance programs. The absence
of any standardized loss mitigation options at that time contributed to
2.8 million foreclosure starts in 2009, which was a 21 percent increase
from 2008 and a 120 percent increase from 2007.\9\ The emergence of the
Making Home Affordable program (MHA) would later create a standardized
set of guidelines and establish a framework for default servicing.
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\8\ Manuel Adelino et al., Why Don't Lenders Renegotiate More
Home Mortgages? Redefaults, Self-Cures, and Securitization, at 3
(Nat'l Bureau Econ. Rsch., Working Paper 15159, 2009), <a href="https://www.nber.org/system/files/working_papers/w15159/w15159.pdf">https://www.nber.org/system/files/working_papers/w15159/w15159.pdf</a>.
\9\ Lynn Adler, U.S. 2009 foreclosures shatter record despite
aid, Reuters (Jan. 14, 2010), <a href="https://www.reuters.com/article/us-usa-housing-foreclosures-idUSTRE60D0LZ20100114/">https://www.reuters.com/article/us-usa-housing-foreclosures-idUSTRE60D0LZ20100114/</a>.
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B. Early Standardization Efforts

The U.S. Department of the Treasury (Treasury) introduced MHA at
the beginning of 2009. Treasury designed MHA to assist mortgage
borrowers at risk of foreclosure by providing government-backed loss
mitigation programs. MHA was the first program of its kind and had a
major influence on future loss mitigation programs.
The cornerstone program under MHA was the Home Affordable
Modification Program (HAMP), which offered permanently reduced mortgage
payments to qualifying borrowers.\10\ There were other specialty
programs under MHA, such as programs to assist borrowers with
underwater mortgages, short sale programs, and deed-in-lieu of
foreclosure programs.\11\ These programs were part of a wider
government response intended to help struggling borrowers, preserve
communities, and prevent avoidable foreclosures.\12\ Prior to HAMP,
there was no standard approach among servicers or investors for
providing mortgage assistance to

[[Page 60207]]

homeowners who wanted to keep making payments.\13\
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\10\ John Rao et al., Nat'l Consumer L. Ctr. (NCLC), 6.7.2.5 The
HAMP ``Waterfall'', In Mortgage Servicing and Loan Modifications
(Digital version), <a href="https://library.nclc.org/book/mortgage-servicing-and-loan-modifications/6725-hamp-waterfall">https://library.nclc.org/book/mortgage-servicing-and-loan-modifications/6725-hamp-waterfall</a> (last visited July 1,
2024).
\11\ U.S. Dep't of Treas., Making Home Affordable (MHA), <a href="https://home.treasury.gov/data/troubled-assets-relief-program/housing/mha">https://home.treasury.gov/data/troubled-assets-relief-program/housing/mha</a>
(last visited July 1, 2024).
\12\ Id.
\13\ Id.
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However, the program fell short of its original projected target of
the number of homeowners who would be assisted with the program. The
HAMP application process was extensive and required borrowers to submit
several documents to be evaluated for the program; for example, it
required proof of financial hardship, income tax returns, bank
statements, and paystubs.\14\ These extensive documentation
requirements led to challenges for borrowers and mortgage servicers.
The document collection process adversely affected the ability of
borrowers to receive permanent loan modifications due to events such as
the servicer losing documents the borrower sent. These challenges were
compounded by the sheer volume of borrower applications and inquiries
during this time.\15\ Changing documentation requirements created
further difficulties in converting trial loan modifications into
permanent loan modifications.
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\14\ HAMP also required a Third-Party Authorization Form if the
borrower was represented by an attorney, a Dodd-Frank Verification
Form, and a demonstrated ability to make their monthly mortgage
payments following a loan modification. In additional to a loan
application and the standard required supporting documents, a
borrower might be asked to submit additional supporting
documentation based on the borrower's particular situation.
\15\ Off. of Special Inspector Gen. for the Troubled Asset
Relief Program (SIGTARP), Factors Affecting Implementation of the
Home Affordable Modification Program, at 26 (Mar. 25, 2010), <a href="https://www.sigtarp.gov/sites/sigtarp/files/Audit_Reports/Factors_Affecting_Implementation_of_the_Home_Affordable_Modification_Program.pdf">https://www.sigtarp.gov/sites/sigtarp/files/Audit_Reports/Factors_Affecting_Implementation_of_the_Home_Affordable_Modification_Program.pdf</a>.
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Although both borrowers and servicers faced challenges in keeping
up with the documentation requirements of HAMP, the program provided
several protections for distressed borrowers. Among other things, HAMP
provided foreclosure protections to any borrower who submitted a HAMP
loss mitigation application and established program guidelines that
prohibited a servicer from referring a loan to foreclosure or
conducting a scheduled foreclosure sale until the borrower was either
evaluated for HAMP and determined to be ineligible, or the servicer had
made reasonable attempts to solicit the borrower and was
unsuccessful.\16\ This guidance was critical in beginning to address
the industry practice of ``dual-tracking'' borrowers, a practice where
servicers would accept and review loss mitigation applications while
simultaneously moving forward with foreclosure proceedings.
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\16\ John Rao et al., NCLC, 10.6.1 HAMP Review As a Prerequisite
to Foreclosure, In Mortgage Servicing and Loan Modifications
(Digital version), <a href="https://library.nclc.org/book/mortgage-servicing-and-loan-modifications/1061-hamp-review-prerequisite-foreclosure">https://library.nclc.org/book/mortgage-servicing-and-loan-modifications/1061-hamp-review-prerequisite-foreclosure</a>
(last visited July 1, 2024).
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In February 2012, 49 State attorneys general, the District of
Columbia, and the Federal government entered the National Foreclosure
Settlement \17\ with what were at the time the nation's five largest
mortgage servicers.\18\ It was the largest consumer financial
protection settlement in U.S. history. Along with $50 billion in relief
to distressed borrowers harmed by the wrongful foreclosures,\19\ the
settlement agreement included a description of when a servicer may
refer a borrower to foreclosure or conduct a foreclosure sale. The
settlement provided two standards for protecting borrowers from dual
tracking--one for before a servicer refers a borrower to foreclosure,
and the other for after the servicer has referred a borrower to
foreclosure.\20\ The 2013 Mortgage Servicing Final Rule was influenced
by the foreclosure protections introduced by HAMP and the National
Foreclosure Settlement.
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\17\ CFPB, What was the National Mortgage Settlement?, <a href="https://www.consumerfinance.gov/ask-cfpb/what-was-the-national-mortgage-settlement-en-2071/">https://www.consumerfinance.gov/ask-cfpb/what-was-the-national-mortgage-settlement-en-2071/</a> (last reviewed Sep. 8, 2020).
\18\ Id.
\19\ Id.
\20\ Stephanie C. Robinson & Kerri M. Smith, K&L Gates, National
Mortgage Foreclosure Settlement Tackles ``Dual Tracking'' of
Foreclosure and Loan Modification, Consumer Fin. Servs. Watch (Apr.
5, 2012), <a href="https://www.consumerfinancialserviceswatch.com/2012/04/05/national-mortgage-foreclosure-settlement-tackles-dual-tracking-of-foreclosure-and-loan-modification/">https://www.consumerfinancialserviceswatch.com/2012/04/05/national-mortgage-foreclosure-settlement-tackles-dual-tracking-of-foreclosure-and-loan-modification/</a>.
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C. CFPB's 2013 Mortgage Servicing Final Rule Aimed To Address the
Challenges Previously Observed Prior to and During the Foreclosure
Crisis

The CFPB finalized the 2013 Mortgage Servicing Final Rule in the
wake of the widespread default servicing failures of the preceding
years.\21\ The rule was designed to help ensure that mortgage servicers
maintain proper communication with borrowers and evaluate borrowers for
all available loss mitigation options within a reasonable
timeframe.\22\
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\21\ 78 FR 10696 (Feb. 14, 2013) (2013 RESPA Servicing Final
Rule), 78 FR 10902 (Feb. 14, 2013) (2013 TILA Servicing Final Rule).
Throughout this notice, these rules are referred to collectively as
the ``2013 Mortgage Servicing Final Rule.''
\22\ Id.
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Regulation X requires that a mortgage servicer obtain a complete
loss mitigation application from a borrower prior to making a
determination as to what loss mitigation option or options, if any, it
may offer to the borrower.\23\ A complete loss mitigation application
is defined in the 2013 Mortgage Servicing Final Rule as an application
for which the servicer has received all the information that the
servicer requires from a borrower in evaluating applications for any
loss mitigation options available to the borrower. The 2013 Mortgage
Servicing Final Rule also contains requirements aimed at ensuring that
borrowers know when their servicer has received their loss mitigation
application, whether the application is complete or incomplete, and, if
the application is incomplete, what additional information is needed to
make the application complete.\24\ Under the rule, the borrower
generally only receives foreclosure protections once the application is
complete.
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\23\ 12 CFR 1024.41(c)(2)(i).
\24\ See CFPB, 2013 RESPA Servicing Rule Assessment Report, at
11 (Jan. 2019), <a href="https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rule-assessment_report.pdf">https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rule-assessment_report.pdf</a> (Servicing Rule
Assessment Report).
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The 2013 Mortgage Servicing Final Rule does contain limited
exceptions to the general requirement that servicers cannot offer
borrowers loss mitigation options based on an incomplete loss
mitigation application. For example, it allows servicers to offer
short-term forbearance programs or short-term repayment plans to
borrowers based on an incomplete loss mitigation application.\25\ Those
limited exceptions do not specifically address streamlined loan
modifications.
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\25\ See 12 CFR 1024.41(c)(2)(iii); see also comments
41(c)(2)(iii)-1 and -4 (defining short-term payment forbearance
program and short-term repayment plan for purposes of the
regulation).
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D. Streamlined Modifications and Other Borrower Protections Emerge

The concept of a low-to-no documentation loan modification was
introduced in the years following the foreclosure crisis. For example,
the Government Sponsored Enterprises (GSEs) Fannie Mae \26\ and Freddie
Mac \27\ introduced a streamlined

[[Page 60208]]

modification program in 2013. The GSE programs significantly reduced
the documentation requirements needed for servicers to evaluate
borrowers for a loan modification. The programs helped demonstrate that
streamlining the loan modification process can have benefits for
borrowers. For example, streamlined loan modifications generate
significantly more participation, according to a 2018 report by the
Urban Institute. The report, using data from 2012 to 2015, found that
the rate at which struggling borrowers agreed to participate in a
modification, or the ``take-up'' rate, improved from 20.2 percent
without streamlining to 29.2 percent with the program.\28\ Studies also
show that the streamlined loan modification programs not only increased
the take-up rate, but also resulted in strong loan performance two
years after implementation.\29\ Additionally, streamlining the loan
modification process eased capacity concerns for servicers.
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\26\ Fannie Mae, Servicing Guide Announcement SVC-2013-05:
Streamlined Modifications, Conventional Mortgage Loan Modifications,
and Outbound Communications (Mar. 27, 2013), <a href="https://singlefamily.fanniemae.com/media/19256/display">https://singlefamily.fanniemae.com/media/19256/display</a>. This announcement
describes updates and clarifications to the introduction to
streamlined modifications, which targets borrowers whose mortgage
loans are at least 90 days delinquent and who meet the eligibility
requirements provided above. Prior to and after offering a
Streamlined Modification, a servicer must continue to comply with
the delinquency management and default prevention requirements in
the Servicing Guide.
\27\ Tracy Hagen Mooney, Freddie Mac, Bulletin--Number 2013-8:
New Freddie Mac Streamlined Modification and Updates to Freddie Mac
Standard Modification Requirements (Mar. 27, 2013), <a href="https://guide.freddiemac.com/ci/okcsFattach/get/1006761_3">https://guide.freddiemac.com/ci/okcsFattach/get/1006761_3</a>. This bulletin
announces the Freddie Mac Streamlined Modification which provides an
additional modification opportunity to certain borrowers who are at
least 90 days delinquent but not more than 720 days delinquent.
\28\ Laurie Goodman et al., Urb. Inst., Streamlining increases
the success of mortgage modifications by 34 percent, Urb. Wire (July
17, 2018), <a href="https://www.urban.org/urban-wire/streamlining-increases-success-mortgage-modifications-34-percent">https://www.urban.org/urban-wire/streamlining-increases-success-mortgage-modifications-34-percent</a> (Urban Wire 2018). While
the redefault rate for streamlined loan modifications were slightly
higher compared to standard modifications, the study concluded that
streamlined loan modification options provided a 7.9 percent net
benefit to all distressed borrowers.
\29\ Robert M. Dunsky, Fed. Hous. Fin. Agency (FHFA), Measures
of Home Retention Following a Loan Modification (Apr. 7, 2023),
<a href="https://www.fhfa.gov/blog/statistics/measures-of-home-retention-following-a-loan-modification">https://www.fhfa.gov/blog/statistics/measures-of-home-retention-following-a-loan-modification</a>.
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E. Loss Mitigation During the COVID-19 Pandemic

During the COVID-19 pandemic, mortgage delinquencies increased to
levels not seen since the foreclosure crisis.\30\ As a result, the
Federal Government enacted policies that allowed borrowers to easily
access loss mitigation options with limited documentation. These
policies, combined with the relatively strong equity position of
homeowners due to rapid home price appreciation and historically low
interest rates, enabled most borrowers to resume payments or pay off
their loan. Ultimately, foreclosures remained low, and credit losses to
investors were minimized.\31\ On March 27, 2020, the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act) was signed into law.\32\
The legislation created certain protections for federally backed
mortgage loans that ran from the act's effective date until September
30, 2021.\33\ The CARES Act was followed by the Consolidated
Appropriations Act of 2021 to provide additional protections for
consumers affected by the ongoing COVID-19 pandemic.\34\ Among other
borrower protections, the CARES Act provided that all borrowers who
were financially affected either directly or indirectly by the COVID-19
pandemic, upon a request, had the option to temporarily suspend their
monthly mortgage payments. The CARES Act provided forbearance for up to
180 days for borrowers who asserted their financial hardship was caused
by the COVID-19 pandemic. Generally, documentation was not required,
and borrowers received foreclosure and fee protection.\35\
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\30\ Kristin Wong, CFPB, New data show improving yet sustained
housing insecurity risks (June 22, 2021), <a href="https://www.consumerfinance.gov/about-us/blog/new-data-show-improving-yet-sustained-housing-insecurity-risks/">https://www.consumerfinance.gov/about-us/blog/new-data-show-improving-yet-sustained-housing-insecurity-risks/</a>.
\31\ See generally U.S. Gov't Accountability Off., COVID-19
Housing Protections: Mortgage Forbearance and Other Federal Efforts
Have Reduced Default and Foreclosure Risks, GAO-21-554, (July 12,
2021), <a href="https://www.gao.gov/assets/gao-21-554.pdf">https://www.gao.gov/assets/gao-21-554.pdf</a>.
\32\ Coronavirus Aid, Relief, and Economic Security Act (CARES
Act), H.R. 748, 116th Cong. (2020).
\33\ CARES Act section 4022 (2020).
\34\ Consolidated Appropriations Act of 2021, H.R. 133, 116th
Cong. (2020).
\35\ CARES Act section 4022 (2020); CFPB, CARES Act Forbearance
& Foreclosure, at 1 (May 2020), <a href="https://files.consumerfinance.gov/f/documents/cfpb_csbs_industry-forbearance-guide_2020-06.pdf">https://files.consumerfinance.gov/f/documents/cfpb_csbs_industry-forbearance-guide_2020-06.pdf</a>. Under
the CARES Act, servicers also were required to extend the
forbearance for up to an additional 180 days at the request of the
borrower, provided that the request for an extension was made during
the covered period. The borrower could request that either the
initial or extended forbearance period be less than 180 days. See
CARES Act section 4022(b) and (c)(1).
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In February of 2021, the Federal Housing Administration (FHA), the
Federal Housing Finance Agency (FHFA), the United States Department of
Agriculture (USDA), and the Department of Veterans Affairs (VA) all
announced they were extending their forbearance programs beyond the
minimum 180 days required by the CARES Act.\36\ Under the agencies'
forbearance programs, nearly 5 million borrowers had a loan in
forbearance by May of 2020.\37\
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\36\ FHA, VA, and USDA permitted borrowers who were in a COVID-
19 forbearance program prior to June 30, 2020, to be granted up to
two additional three-month payment forbearance programs. See The
White House, Fact Sheet: Biden Administration Announces Extension of
COVID-19 Forbearance and Foreclosure Protections for Homeowners
(Feb. 16, 2021), <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/16/fact-sheet-biden-administration-announces-extension-of-covid-19-forbearance-and-foreclosure-protections-for-homeowners/">https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/16/fact-sheet-biden-administration-announces-extension-of-covid-19-forbearance-and-foreclosure-protections-for-homeowners/</a>. FHFA stated that the additional three-
month extension allows borrowers to be in forbearance for up to 18
months. Eligibility for the extension was limited to borrowers who
are in a COVID-19 forbearance program as of February 28, 2021, and
other limits may have applied. See Press Release, FHFA, FHFA Extends
COVID-19 Forbearance Period and Foreclosure and REO Eviction
Moratoriums (Feb. 25, 2021), <a href="https://www.fhfa.gov/news/news-release/fhfa-extends-covid-19-forbearance-period-and-foreclosure-and-reo-eviction-moratoriums">https://www.fhfa.gov/news/news-release/fhfa-extends-covid-19-forbearance-period-and-foreclosure-and-reo-eviction-moratoriums</a>.
\37\ Intercontinental Exchange, Inc. (ICE), Mortgage Monitor
report--December 2023, at 23 (Dec. 2023), <a href="https://www.blackknightinc.com/wp-content/uploads/2023/12/ICE_MM_DEC2023_Report.pdf">https://www.blackknightinc.com/wp-content/uploads/2023/12/ICE_MM_DEC2023_Report.pdf</a>.
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As part of the overarching Federal approach to help borrowers
resume their mortgage payments, there was widespread adoption by
servicers of streamlined evaluations for permanent loan modifications,
which allowed borrowers to quickly be evaluated for and enter loss
mitigation programs, preventing avoidable foreclosures. Of borrowers
who exited forbearance, 29.4 percent obtained a streamlined payment
deferral to bring their loans current.\38\ The increased use and
availability of other loss mitigation tools, such as payment deferrals
and partial claims, also greatly contributed to positive borrower
outcomes.
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\38\ See Press Release, Mortg. Bankers Ass'n (MBA), Share of
Mortgage Loans in Forbearance Decreases to 0.29% in October (Nov.
20, 2023), <a href="https://www.mba.org/news-and-research/newsroom/news/2023/11/20/share-of-mortgage-loans-in-forbearance-decreases-to-0.29-in-october">https://www.mba.org/news-and-research/newsroom/news/2023/11/20/share-of-mortgage-loans-in-forbearance-decreases-to-0.29-in-october</a>.
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Based on the success of the shift towards streamlined loan
modifications during the COVID-19 pandemic, the CFPB has preliminarily
concluded that the streamlined loss mitigation offers contributed to
performance for these loans after loss mitigation programs were
implemented. The loan performance of these loans was superior to
performance under the HAMP approach. The re-default rate for all
mortgages that exited COVID-19 loss mitigation programs was at the
relatively low rate of 10 percent as of June 7, 2022.\39\ By
comparison, the redefault rate for HAMP loan modifications was
approximately 46 percent as of April 30, 2013.\40\ In addition, the
types of loan modifications that were prevalent during the foreclosure
crisis generally do not offer payment relief in the current high
interest rate environment because the payments required under those
loan modifications would be higher than a borrower's current mortgage
payment. The Federal housing agencies have recently introduced mortgage
assistance programs specifically designed to

[[Page 60209]]

address high interest rate environments.\41\
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\39\ Id.
\40\ SIGTARP, Rising Redefault Rates of HAMP Mortgage
Modifications Hurt Homeowners, Communities and Taxpayers, at 6 (July
24, 2013), <a href="https://www.sigtarp.gov/sites/sigtarp/files/Audit_Reports/Rising_Redefaults_of_HAMP_Mortgage_Modifications.pdf">https://www.sigtarp.gov/sites/sigtarp/files/Audit_Reports/Rising_Redefaults_of_HAMP_Mortgage_Modifications.pdf</a>.
\41\ See Anoush Garakani & Nanci Weissgold, Alston & Bird, LLP,
FHA and VA Announce New Loss Mitigation Option, Of Interest Consumer
Fin. Blog, (Apr. 15, 2024), <a href="https://www.alstonconsumerfinance.com/fha-and-va-announce-new-loss-mitigation-options/">https://www.alstonconsumerfinance.com/fha-and-va-announce-new-loss-mitigation-options/</a>.
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F. Amendments to the Mortgage Servicing Rules

The CFPB has amended the 2013 Mortgage Servicing Final Rule several
times. Prior to the COVID-19 pandemic, these amendments were primarily
based on information gained about aspects of the 2013 Mortgage
Servicing Final Rule that posed implementation challenges or required
further clarification.\42\ In 2020, the CFPB issued an interim final
rule to amend Regulation X to assist mortgage borrowers with financial
hardships due to the COVID-19 pandemic by temporarily allowing mortgage
servicers to offer borrowers certain loss mitigation options based on
the evaluation of incomplete loss mitigation applications.\43\
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\42\ Since issuing the 2013 Mortgage Servicing Final Rule, the
CFPB has engaged in continuous forward-looking efforts to prevent
avoidable foreclosure. For example, in 2016 the CFPB outlined
consumer protection principles to guide mortgage servicers,
investors, government housing agencies, and policymakers as they
developed new foreclosure relief solutions. See CFPB, Consumer
Financial Protection Bureau Outlines Guiding Principles For The
Future Of Foreclosure Prevention (Aug. 2, 2016), <a href="https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-outlines-guiding-principles-future-foreclosure-prevention/">https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-outlines-guiding-principles-future-foreclosure-prevention/</a>.
\43\ CFPB, Treatment of Certain COVID-19 Related Loss Mitigation
Options Under the Real Estate Settlement Procedures Act (RESPA),
Regulation X; Interim Final Rule, 85 FR 39055 (June 30, 2020).
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In 2021, the CFPB proposed, and then finalized with changes another
rule to extend access to additional COVID-19-related loss mitigation
options without requiring evaluation of a complete loss mitigation
application.\44\ As a result, mortgage servicers could get borrowers
into certain streamlined loan modifications more quickly, ultimately
helping borrowers avoid foreclosure. Under both the 2020 and 2021
rules, servicers could offer these loss mitigation options without
evaluating a complete application only if the options had certain
borrower protections built in, such as a required waiver of certain
fees and charges.
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\44\ CFPB, Protections for Borrowers Affected by the COVID-19
Emergency Under the Real Estate Settlement Procedures Act (RESPA),
Regulation X, 86 FR 18840 (Apr. 9, 2021) (proposed rule); 86 FR
34848 (Aug. 31, 2021) (final rule). The rule also contained several
other provisions meant to protect borrowers experiencing financial
hardship due to the COVID-19 pandemic.
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B. Outreach and Engagement

Consistent with section 1022(b)(2)(B) of the CFPA, the CFPB has
consulted with the appropriate prudential regulators and other Federal
agencies, including regarding consistency with any prudential, market,
or systemic objectives administered by these agencies.

III. Legal Authority

The CFPB is issuing this proposed rule pursuant to its authority
under RESPA and the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act), including the authorities discussed
below. The CFPB is issuing this proposed rule in reliance on the same
authority relied on in adopting the relevant provisions of the 2013
RESPA Servicing Final Rule, as discussed in detail in the Legal
Authority section and Section-by-Section Analysis of the 2013 RESPA
Servicing Final Rule.\45\
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\45\ 78 FR 10696 (Feb. 14, 2013).
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A. RESPA

Section 19(a) of RESPA, 12 U.S.C. 2617(a), authorizes the CFPB to
prescribe such rules and regulations, to make such interpretations, and
to grant such reasonable exemptions for classes of transactions, as may
be necessary to achieve the purposes of RESPA, which include its
consumer protection purposes. In addition, section 6(j)(3) of RESPA, 12
U.S.C. 2605(j)(3), authorizes the CFPB to establish any requirements
necessary to carry out section 6 of RESPA. Section 6(k)(1)(E) of RESPA,
12 U.S.C. 2605(k)(1)(E) further authorizes the CFPB to prescribe
regulations that are appropriate to carry out RESPA's consumer
protection purposes.
The consumer protection purposes of RESPA, as articulated in the
2013 RESPA Servicing Final Rule and several subsequent rules amending
it, include ensuring that servicers respond to borrower requests and
complaints in a timely manner and maintain and provide accurate
information, helping borrowers prevent avoidable costs and fees, and
facilitating review for foreclosure avoidance options. The amendments
to Regulation X in this notice of proposed rulemaking are intended to
achieve some or all these purposes.
Specifically, and as described further below, the CFPB
preliminarily believes that a more flexible approach to the loss
mitigation process requirements in Regulation X would more effectively
assist borrowers with preventing avoidable foreclosure due in part to
the increased prevalence in recent years of streamlined loss mitigation
options. Streamlining and simplifying the loss mitigation process while
providing new borrower protections, as the CFPB is proposing to do,
would facilitate review for foreclosure avoidance options and help
borrowers prevent avoidable costs and fees.

B. Dodd-Frank Act

Section 1022(b)(1) of the Dodd-Frank Act, 12 U.S.C. 5512(b)(1),
authorizes the CFPB to prescribe rules ``as may be necessary or
appropriate to enable the Bureau to administer and carry out the
purposes and objectives of the Federal consumer financial laws, and to
prevent evasions thereof.'' RESPA is a Federal consumer financial
law.\46\ In addition, section 1032(a) of the Dodd-Frank Act authorizes
the CFPB to ``prescribe rules to ensure that the features of any
consumer financial product or service, both initially and over the term
of the product or service, are fully, accurately and effectively
disclosed to consumers in a manner that permits consumers to understand
the costs, benefits, and risks associated with the product or service,
in light of the facts and circumstances.'' \47\
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\46\ 12 U.S.C. 5481(12), (14).
\47\ 12 U.S.C. 5532(a).
---------------------------------------------------------------------------

The authority granted to the CFPB in Dodd-Frank Act section 1032(a)
is broad and empowers the CFPB to prescribe rules regarding the
disclosure of the ``features'' of consumer financial protection
products and services generally. Accordingly, the CFPB may prescribe
rules containing disclosure requirements even if other Federal consumer
financial laws do not specifically require disclosure of such features.
Dodd-Frank Act section 1032(c) provides that, in prescribing rules
pursuant to Dodd-Frank Act section 1032, the CFPB ``shall consider
available evidence about consumer awareness, understanding of, and
responses to disclosures or communications about the risks, costs, and
benefits of consumer financial products or services.'' \48\ The CFPB
requests any such available evidence. The CFPB also requests comment on
any sources that the CFPB should consider in determining whether to
finalize the elements of this proposal prescribed under section
1032(a).
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\48\ 12 U.S.C. 5532(c).
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IV. Discussion of the Proposed Rule

A. Foreclosure Procedural Safeguards (Sec. 1024.41)

As discussed above, the CFPB seeks to improve upon the outcomes
from the

[[Page 60210]]

existing loss mitigation rules in Sec. 1024.41 and to enhance their
ability to account for a variety of macroeconomic conditions. To
accomplish this, the CFPB is proposing to remove most of the existing
requirements regarding incomplete and complete loss mitigation
applications and to replace them with a new framework based on
foreclosure procedural safeguards as discussed in more detail below in
this part. In general, under the proposed framework, once a borrower
makes a request for loss mitigation assistance, the loss mitigation
review cycle would begin, and a servicer would need to ensure that one
of the following procedural safeguards is met before beginning or
advancing the foreclosure process or charging certain fees: (1) the
servicer has reviewed the borrower for all available loss mitigation
options and no available loss mitigation options remain; or (2) the
borrower has not communicated with the servicer for at least 90 days
despite the servicer having regularly taken steps to communicate with
the borrower regarding their loss mitigation review. Among other
things, the amendments would permit a servicer to review a borrower for
loss mitigation options sequentially, instead of simultaneously. The
foreclosure and fee protections would remain throughout the loss
mitigation review cycle, until the borrower has come current or one of
the procedural safeguards applies, much as is the case now for
borrowers who are able to complete their loss mitigation applications.
The proposed framework is intended to ensure that borrowers have a
meaningful opportunity to be reviewed for loss mitigation without
unnecessary delay. The CFPB preliminarily determines that stopping the
advancement of foreclosure and the accumulation of certain fees on the
borrower's account throughout the loss mitigation review cycle will
provide strong incentives for servicers to complete loss mitigation
reviews quickly and accurately.
1. Existing Loss Mitigation Procedures and Foreclosure Protections and
the Proposed Loss Mitigation Landscape
At the time the CFPB finalized the existing overall complete
application framework in the 2013 Mortgage Servicing Final Rule,
described in part II and below, the CFPB stated that significant
consumer benefits would result from requiring that borrowers be
considered for all loss mitigation options in a single process. The
CFPB stated that borrowers incurred more significant burdens in the
market as evaluations occurred sequentially over time and borrower
documents and information had to be continuously updated to make such
documents and information current. The CFPB stated that the 2013
Mortgage Servicing Final Rule eliminated the need for borrowers to
submit multiple applications for different loss mitigation options and
provided for more efficient compliance by servicers with the
requirements of the rule.
As detailed in part II, the loss mitigation landscape has changed
dramatically over the past several years. The CFPB has preliminarily
determined that streamlined loss mitigation options and the ability to
do sequential review, with appropriate consumer safeguards, can help
borrowers access loss mitigation more quickly and increase borrowers'
chances of being able to avoid foreclosure.
Both industry and consumer groups have urged the CFPB to revise the
existing regulatory framework to permit additional flexibility. In
response to the CFPB's 2022 Request for Information Regarding Mortgage
Refinances and Forbearances,\49\ numerous stakeholders noted that the
flexibility to more easily offer streamlined loss mitigation options
would benefit borrowers, servicers, and investors.
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\49\ See 87 FR 58487 (Sept. 27, 2022); see also CFPB, Request
for Information Regarding Mortgage Refinances and Forbearances
(Sept. 22, 2022), <a href="https://www.consumerfinance.gov/rules-policy/notice-opportunities-comment/archive-closed/request-for-information-regarding-mortgage-refinances-and-forbearances/">https://www.consumerfinance.gov/rules-policy/notice-opportunities-comment/archive-closed/request-for-information-regarding-mortgage-refinances-and-forbearances/</a>.
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Under the existing rule, a borrower's foreclosure protections are
largely based on whether and when the borrower has submitted a complete
loss mitigation application to the servicer. As defined in existing
Sec. 1024.41(b), a complete application is an application in
connection with which the servicer has received all the information
that the servicer requires from a borrower in evaluating applications
for the loss mitigation options available to the borrower. In general,
only if a servicer receives a complete application more than 37 days
before a foreclosure sale must the servicer halt certain foreclosure
activity while evaluating the borrower for all available loss
mitigation options. Borrowers are also protected by a series of
procedural requirements in existing Sec. 1024.41(b) through (i),
including notice requirements informing the borrower of what documents
must be submitted and when, evaluation timeframes for servicers and
related notices, and certain exceptions for when a servicer can offer a
borrower any loss mitigation option based on an incomplete application.
The limited number of exceptions for evaluation based on an incomplete
application include specific requirements for each exception.
2. The Proposed Foreclosure Procedural Safeguards Framework
The CFPB proposes to remove most of the application-based framework
from Sec. 1024.41, including the entirety of Sec. 1024.41(b). As
discussed in detail below, the CFPB also proposes to replace the
existing prohibitions on foreclosure referral and sale in Sec.
1024.41(f)(2) and (g) with a streamlined set of foreclosure procedural
safeguards in revised Sec. 1024.41(f)(2) and (3). The procedural
safeguards refer to a loss mitigation review cycle and a request for
loss mitigation assistance, which are proposed as new defined terms.
The CFPB proposes to delete existing Sec. 1024.41(g) in its entirety
and to remove the temporary COVID-19 procedural safeguards at Sec.
1024.41(f)(3). In addition, as discussed in part IV.C, the CFPB
separately proposes new loss mitigation determination notice
requirements in revised Sec. 1024.41(c) that incorporate certain
aspects of existing Sec. 1024.41(c)(1), (c)(4) and (d) and proposes
other revisions to existing Sec. 1024.41(e), (h), (i) and (k) to
conform to the other changes discussed throughout this notice. The CFPB
would retain both the pre-foreclosure review period in existing Sec.
1024.41(f)(1) and the small servicer requirements in existing Sec.
1024.41(j) unchanged. Section 1024.41 generally does not apply to small
servicers, but the pre-foreclosure review period in existing Sec.
1024.41(f)(1) does apply to small servicers, and will continue to apply
to small servicers if this proposal is finalized.
Under proposed Sec. 1024.41(f)(2), a loss mitigation review cycle
begins when a borrower makes a request for loss mitigation assistance
more than 37 days before a foreclosure sale. Once the cycle begins, the
servicer would be required to ensure that one of the following
procedural safeguards is met before making the first notice or filing
required by applicable law for any judicial or non-judicial foreclosure
process, or if applicable, before advancing the foreclosure process:
(1) the servicer has reviewed the borrower for all available loss
mitigation options and no available loss mitigation options remain, the
servicer has sent the borrower all notices required by Sec. 1024.41(c)
and (e), if applicable, and the borrower has not requested any appeal
within the applicable time period or, if applicable, all of the
borrower's appeals have been denied; or (2) the borrower has not

[[Page 60211]]

communicated with the servicer for at least 90 days despite the
servicer having regularly taken steps to communicate with the borrower
regarding their loss mitigation review. The proposed fee provision in
Sec. 1024.41(f)(3) would provide that during a loss mitigation review
cycle, no fees beyond the amounts scheduled or calculated as if the
borrower made all contractual payments on time and in full under the
terms of the mortgage contract shall accrue on the borrower's account.
i. Loss Mitigation Review Cycle
The CFPB proposes a new definition, loss mitigation review cycle,
in Sec. 1024.31 to describe the period of time that the proposed
procedural safeguards in Sec. 1024.41(f)(2)(i)-(ii) and (f)(3) would
be in effect. Loss mitigation review cycle would mean a continuous
period of time beginning when the borrower requests loss mitigation
assistance, provided the request is made more than 37 days before a
foreclosure sale. A loss mitigation review cycle would end when a
servicer implements a loss mitigation solution for the borrower so that
the borrower's loan is brought current, or when one of the procedural
safeguards in paragraph (f)(2)(i) or (ii) are met.
A loss mitigation review cycle would continue while a borrower is
in a temporary or trial loss mitigation period, such as a forbearance
or loan modification trial payment plan, and the loan has not yet been
brought current. The loss mitigation review cycle would continue during
forbearance. Borrowers in forbearance would typically need additional
loss mitigation assistance to become current. The cycle would also
continue during a trial payment plan, to provide the borrower an
adequate opportunity to perform on the plan and become current. If the
trial is unsuccessful and the borrower is not brought current, the
servicer must ensure that one of the procedural safeguards in paragraph
(f)(2)(i) or (ii) is met before the cycle ends and the servicer can
begin or advance foreclosure.
ii. Request for Loss Mitigation Assistance
The CFPB proposes to add request for loss mitigation assistance as
a new defined term in Sec. 1024.31 to mean any oral or written
communication, occurring through any usual and customary channel for
mortgage servicing communications, whereby a borrower asks a servicer
for mortgage relief. Thus, a loss mitigation review cycle would begin
as soon as the borrower simply asks for mortgage relief or otherwise
indicates that they need mitigation assistance. As discussed in detail
below, the CFPB intends for the definition of request for mortgage
relief to be construed broadly.
After the 120-day pre-foreclosure review period provided in Sec.
1024.41(f)(1) elapses, the existing rules make certain foreclosure
safeguards provided in Sec. 1024.41 contingent on the borrower having
submitted a complete loss mitigation application. As a result, if a
loan is more than 120 days delinquent and the borrower has yet to
submit a complete loss mitigation application, the existing rules allow
servicers to initiate, continue, or conduct foreclosures against
borrowers while they participate in the loss mitigation review process,
a practice known as ``dual tracking.'' Dual tracking can cause
substantial consumer harm to borrowers and investors alike. For
example, dual tracking can result in inconsistent and confusing
communications, servicing errors, and additional costs to borrowers.
These types of harms increase the risk that borrowers will not complete
the loss mitigation process successfully, which in turn can lead to
foreclosures that borrowers and investors otherwise could have
avoided.\50\
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\50\ See 78 FR 10696, 10819 (Feb. 14, 2013).
---------------------------------------------------------------------------

The proposed rule would significantly reduce the periods during
which dual tracking could occur by establishing procedural safeguards
against foreclosure that begin as soon as the borrower makes a request
for loss mitigation assistance and that continue for the entire loss
mitigation review cycle. The CFPB anticipates that beginning
foreclosure protections earlier in the loss mitigation process would
provide an additional incentive for servicers to review borrowers for
loss mitigation quickly and accurately. This incentive will be
particularly important if the CFPB finalizes the other proposed changes
to Sec. 1024.41, many of which would remove prescriptive timelines for
servicers' review of borrowers' requests for loss mitigation
assistance.
Under the proposed rule, a borrower could make a request for loss
mitigation assistance either orally or in writing. Borrowers currently
ask their servicers to review them for loss mitigation assistance both
orally and in writing, and excluding either oral or written
communications could unduly restrict a borrower's ability to request
review for loss mitigation assistance. However, to ensure that a
request for loss mitigation assistance is directed to appropriate
servicer personnel, the proposed definition also specifies that the
request must come through the servicer's usual and customary channels
for mortgage servicing communications. Because a request for loss
mitigation assistance halts foreclosure initiation or advancement until
the foreclosure procedural safeguards are met, the CFPB has
preliminarily determined that servicers should be able to expect
borrowers to reach out to personnel capable of either escalating or
acting on their requests for loss mitigation assistance. As a result,
certain borrower communications would not meet the definition of a
request for loss mitigation assistance. For example, requests for
mortgage relief made through informal channels, such as social media
messaging or handwritten notes on payment coupons, would not constitute
a request for loss mitigation assistance under the proposed rule unless
the servicer used such informal channels for mortgage servicing
communications.
The proposed rule further specifies that a request for loss
mitigation assistance is to be construed broadly. A borrower does not
need to use a specific form or any specific language to submit a
request for loss mitigation assistance that triggers the proposed
foreclosure procedural safeguards in Sec. 1024.41(f)(2). Additionally,
a servicer should presume that a borrower who experiences a delinquency
as defined in Sec. 1024.31 has made a request for loss mitigation
assistance when they contact the servicer unless they clearly express
some other intention. For example, a borrower who calls to inform the
servicer that they will make a payment tomorrow has, absent more, not
made a request for loss mitigation assistance.
The proposed rule provides three examples of communications that
would be considered requests for loss mitigation assistance while also
clarifying that these examples are not exhaustive. The first proposed
example provides that a request for loss mitigation assistance includes
any communication in which a borrower expresses an interest in pursuing
a loss mitigation option, as defined in existing Sec. 1024.31.
Therefore, a request for loss mitigation assistance would include any
request from a borrower for temporary or long-term relief, including
options that allow borrowers who are behind on their mortgage payments
to remain in their homes or to leave their homes without a foreclosure,
such as, without limitation, refinancing, trial or permanent
modification, repayment of the amount owed over an extended period of
time, forbearance of future payments, short-sale, deed-in-lieu of
foreclosure, and loss mitigation

[[Page 60212]]

programs sponsored by a locality, a State, or the Federal government.
Consistent with the directive to construe a request for loss mitigation
assistance broadly, a borrower would not need to ask their servicer to
review them for a specific loss mitigation option; rather, the borrower
could simply express a general interest in goals such as staying in
their home, receiving payment assistance, pursuing an alternative to
foreclosure, or some combination of those objectives. To emphasize this
point further, the second proposed example provides that a request for
loss mitigation assistance includes situations in which a borrower
indicates that they have experienced a hardship and asks the servicer
for assistance with making payments, retaining their home, or avoiding
foreclosure.
The third proposed example provides that a request for loss
mitigation assistance includes any communication in which, in response
to a servicer's unsolicited offer of a loss mitigation option, a
borrower expresses an interest in pursuing the loss mitigation option
offered or any other loss mitigation option. The CFPB intends this
example to clarify that an unsolicited offer of a loss mitigation
option from a servicer would be considered a request for loss
mitigation assistance if, in response to the offer, the borrower
expressed any interest in exploring an alternative to foreclosure, even
if the borrower expresses disinterest in the specific unsolicited
offer. The CFPB preliminarily views this clarification as necessary to
ensure that a borrower's response to a servicer's unsolicited offer of
loss mitigation would trigger the procedural safeguards against
foreclosure in proposed Sec. 1024.41(f) as long as such response
included a request for some form of mortgage relief.
Additionally, the proposed rule would establish a process that is
similar to the process provided in existing comment 31 (Loss Mitigation
Application)-1 for vetting a borrower's representative who submits a
loss mitigation application on behalf of a borrower. The CFPB
preliminarily finds it reasonable to allow a borrower's representative
to make a request for loss mitigation assistance on a borrower's
behalf. For example, a borrower in need of loss mitigation assistance
may ask a housing counselor or other knowledgeable person to assist
them in making a request for loss mitigation assistance. However, the
CFPB acknowledges that servicers may have concerns regarding potential
liability under State and Federal privacy laws for communicating with a
person claiming to be a representative of a borrower. To address these
concerns, proposed comment 31 (Request for Loss Mitigation Assistance)-
1 would clarify that servicers may use reasonable procedures to
determine if a person who claims to be an agent of a borrower has
authority from the borrower to act on the borrower's behalf. Reasonable
procedures may include, for example, requiring purported agents to
provide documentation from a borrower stating that the purported agent
is acting on the borrower's behalf. Upon receipt of such documentation,
the servicer would treat a request for loss mitigation assistance as
having been submitted by the borrower.
The proposed rule also would address servicer's options for
handling requests for loss mitigation assistance received from
potential successors in interest. Existing comments 41(b)-1.i and .ii
currently address servicers' options for reviewing and evaluating loss
mitigation applications received from potential successors in interest.
The proposed rule would renumber these comments as comments 41(f)(2)-
7.i and ii and then amend them to reflect the new foreclosure
protections in Sec. 1024.41(f)(2).
Specifically, proposed comment 41(f)(2)-7.i would provide that, if
a servicer receives a request for loss mitigation assistance from a
potential successor in interest before confirming that person's
identity and ownership interest in the property, the servicer may, but
is not required to, comply with the foreclosure procedural safeguards
in Sec. 1024.41(f)(2) with respect to that person. The proposed
comment also would clarify how Sec. 1024.41(i)'s limitation on
duplicative requests applies to that person.
Proposed comment 41(f)-7.ii would provide that, if a servicer
receives a request for loss mitigation assistance from a potential
successor in interest and elects not to comply with the foreclosure
procedural safeguards before confirming that person's status, the
servicer must comply with those safeguards with respect to that person
as soon as the person becomes a confirmed successor in interest and
must treat the request for loss mitigation assistance as if it had been
received on the date that the servicer confirmed the successor in
interest's status.
The CFPB is seeking comment on these proposed requirements and
associated commentary and, in particular, requests comment on the
following issues:
(i) Should the proposed definition of a request for loss mitigation
assistance limit the communication channels through which borrowers may
make requests for loss mitigation assistance? What alternative channels
should the CFPB consider, if any?
(ii) Are there additional examples of requests for loss mitigation
assistance the CFPB should provide?
(iii) Should the rule require servicers to provide borrowers with
notices that acknowledge when borrowers have made requests for loss
mitigation assistance? If so, what information should such notice
provide? What potential challenges and burdens might such notice create
for servicers?
iii. Advancing the Foreclosure Process
As noted above, the CFPB is proposing procedural safeguards that,
under certain circumstances, limit any actions that advance the
foreclosure process beginning when borrowers have requested loss
mitigation assistance. Under existing Sec. 1024.41(f) and (g),
servicers are prohibited from making the first notice or filing
required by applicable law for any judicial or non-judicial foreclosure
process under certain circumstances, as well as from moving for
foreclosure judgment or order of sale or conducting a foreclosure sale
under other circumstances. These restrictions not only apply to
servicers, but also foreclosure counsel retained by servicers. However,
currently, servicers may still proceed with other interim foreclosure
actions, such as mediation or arbitration, even if those actions may
not be beneficial to the borrower or may be unnecessary for borrowers
that shortly thereafter obtain loss mitigation.
The CFPB has heard from some stakeholders that while some
foreclosure actions can prompt borrowers to cure delinquency, other
actions that advance the foreclosure process after a borrower has
requested loss mitigation assistance and while the servicer is
evaluating them for such assistance can confuse borrowers and affect
the success of that request. Additionally, borrowers and servicers may
accrue foreclosure costs (often the responsibility of the borrower
under the loan contract) that could be avoided if foreclosure actions
were paused during loss mitigation review. For example, servicer
foreclosure counsel and borrower attorneys may both continue to file
required affidavits and responses in foreclosure litigation, drafting
and preparing responses and filings that may not eventually be required
if the borrower is approved for loss mitigation. The legal fees and
filing costs for such actions, which are often paid by the borrower
either out of their own funds or added to the balance of the borrower's
mortgage, could be

[[Page 60213]]

avoided if foreclosure processes were halted during the loss mitigation
review.
When finalizing existing Sec. 1024.41(f) and (g) in 2013, the CFPB
stated it recognized foreclosure processes were complex. To balance the
needs of borrowers, servicers, and investors, the CFPB limited
foreclosure prohibitions to foreclosure initiation and sale but did not
prohibit interim actions. However, since that time, the CFPB has heard
that many servicers now typically place a complete hold on foreclosure
activity upon receipt of a complete loss mitigation application. Given
this shift in industry practice, in proposing to replace the existing
complete application framework as discussed above, the CFPB has
preliminarily determined that building on that shift in industry
practice by including foreclosure advancement in the foreclosure
procedural safeguards, in addition to initiation and sale, will help
address concerns about borrower confusion and costs related to interim
foreclosure actions that advance the foreclosure process. Applying the
foreclosure procedural safeguards to foreclosure advancement might also
help provide servicers with additional incentive to quickly and
accurately review loss mitigation requests so that they can proceed
with foreclosure activity (if the proposed procedural safeguards are
met) when necessary. As a result, the CFPB is proposing to require that
when a borrower requests loss mitigation assistance more than 37 days
before a foreclosure sale, a servicer is required to ensure that one of
the safeguards discussed below in this part is met before it makes the
first notice or filing required by applicable law for any judicial or
non-judicial foreclosure process, or if applicable, before advancing
the foreclosure process. If a borrower requests loss mitigation
assistance more than 37 days before a foreclosure sale, but the
foreclosure process advances without one of the safeguards being met,
the foreclosure advancement would constitute a violation of this
regulation, if finalized as proposed.
Under the proposed rule, advancing the foreclosure process would
include any judicial or non-judicial actions that advance the
foreclosure process and were not yet completed prior to the borrower's
request for a loss mitigation option. Such actions might include, for
example, certain filings, such as those related to mediation,
arbitration, or reinstatement that take place prior to final order or
sale; certain affidavits, motions, and responses that advance the
foreclosure process; or recordings or public notices that occur before
a final foreclosure judgment or sale. The CFPB is not proposing to
require servicers to dismiss pending foreclosures. However, actions
such as necessary filings to pause the foreclosure proceedings may be
required until the safeguards are met. The CFPB is seeking comment on
all aspects of these proposed requirements and in particular requests
comment on the following issues:
(i) Should the CFPB provide or codify additional detail as to the
meaning of advancing the foreclosure process, and if so, what details
should it provide?
(ii) Are there State or local foreclosure laws or requirements that
might affect a servicer's ability to comply with this requirement, and
if so, how?
(iii) Should the CFPB consider excepting any interim foreclosure
actions, such as mediation or arbitration, where the borrower would
prefer to participate in those meetings, and if so, should the CFPB
identify any minimum standards for servicers to determine borrower
preference regarding participation in those meetings?
iv. No Remaining Loss Mitigation Options
The CFPB proposes that the procedural safeguards in Sec.
1024(f)(2) would apply during a loss mitigation review cycle, as
defined in Sec. 1024.31. As long as a borrower requests loss
mitigation assistance more than 37 days before a foreclosure sale, the
servicer would be required to ensure that one of the procedural
safeguards in Sec. 1024.(f)(2)(i) or (ii) is met before making the
first notice or filing required by applicable law for any judicial or
non-judicial foreclosure process, or if applicable, before advancing
the foreclosure process. The CFPB preliminarily determines that this
proposed approach will create incentives for servicers to review
borrowers for loss mitigation quickly and accurately and will also
effectively protect borrowers from avoidable foreclosures and certain
fees.
Under the first proposed procedural safeguard in Sec.
1024.41(f)(2)(i), a servicer would be able to begin or advance the
foreclosure process if the servicer has reviewed the borrower for loss
mitigation and no available loss mitigation options remain, the
servicer has sent the borrower all notices required by proposed Sec.
1024.41(c)(1) and (h)(4) if applicable, and the borrower has not
requested any appeal within the applicable time period or, if
applicable, all of the borrower's appeals have been denied.\51\
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\51\ Regarding the reference to notices and appeals in Sec.
1024.41(f)(2)(i), see the discussion of the proposed rule's
amendments to Sec. 1024.41(c) and (h).
---------------------------------------------------------------------------

Existing comment 31 (Request for Loss Mitigation Assistance)-2,
which the CFPB is not proposing to amend, provides that a loss
mitigation option is available through the servicer if it is an option
for which the borrower may apply, even if the borrower ultimately does
not qualify for that option. For purposes of proposed Sec. 1024.41, a
loss mitigation option would not be available if (1) the borrower
affirmatively opts out of review for that option; (2) the servicer
offers the borrower the option and the borrower rejects it; or (3) the
servicer finds the borrower ineligible for the option.
The CFPB is proposing to retain existing Sec. 1024.41(a), which
clarifies that Sec. 1024.41 imposes no duty on a servicer to provide a
borrower with any specific loss mitigation option. The CFPB
acknowledges that a servicer must follow applicable investor guidelines
regarding which loss mitigation options, if any, are available to the
borrower and for which the borrower may qualify.
Under the proposed framework, a servicer would not be required to
collect a complete loss mitigation application for all available
options prior to making a determination about whether to deny or offer
a loss mitigation option to a borrower. As a result, the servicer would
have more flexibility to review a borrower for loss mitigation options
sequentially rather than simultaneously, although a simultaneous review
would be permitted. While the CFPB expects that this approach would
create incentives for servicers to conduct loss mitigation reviews and
place borrowers into loss mitigation options quickly, the CFPB
recognizes that more complex situations may arise. For example, under
the proposed framework, a borrower may decline an offer for a specific
type of loss mitigation and seek first to learn what other options
exist. The servicer may evaluate the borrower for additional options
and the borrower may later decide that they would like to accept the
offer that they previously declined. Investor guidelines, including
what are commonly referred to as waterfalls, will continue to determine
whether any loss mitigation option is available and whether the
borrower qualifies for a given option.\52\ However, as further
discussed in part IV.C, to achieve the goal that borrowers be

[[Page 60214]]

informed of whether certain loss mitigation options are or will
continue to be available, the CFPB is proposing to add loss mitigation
determination notice disclosure requirements related to this issue. The
CFPB encourages servicers to work with borrowers throughout the loss
mitigation process, including by allowing borrowers to select an option
that the borrower previously rejected, subject to investor
requirements.
---------------------------------------------------------------------------

\52\ A waterfall is an evaluation criteria that sets an order
ranking for evaluation of loss mitigation options.
---------------------------------------------------------------------------

Similarly, the CFPB encourages a servicer to re-review a borrower
for an option for which the borrower was previously denied during the
same loss mitigation review cycle. Such a review may be due to changed
borrower circumstances or other reasons, subject to investor
requirements. The CFPB is proposing changes to Sec. 1024.41(i) and
deleting no longer applicable commentary regarding duplicative requests
to align that provision with the new proposed regulatory framework. The
proposed language clarifies that servicers must comply with the
requirements of Sec. 1024.41 for a borrower's request for loss
mitigation assistance during the same loss mitigation review cycle
unless one of the procedural safeguards is met.
A loss mitigation review cycle would continue while a borrower is
in a temporary or trial loss mitigation period, such as a forbearance
or loan modification trial payment plan, and the loan has not yet been
brought current. Thus, if a borrower were placed in a loan modification
trial payment plan and missed a payment or otherwise became unable to
perform on the trial plan, the servicer would not be permitted to
advance the foreclosure process immediately. Rather, the servicer would
be required to review the borrower for any remaining available loss
mitigation options.
The CFPB requests comment on all aspects of proposed Sec.
1024.41(f)(2)(i), including the advantages and disadvantages of
permitting a sequential review process.
v. Unresponsive Borrower
Under the second proposed procedural safeguard in Sec.
1024.41(f)(2)(ii), a servicer would be able to begin or advance the
foreclosure process if the servicer has regularly taken steps to
identify and obtain any information and documents necessary from the
borrower to determine which loss mitigation options, if any, it will
offer to the borrower, and, if the servicer has made a loss mitigation
determination, has regularly taken steps to reach the borrower
regarding that determination, but the borrower has not communicated
with the servicer for at least 90 days.
The CFPB preliminarily determines that allowing a servicer to
proceed with foreclosure for a borrower who has been unresponsive for
less than 90 days may encourage less rigorous and less effective
servicer outreach. The CFPB proposes comment 41(f)(2)(ii)-3 to clarify
that servicers cannot delay or procrastinate in their efforts to obtain
information or documentation necessary to evaluate a borrower for loss
mitigation, and that servicers cannot delay or procrastinate in their
efforts to notify borrowers of available loss mitigation options.
Accordingly, comment 41(f)(2)(ii)-3 states that, although a servicer
has flexibility to establish its own requirements regarding the
documents and information necessary for a loss mitigation review,
throughout the loss mitigation review cycle, the servicer must
regularly communicate the status of the loss mitigation review to the
borrower, which includes requesting documentation and information that
the servicer requires from the borrower and communicating available
loss mitigation options.
This proposed procedural safeguard, requiring that the servicer has
regularly taken steps to identify and obtain any information and
documents necessary from the borrower and has regularly taken steps to
reach the borrower, is intended to ensure that servicers are making
efforts to be in regular contact with borrowers during the loss
mitigation review cycle before moving forward in circumstances where a
borrower is unresponsive. This safeguard is based on the existing
rule's requirement that servicers exercise reasonable diligence in
obtaining documents and information from the borrower to complete the
loss mitigation application. In exercising reasonable diligence,
servicers must promptly communicate with borrowers about the status of
their application, any missing documents or information the servicer
needs to evaluate the borrower for loss mitigation, and any deadlines
by which the borrower should submit the documents or information the
servicer needs. Once a servicer obtains all the information and
documentation from the borrower to evaluate the loss mitigation
application, the servicer is required to communicate to the borrower
that the application is complete, and later communicate what loss
mitigation options, if any, it can offer to the borrower.
While the proposed loss mitigation framework removes most of the
existing requirements regarding incomplete and complete loss mitigation
applications, the CFPB has preliminarily determined that the proposed
procedural safeguard requiring that servicers regularly communicate
with borrowers at various stages of the loss mitigation review cycle
before servicers can begin or advance foreclosure will protect
borrowers from avoidable foreclosure. Moreover, while the CFPB proposes
to replace the term ``reasonable diligence'' with the ``regularly taken
steps'' phrasing that uses simpler language, it does not intend to
reduce or lessen a servicer's existing obligation to identify and
obtain needed information and to communicate with borrowers about their
loss mitigation determination status. For example, under the proposed
rule, servicers would still be required to reach out to borrowers
through multiple live and written methods, including the borrower's
preferred method if so indicated.
Even as the CFPB expects servicers to be in regular contact with
borrowers seeking loss mitigation, including borrowers who have been
unresponsive for a period of time, the CFPB acknowledges that it would
be harmful to borrowers, servicers, and investors if a servicer was
never able to begin or advance the foreclosure process. The CFPB
preliminarily believes 90 days is a sufficient timeframe to allow
borrowers to respond to a servicer's communication attempts. The CFPB's
proposal of 90 days is similar to the timeframe used for the
unresponsive borrower provision of the temporary special COVID-19 loss
mitigation procedural safeguards put in place in 2021.\53\
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\53\ 86 FR 34848, 34885 (June 30, 2021).
---------------------------------------------------------------------------

The CFPB also proposes several changes to commentary to clarify
proposed Sec. 1024.41(f)(2)(ii). The CFPB proposes to make minor
amendments to existing comment 41(f)(3)(ii)(C)-1 and transfer it to
proposed comment 41(f)(2)(ii)-1. Existing comment 41(f)(3)(ii)(C)-1
provided clarity regarding when a borrower was considered to be
unresponsive for purposes of the now expired temporary special COVID-19
loss mitigation procedural safeguards in Sec. 1024.41(f)(3). The CFPB
is proposing to remove the last sentence of comment 41(f)(3)(ii)(C)-1,
since that sentence was primarily applicable to borrowers who may not
have communicated with their servicer at all since becoming delinquent.
The CFPB preliminarily determines that the subject sentence has limited
utility for the new proposed procedural safeguards in Sec. 1024.41(f).
The CFPB is also proposing to relocate existing comment

[[Page 60215]]

41(f)(3)(ii)(C)-2, which generally provides that communication from a
borrower's representative constitutes communication from the borrower
themselves, to proposed comment 41(f)(2)(ii)-2. Though existing comment
41(f)(3)(ii)(C)-2 was finalized as part of the now expired temporary
special COVID-19 loss mitigation procedural safeguards in Sec.
1024.41(f)(3), the CFPB preliminarily believes that it remains
applicable to the new proposed procedural safeguards in Sec.
1024.41(f), and therefore proposes to relocate it without amendment.
The CFPB requests comment on all aspects of proposed Sec.
1024.41(f)(2)(ii) and, in particular, requests comment on the following
issues:
(i) Does 90 days provide borrowers with a sufficient amount of time
to respond to a servicer's communication and avoid foreclosure? If not,
what amount of time is sufficient?
(ii) Does the CFPB's proposal to require servicers to regularly
take steps to obtain information and to regularly take steps to contact
borrowers before making the first notice or filing required by
applicable law for any judicial or non-judicial foreclosure process, or
if applicable, before advancing the foreclosure process, adequately
provide servicers with the appropriate incentives to make regular
attempts to obtain missing information or contact the borrower
regarding loss mitigation determinations? Should the CFPB consider more
specific requirements, or provide additional clarification in the
commentary, for determining when a servicer has ``regularly taken
steps'' in accordance with proposed Sec. 1024.41(f)(2)(ii)? Are there
ways that the CFPB could further simplify and streamline these proposed
requirements?
vi. Abandoned Property
The CFPB recognizes that the 2021 Mortgage Servicing Final Rule's
temporary special COVID-19 procedural safeguards included an exception
for abandoned property, generally stating that the servicer may begin
the foreclosure process if the property securing the mortgage loan is
abandoned according to the laws of the State or municipality where the
property is located. As described in the preamble to that rule, this
procedural safeguard was specific to the circumstances of the COVID-19
pandemic, including the extended foreclosure moratorium, and the
expected surge in foreclosure activity. The CFPB stated that this
safeguard was not intended to define abandoned property or principal
residence more broadly for purposes of Regulation X. The CFPB requests
comment on all aspects of proposed Sec. 1024.41(f)(2)(ii), including
on whether the CFPB should include an abandoned property exception in
this rulemaking, and, if so, what the content of that exception should
be.
vii. Fee Protections
The CFPB proposes to replace the temporary COVID-19 procedural
safeguards at Sec. 1024.41(f)(3) with a proposed requirement that
during a loss mitigation review cycle, no fees beyond the amounts
scheduled or calculated as if the borrower made all contractual
payments on time and in full under the terms of the mortgage contract
shall accrue on the borrower's account.
The CFPB preliminarily determines that borrowers who have made a
request for loss mitigation assistance should not continue accruing
fees that make it harder for them to resolve the delinquency and avoid
foreclosure. In addition, the CFPB preliminarily determines that fee
protections may create incentives for servicers under the proposed new
framework to efficiently process a borrower's request for loss
mitigation assistance and evaluate them for loss mitigation solutions
quickly and accurately.
The CFPB has previously acknowledged that the waiver of
delinquency-related fees benefits borrowers who are already
experiencing financial hardship. In the 2020 Mortgage Servicing Interim
Final Rule and the 2021 Mortgage Servicing Final Rule (COVID-19-related
mortgage servicing rules finalized in line with section 4022 of the
CARES Act,\54\ which restricted the accrual of interest, penalties, and
fees during forbearance), the CFPB allowed servicers to offer certain
loss mitigation options to borrowers even if the borrowers had not yet
submitted a complete application, as long as the options incorporated a
fee waiver as a safeguard. In the 2020 Mortgage Servicing Interim Final
Rule, the CFPB explained that benefits of the fee waiver included (1)
eliminating the immediate potential risk of foreclosure, (2) permitting
borrowers to resume repayment with no delinquency and no additional
fees or interest, and (3) enabling borrowers to better plan how to
eventually repay the amount that was deferred. Similarly, in the 2021
Mortgage Servicing Final Rule, the CFPB explained that loss mitigation
options qualifying for the complete application exception adopted in
the final rule (which included required fee waivers) avoided imposing
additional economic hardship on borrowers who had already experienced
prolonged hardship due to the pandemic.
---------------------------------------------------------------------------

\54\ The Coronavirus Aid, Relief, and Economic Security Act
(CARES Act), Public Law 116-136, section 4022, 134 Stat. 281, 490
(2020).
---------------------------------------------------------------------------

The proposed fee protection would be broad, and would restrict the
accrual of interest, penalties, and fees during the loss mitigation
review cycle. Though this broad prohibition may result in servicers
making payments to third party companies for delinquency-related
services that servicers may not be able to recoup, as stated above, the
CFPB preliminarily determines that this result may further create
incentives for servicers to process loss mitigation applications
quickly and accurately in order to minimize costs and lost revenue.
viii. Removing Aspects of the Current Application-Based Framework From
Sec. 1024.41
As discussed in detail above, the CFPB proposes to amend the
existing Sec. 1024.41 loss mitigation framework to simplify the loss
mitigation process for borrowers and servicers, and to provide more
flexibility to servicers while continuing to protect borrowers from
avoidable foreclosures and certain fees. As a result of the proposed
amendments, the CFPB proposes to remove most of the application-based
framework from Sec. 1024.41. Specifically, the CFPB proposes to remove
the existing provisions regarding loss mitigation application reviews
and notices in Sec. 1024.41(b); complete application evaluations and
notices in Sec. 1024.41(c)(1); ``anti-evasion'' facially-complete
applications, and exceptions for short-term loss mitigation options and
COVID-19-related options in Sec. 1024.41(c)(2); notices of complete
application in Sec. 1024.41(c)(3); and the associated commentary. The
CFPB is also proposing to remove Sec. 1024.41(c)(4), which generally
requires a servicer to exercise reasonable diligence in obtaining
information or documentation not in the borrower's control; however, as
discussed in detail in part IV.C, the CFPB plans to incorporate the
general requirements of existing Sec. 1024.41(c)(4) into proposed
Sec. 1024.41(c)(2). The CFPB is also proposing a technical edit to
Sec. 1024.38(b)(2)(vi). This proposed technical edit would remove the
reference to the notice requirement in existing Sec.
1024.41(b)(2)(i)(B), which the CFPB proposes to remove.
The CFPB preliminarily determines that these provisions are no
longer necessary under the proposed loss mitigation framework. Under
the new

[[Page 60216]]

framework that the CFPB is proposing, all borrowers would receive
foreclosure protections as soon as they request loss mitigation
assistance. Thus, under the proposed loss mitigation framework, the
existing Sec. 1024.41 provisions listed above are no longer necessary.
For example, it would no longer be necessary to define an application
as either complete or incomplete for purposes of the CFPB's loss
mitigation rules, as the proposed loss mitigation framework removes
that distinction. In addition, it would no longer be necessary to
require the servicer to notify the borrower within five days that the
servicer has received and determined that the loss mitigation
application is incomplete to ensure the borrower has enough time to
complete its loss mitigation application and obtain foreclosure
protections because the proposed loss mitigation framework would
require all borrowers to receive foreclosure protections as soon as
they request loss mitigation assistance.
The CFPB also proposes conforming changes to Sec. 1024.41(k) and
its associated commentary. Generally, existing Sec. 1024.42(k)
addresses servicers' obligations and borrower protections following a
mortgage servicing transfer when a loss mitigation application is
pending. Primarily, the proposed conforming changes would replace the
terms loss mitigation application and complete loss mitigation
application with references to a request for loss mitigation
assistance. The CFPB also proposes to make other changes throughout
Sec. 1024.41(k) and its associated commentary to conform to the
changes discussed elsewhere in this proposal.
The CFPB requests comment on all aspects of its proposal to remove
the existing loss mitigation framework in Sec. 1024.41 and associated
commentary. In particular, the CFPB requests comment on whether the
CFPB should consider alternatives that would retain parts of the
existing Sec. 1024.41 loss mitigation framework. For example, consumer
advocates have suggested the CFPB amend the definition of ``complete
application'' in existing Sec. 1024.41(b)(1) to include a list of
specific documents that a borrower must submit. If so, how would their
retention combine with the proposed Sec. 1024.41 loss mitigation
framework?

B. Changes to Early Intervention Requirements (Sec. 1024.39)

In addition to removing language relating to the COVID-19 pandemic,
as discussed in part IV.G, the CFPB proposes to amend the early
intervention requirements in Sec. 1024.39 in three other ways. First,
it proposes to amend the content of Sec. 1024.39(b) written notices to
require that those notices include certain additional information, such
as the name of the investor currently holding the borrower's mortgage.
Second, it proposes to create alternative early intervention notice
requirements in Sec. 1024.39(e) for borrowers performing under the
terms of a forbearance agreement. Third, it proposes to amend comments
39(a)-4.i.A and 39(a)-6 so that those comments reflect the procedural
safeguards established by proposed Sec. 1024.41(f).
1. Requiring Investor Specific Information in Written Early
Intervention Notices
The CFPB proposes to require a servicer to include additional
information in the written early intervention notices required under
Sec. 1024.39(b)(2) to more fully inform the borrower about loss
mitigation options that may be available from the owner or assignee of
the borrower's loan. Under these proposed requirements, a servicer
would provide contact information for borrowers to access a list of
such loss mitigation options, the name of the investor, i.e., owner or
assignee of the borrower's loan, as well as additional descriptive
information about each type of loss mitigation option that is generally
available from that investor. The CFPB also proposes to make conforming
changes to relevant existing commentary and to remove model clauses MS-
4(A) and MS-4(B), currently in appendix MS-4.
Servicers are currently required to provide a delinquent borrower
with a written early intervention notice containing certain information
no later than 45 days into the borrower's delinquency and at specified
intervals thereafter while the borrower remains delinquent.\55\ Section
1024.39(b)(2) currently requires that written early intervention
notices include certain information to ensure that a borrower is made
aware of available loss mitigation options and the ability to contact
the servicer to understand their options. Section 1024.39(b)(2)(ii)
currently states that the written early intervention notice must
include the telephone number to access servicer personnel assigned
pursuant to Sec. 1024.40(a) and the servicer's mailing address.
Sections 1024.39(b)(2)(iii) and (iv) currently require that, if
applicable, the written early intervention notice must include a
statement providing a brief description of examples of loss mitigation
options that may be available from the servicer, and either application
instructions or a statement informing the borrower how to obtain more
information about loss mitigation options from the servicer.
---------------------------------------------------------------------------

\55\ These requirements are similar to those imposed by the GSEs
and FHA.
---------------------------------------------------------------------------

As discussed in part IV.A, the CFPB is proposing to allow servicers
to review borrowers for loss mitigation options sequentially rather
than requiring that servicers evaluate a borrower for all available
options at the same time. As a result, under the proposed rule, a
borrower may only receive information about the option for which they
were most recently reviewed. Borrowers could benefit, however, from
more information at the beginning of the process in order to better
understand their options.
The CFPB is proposing to require servicers to include two
additional resources for borrowers, the details of which would be
disclosed under Sec. 1024.39(b)(2)(ii). In addition to the telephone
number to access servicer personnel assigned pursuant to existing Sec.
1024.40(a) and the servicer's mailing address, the CFPB is proposing
that the written early intervention notice must also include the
telephone number where the borrower can access a list of all loss
mitigation options that may be available from the owner or assignee of
the borrower's loan and a website to access the same list of all loss
mitigation options that may be available from the owner or assignee of
the borrower's loan. The telephone number provided may be the same as
the telephone number to access servicer personnel, which is already
required to be included in the written early intervention notice under
Regulation X's continuity of contact provision pursuant to Sec.
1024.40(a). The website would be a resource where borrowers in
delinquency could obtain information about all loss mitigation options
that the owner or assignee of their loan may make available. Servicers
may outsource the development and maintenance of the website, but must
ensure that the information available is accessible, accurate, and
complete.
The CFPB is proposing that the servicer disclose the name of the
owner or assignee of the borrower's loan along with a statement
providing a brief description of each type of loss mitigation option
that is generally available from the investor of the borrower's loan
under Sec. 1024.39(b)(2)(iii). The CFPB is proposing that the servicer
disclose the name of the owner or assignee of the loan both for
transparency and so that borrowers and their housing counselors may
better navigate the loss mitigation

[[Page 60217]]

process and understand what loss mitigation options may be available to
them from the particular investor on their loan through the servicer.
The CFPB is proposing to change the language in existing Sec.
1024.39(b)(2)(iii) from servicer to owner or assignee because available
loss mitigation options are determined by the investor and not the
servicer. This proposed change is not intended to be substantive, but
rather is for the purpose of clarifying and cross-referencing the
terminology used across Regulation X when referring to loss mitigation
options as defined under Sec. 1024.31.
The CFPB is proposing to amend the existing Sec.
1024.39(b)(2)(iii) requirement that servicers include a statement
providing a brief description of examples of loss mitigation options
that may be available from the investor. Under the proposed rule,
servicers would be required to include a statement providing a brief
description of each type of loss mitigation option that is generally
available from the investor. The existing framework allows servicers to
list generic examples of loss mitigation options, without specifying a
number of examples or requiring that all types or categories of loss
mitigation options are listed on the written early intervention notice.
The proposed amendment would instead require servicers to provide
greater specificity to borrowers based on the types of loss mitigation
that the investor offers, but would strike a balance by still not
necessarily requiring a description of all individual programs that may
be available from the investor on the borrower's loan in the written
early intervention notice itself. For example, types of loss mitigation
options could include forbearance, deferral, and loan modification.
Under the proposed rule, if the investor offers various forbearance,
deferral, and loan modification programs, each such category would
constitute a different type of loss mitigation option and servicers
need only give a brief description of each category, even if there were
multiple programs under each category made available by the investor.
Consistent with this change, the CFPB is proposing to make conforming
terminology amendments to existing comments 39(b)(2)(iii)-1 and
39(b)(2)(iii)-2.
The CFPB is proposing to amend Sec. 1024.39(b)(2)(iv) to include a
statement informing the borrower how to make a request for loss
mitigation assistance, and no longer require the inclusion of a
statement informing the borrower about how to obtain more information
about loss mitigation options from the servicer. The proposed additions
in Sec. 1024.39(b)(2)(ii) and (iii) would otherwise require the
servicer to provide more information about loss mitigation options that
may be available, without a request for more information from the
borrower. The borrower would still receive the telephone number to
access servicer personnel and the servicer's mailing address should the
borrower wish to seek additional information about loss mitigation
assistance beyond that which would already be made available through
the proposed requirements. For consistency, the CFPB is proposing to
make conforming terminology amendments to existing comment
39(b)(2)(iv)-1.
The CFPB is also proposing to remove model clauses MS-4(A) and MS-
4(B) in appendix MS-4, as well as relevant regulatory text in Sec.
1024.39(b)(3), which allows servicers to use model clauses MS-4(A) and
MS-4(B) to comply with the requirements of Sec. 1024.39(b). The CFPB
proposes these changes because the language in model clauses MS-4(A)
and MS-4(B) would no longer align with the proposed rule's
requirements.
2. Alternative Early Intervention Notice Requirements for Borrowers
Performing Pursuant to the Terms of a Forbearance
Under the existing rules, servicers generally must provide early
intervention live contact and written notices to delinquent borrowers,
including borrowers performing pursuant to the terms of a forbearance.
In response to its September 2022 Request for Information (RFI),\56\
the CFPB received comments asking it to change how these requirements
apply to borrowers who have accepted a forbearance. One industry trade
group noted that requiring early intervention notices to continue while
a borrower is performing pursuant to the terms of a forbearance creates
unnecessary borrower confusion because the notices do not reflect the
fact that the borrower and the servicer have entered into a
forbearance. Additionally, several consumer advocates indicated that
the current early intervention notice requirements are deficient
because they do not require servicers to provide borrowers in
forbearance with written notice at the end of their forbearance period.
These commenters asked the CFPB to consider adding a new requirement
that servicers send a notice to borrowers at least 30 days before the
end of their forbearance period that explains their options post-
forbearance.
---------------------------------------------------------------------------

\56\ See CFPB, Request for Information Regarding Mortgage
Refinances and Forbearances, 87 FR 58487 (Sept. 27, 2022); see also
CFPB, Request for Information: Mortgage Refinances and Forbearances,
Docket ID CFPB-2022-0059, <a href="https://www.regulations.gov/document/CFPB-2022-0059-0001/comment">https://www.regulations.gov/document/CFPB-2022-0059-0001/comment</a> (last visited July 1, 2024).
---------------------------------------------------------------------------

The CFPB proposes to address these concerns by creating alternative
early intervention notice requirements for borrowers performing
pursuant to the terms of a forbearance. These proposed requirements
would replace the current temporary COVID-19 related live contact
provisions at Sec. 1024.39(e) and would consist of three provisions,
proposed Sec. 1024.39(e)(1), (2), and (3). As discussed in more detail
below, proposed Sec. 1024.39(e)(1) would provide that servicers may
forgo the live contact and written early intervention notice
requirements of Sec. 1024.39(a) and (b) while a borrower is in a
forbearance; proposed Sec. 1024.39(e)(2) would provide that servicers
must provide delinquent borrowers with forbearance-specific live
contact and written early intervention notices prior to the scheduled
end date of their forbearance; and proposed Sec. 1024.39(e)(3) would
establish procedures for resuming compliance with Sec. 1024.39(a) and
(b) after a borrower's forbearance period ends.
i. Partial Exemption From Sec. 1024.39(a) and (b) if a Borrower Is
Performing Pursuant to the Terms of a Forbearance (Section
1024.39(e)(1))
The CFPB proposes to add a new Sec. 1024.39(e)(1) that would
partially exempt servicers from the requirements of Sec. 1024.39(a)
and (b) while a borrower performs pursuant to the terms of a
forbearance. As noted above, providing borrowers with early
intervention notices while they are in forbearance may create borrower
confusion. For example, a borrower who just entered into a forbearance
may think that the servicer failed to process the forbearance if,
shortly after executing the agreement, they receive a written early
intervention notice encouraging them to contact their servicer to learn
more about loss mitigation options and how to apply. Additionally,
where the borrower and servicer have entered into a forbearance,
borrower-servicer communication is already established, obviating the
need for early intervention notices as a tool to prompt such
communication.\57\ Furthermore, as discussed in part IV.A, proposed
Sec. 1024.41(f)(2) would provide borrowers

[[Page 60218]]

with foreclosure protections for the entirety of a loss mitigation
review cycle, such that a servicer could not initiate or advance
foreclosure proceedings against a borrower who accepts a forbearance
unless the procedural safeguards in proposed Sec. 1024.41(f)(2)(i) or
(ii) were met. As a result, suspending early intervention requirements
while a borrower performs pursuant to the terms of a forbearance poses
less risk to the borrower alongside these proposed procedural
safeguards.
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\57\ As discussed in the 2013 Mortgage Servicing Final Rule, one
of the principal rationales for requiring early intervention loss
mitigation notices is to correct impediments to borrower-servicer
communication so that borrowers have a reasonable opportunity to
pursue loss mitigation at the early stages of their delinquency. See
78 FR 10696, 10788-89 (Feb. 14, 2013).
---------------------------------------------------------------------------

ii. Contact and Notice Requirements for a Forbearance Nearing Its
Scheduled End (Section 1024.39(e)(2))
The CFPB proposes to add a new Sec. 1024.39(e)(2) that would
require servicers to attempt to establish live contact with and to send
written notices to delinquent borrowers nearing the scheduled end of
their forbearance. Specifically, proposed Sec. 1024.39(e)(2)(i) would
provide that servicers must make good faith efforts to establish live
contact with delinquent borrowers at least 30 days, but no more than 45
days, before the scheduled end of their forbearance. During such live
contact, servicers would be required to notify delinquent borrowers of
the date their forbearance is scheduled to end and of the availability
of loss mitigation options, if appropriate, as set forth in Sec.
1024.39(a). Similarly, proposed Sec. 1024.39(e)(2)(ii) would provide
that servicers must send delinquent borrowers a written notice at least
30 days, but no more than 45 days, before the scheduled end of their
forbearance. This written notice would disclose the date that the
borrower's current forbearance is scheduled to end as well as the
content of the written notice as set forth in proposed Sec.
1024.39(b)(2)(i) through (v).
These live contact and written notice requirements would apply only
to delinquent borrowers because delinquent borrowers typically will
need to apply for additional loss mitigation options. In contrast, if a
borrower were to cure their delinquency during their forbearance
period, the information provided by proposed Sec. 1024.39(e)(2) would
not be relevant to the borrower and, in fact, could confuse the
borrower by incorrectly stating that they were delinquent.
The CFPB proposes that servicers must provide the live contact and
written notices described in proposed Sec. 1024.39(e)(2)(i) and (ii)
at least 30 days, but no more than 45 days, before the scheduled end of
a borrower's forbearance for several reasons. First, this timing should
help maximize the likelihood that borrowers have time to apply for
additional loss mitigation while being close enough to the end of
forbearance that it is sensible for them to do so. Second, the CFPB
understands that some mortgage investors already require servicers to
contact borrowers at least 30 days before the scheduled end of their
forbearance.\58\ Aligning the timing of the live contact and written
notice requirements described in proposed Sec. 1024.39(e)(2)(i) and
(ii) with existing investor requirements should avoid duplicative
contact efforts that would increase servicer burden and potentially
cause borrower confusion. Third, the CFPB preliminarily finds that the
communications described in proposed Sec. 1024.39(e)(2)(i) and (ii)
would be more useful to borrowers if they occurred roughly
contemporaneously. For example, borrowers and servicers may have more
productive conversations if borrowers have access to the written notice
at the time of live contact. Alternatively, if the written notice
arrived shortly after the servicer established live contact, it could
reinforce the information provided during live contact.
---------------------------------------------------------------------------

\58\ See Fannie Mae, Forbearance Plan Terms, In Fannie Mae
Servicing Guide--Fannie Mae Single Family, at 319 (May 8, 2024),
<a href="https://singlefamily.fanniemae.com/media/39096/display">https://singlefamily.fanniemae.com/media/39096/display</a> (Fannie Mae
Forbearance Plan Terms); Freddie Mac Single Family, Contact
Requirements when transitioning from a forbearance plan (Oct. 11,
2023), <a href="https://guide.freddiemac.com/app/guide/section/9203.14">https://guide.freddiemac.com/app/guide/section/9203.14</a>.
---------------------------------------------------------------------------

The CFPB further proposes to tie the timing requirements described
in proposed Sec. 1024.39(e)(2)(i) and (ii) to the scheduled end of the
borrower's forbearance rather than the actual end date of the
borrower's forbearance because a consumer may leave a forbearance early
or the parties may agree to extend the forbearance period. As a result,
tying the timing requirements to the scheduled end of the borrower's
forbearance would provide servicers a more certain date for compliance
purposes. If a borrower's forbearance ended before the servicer either
sent the written notice described in proposed Sec. 1024.39(e)(2)(ii)
or attempted to establish live contact as described in proposed Sec.
1024.39(e)(2)(i), proposed Sec. 1024.39(e)(3) would provide servicers
with procedures for resuming compliance with Sec. 1024.39(a) and (b).
The live contact and written notice requirements described in
proposed Sec. 1024.39(e)(2)(i) and (ii) would parallel the live
contact and written notice requirements described in Sec. 1024.39(a)
and (b)(2), respectively, except that they also would require the
servicer to disclose the date that the borrower's forbearance is
scheduled to end. The CFPB proposes this approach for two reasons.
First, borrowers who remain in forbearance for many months are likely
to benefit from a reminder about the need to work with their servicer
if they wish to obtain a permanent loan modification. Second, because
proposed Sec. 1024.39(e)(1) would partially exempt servicers from the
requirements of Sec. 1024.39(a) and (b) while a borrower performs
pursuant to the terms of a forbearance agreement, borrowers who remain
in forbearance for many months also likely would not receive the early
intervention notices required by Sec. 1024.39(a) and (b) for several
months and likely would benefit from receiving such information again
given the lapse of time since they were previously provided such
notices.
iii. Procedures for Resuming Compliance With Sec. 1024.39(a) and (b)
(Section 1024.39(e)(3))
Proposed Sec. 1024.39(e)(3) would provide that, when a forbearance
ends for any reason, including, but not limited to, the borrower's
successful completion of a forbearance or the borrower's nonperformance
under the terms of a forbearance, a servicer that was exempt from Sec.
1024.39(a) and (b) pursuant to Sec. 1024.39(e)(1) must resume
compliance with Sec. 1024.39(a) and (b) after the next payment due
date following the forbearance end date. This proposed approach would
align with the approach used in Sec. 1024.39(c)(2) for resuming
compliance with Sec. 1024.39(a) and (b) after the borrower has become
a debtor in a bankruptcy proceeding.\59\ Additionally, the CFPB
preliminarily finds that resuming compliance on the next payment due
date provides servicers with a clear date for resuming compliance.
---------------------------------------------------------------------------

\59\ See 12 CFR 1024.39(c)(2)(i) (``[A] servicer that was exempt
from paragraphs (a) and (b) of this section . . . must resume
compliance with paragraphs (a) and (b) of this section after the
next payment due date that follows the earliest of the following
events . . ..'') (emphasis added).
---------------------------------------------------------------------------

Existing Sec. 1024.39(b)(1) provides that a servicer is not
required to provide the written notice required by Sec. 1024.39(b)
more than once during any 180-day period. Because it would be
functionally identical to the Sec. 1024.39(b) written notice, the
Sec. 1024.39(e)(2)(ii) written notice is a suitable substitute for the
Sec. 1024.39(b) written notice and should reset the start date for
calculating the 180-day period in Sec. 1024.39(b). To this end,
proposed Sec. 1024.39(e)(3) would clarify that, for purposes of
providing the written notice required by Sec. 1024.39(b) after
resuming compliance, the 180-day period referenced in Sec. 1024.39(b)
begins with the date the

[[Page 60219]]

servicer provided the last written notice to the borrower under either
Sec. 1024.39(b) or Sec. 1024.39(e)(2)(ii), whichever is later.
3. Amendment To Comment 39(a)-4.i.A
Promptly after establishing live contact, Sec. 1024.39(a) requires
a servicer to inform a delinquent borrower about the availability of
loss mitigation options ``if appropriate.'' Existing comment 39(a)-4.i
states that it is appropriate for a servicer to inform a delinquent
borrower about the availability of loss mitigation options if the
borrower notifies the servicer of a material adverse change in their
financial circumstances that is likely to cause them to experience a
long-term delinquency for which loss mitigation options may be
available.
The CFPB proposes to amend the example in comment 39(a)-4.i.A to
clarify that it is appropriate for a servicer to inform a delinquent
borrower about the availability of loss mitigation options if the
borrower notifies the servicer of a hardship for which a loss
mitigation option may be available. The CFPB proposes this change to
make clear that it would be appropriate to inform borrowers about the
availability of loss mitigation options whenever a loss mitigation
option may be available to the borrower, irrespective of the projected
length of the borrower's delinquency or the extent to which the
borrower's financial circumstances have changed.
4. Amendment To Comment 39(a)-6
Existing comment 39(a)-6 clarifies, among other things, that:

[i]f the servicer has established and is maintaining ongoing
contact with the borrower under the loss mitigation procedures under
Sec. 1024.41, including during the borrower's completion of a loss
mitigation application or the servicer's evaluation of the
borrower's complete loss mitigation application, or if the servicer
has sent the borrower a notice pursuant to Sec. 1024.41(c)(1)(ii)
that the borrower is not eligible for any loss mitigation options,
the servicer complies with Sec. 1024.39(a) and need not otherwise
establish or make good faith efforts to establish live contact.

To reflect the new loss mitigation requirements in proposed Sec.
1024.41, discussed in part IV.A, proposed comment 39(a)-6 would replace
the phrase ``maintaining ongoing contact with the borrower under the
loss mitigation procedures under Sec. 1024.41'' with the phrase
``maintaining regular contact with the borrower during a loss
mitigation review cycle under Sec. 1024.41'' and would strike examples
referencing the borrower's completion of a loss mitigation application,
the borrower's complete loss mitigation application, and the Sec.
1024.41(c)(1)(ii) notice.
The CFPB requests comment on all aspects of proposed Sec.
1024.39(e) and, in particular, requests comment on the following
issues:
(i) Do the live contact and written notice requirements in proposed
Sec. 1024.39(e)(2)(i) and (ii) align with existing investor
requirements for contacting borrowers before the end of their
forbearance period?
(ii) Would borrowers in a forbearance who are no longer delinquent
for purposes of Sec. 1024.39 benefit from additional servicer contact
before the scheduled end of their forbearance period? If so, what
information should servicers provide to such borrowers during such
contact?

C. Loss Mitigation Determinations--Covered Errors and Appeals Process
(Sec. Sec. 1024.35 and 1024.41)

The CFPB proposes to amend Regulation X to clarify that inaccurate
loss mitigation determinations are a covered error under the existing
error resolution provisions in Sec. 1024.35. In addition, the CFPB
proposes to amend the current loss mitigation appeal process provisions
in Sec. 1024.41(h) to clarify how they relate to the procedures in
Sec. 1024.35 and to expand them to cover all loss mitigation
determinations, instead of only loan modification denials. Lastly, the
CFPB proposes to amend comment 41(h)(3)-1 to remove all references to a
complete application, conforming to changes the CFPB proposes to make
throughout Sec. 1024.41, as discussed above.
The CFPB is aware of confusion about whether the ``catch-all''
category in the error resolution procedures in Sec. 1024.35(b)(11)
includes loss mitigation determinations. Although the CFPB did not
explicitly specify loss mitigation determinations as a covered error
category in the 2013 Mortgage Servicing Final Rule, it has always
intended for the catch-all to cover a broad range of errors--including
errors related to loss mitigation determinations. However, courts have
interpreted this issue inconsistently, with some courts finding that
the catch-all does include loss mitigation determinations, and others
finding that it does not. Thus, the CFPB believes that it should
provide clarity on this issue in a manner that is consistent with its
longstanding interpretation and original intent.
Given the interrelatedness of the subject matter and policy goals
of the two provisions, the CFPB proposes to amend both the error
resolution provision in Sec. 1024.35 and the appeal process provision
in Sec. 1024.41(h) as described below.
1. Error Resolution Provisions
Regulation X's error resolution provisions in Sec. 1024.35
currently implement RESPA sections 6(k)(1)(C) and 6(e), requiring a
servicer to comply with several specific procedural requirements,
including conducting a reasonable investigation, for any written notice
from the borrower that asserts a covered error and that meets other
specified criteria. Under RESPA, servicers must respond to qualified
requests to address errors related to ``allocation of payments, final
balances for purposes of paying off the loan, or avoiding foreclosure,
or other standard servicer's duties.'' 12 U.S.C. 2605(k)(1)(C). Section
1024.35 lists ten specifically enumerated categories of covered errors,
plus a catch-all for ``any other error relating to the servicing of a
borrower's mortgage loan.''
The CFPB has consistently viewed servicer activities related to
whether a borrower is able to avoid foreclosure--including loss
mitigation determinations--as core duties of mortgage servicing,
fitting squarely within RESPA and Regulation X's coverage and purpose.
As defined in Sec. 1024.31, a loss mitigation option is an alternative
to foreclosure. Borrowers request loss mitigation options to avoid
foreclosure, and, if a servicer makes an error related to a loss
mitigation determination, that error ultimately may result in a
foreclosure. Losing a home due to an avoidable foreclosure may be one
of the greatest financial harms that can come to a mortgage borrower.
Thus, the CFPB has consistently viewed servicer errors related to loss
mitigation determinations as errors relating to the servicing of a
borrower's mortgage loan.
In promulgating the 2013 Mortgage Servicing Final Rule, the CFPB
considered but declined to add an enumerated category in Sec. 1024.35
for a servicer's failure to correctly evaluate a borrower for a loss
mitigation option.\60\ However, the CFPB did not conclude that errors
related to loss mitigation determinations were excluded from Sec.
1024.35's reach. Rather, the CFPB explained in preamble that it
intended the appeals process in Sec. 1024.41(h) as well as the catch-
all in Sec. 1024.35 to be available for borrowers who encountered
errors related to loss mitigation.
---------------------------------------------------------------------------

\60\ 78 FR 10696, 10744 (Feb. 14, 2013).
---------------------------------------------------------------------------

The CFPB stated that it intended the catch-all error provision to
be broad and flexible. RESPA expressly prohibits

[[Page 60220]]

servicers from, among other things, failing to take timely action to
respond to a borrower's request to correct errors relating to avoiding
foreclosure or other standard servicer's duties. In promulgating the
2013 Mortgage Servicing Final Rule, including the error resolution
provisions, the CFPB stated that it believed that any error related to
the servicing of a borrower's mortgage loan also relates to standard
servicer duties. In the preamble discussion regarding the catch-all
provision, the CFPB stated that it recognized that the mortgage market
was fluid, and the CFPB could not anticipate in advance all types of
errors related to servicing that a borrower may encounter. In
finalizing the catch-all, the CFPB aimed to create error resolution
procedures that were flexible enough to adapt to changes in the
mortgage market and to encompass the various types of errors that
borrowers may encounter with respect to their mortgage loans.
The CFPB emphasized that its approach to loss mitigation was not
limited to the loss mitigation procedures set forth in Sec. 1024.41
but involved a coordinated use of tools in different provisions of the
rules, including the error resolution procedures in Sec. 1024.35.\61\
---------------------------------------------------------------------------

\61\ Id.at 10816.
---------------------------------------------------------------------------

The CFPB's 2016 Mortgage Servicing Final Rule reiterated the CFPB's
view that Sec. 1024.35's error resolution requirements have always
applied to errors related to loss mitigation determinations. At that
time, the CFPB was considering whether to extend the period during
which a borrower could exercise appeal rights in cases where servicing
of the borrower's loan has been transferred. The CFPB explained that it
decided not to provide such an extension, but noted that even absent
appeal rights, borrowers may still submit a notice of error relating to
the loss mitigation or foreclosure process and to the servicing of the
loan, and servicers must comply with the notice of error
provisions.\62\
---------------------------------------------------------------------------

\62\ 81 FR 72160, 72281 (Oct. 19, 2016).
---------------------------------------------------------------------------

However, as noted above, the catch-all has not always been
interpreted as broadly as the CFPB intended in the 2013 Mortgage
Servicing Final Rule. Given the inconsistent application, the CFPB has
preliminarily determined that both servicers and borrowers would
benefit from the CFPB expressly clarifying that errors related to loss
mitigation determinations are subject to the error resolution
procedures in Sec. 1024.35. Thus, the CFPB proposes to amend Sec.
1024.35(b)(11) to specify that it covers a servicer's failure to make
an accurate loss mitigation determination.
The proposed additional language would not create additional rights
for consumers or extra burdens for servicers. Rather the additional
language regarding inaccurate loss mitigation determinations is
intended to merely clarify what the CFPB has always considered to be a
covered error under the catch-all provision.
The CFPB anticipates that this provision would work together with
proposed Sec. 1024.41(c), which would require servicers to provide
more specific information to borrowers in loss mitigation determination
offer and denial notices, allowing borrowers to have more insight into
specific reasons for servicers' loss mitigation determinations and
whether those inputs were accurate. Proposed Sec. 1024.35(b)(11) would
not, however, cover challenges to investor requirements or
specifications, such as, for example, a requirement that a borrower
complete a trial period before being offered a loan modification.
2. Appeals Process
Section 1024.41(h) currently permits a borrower to appeal a denial
of a loan modification program as long as the borrower's complete loss
mitigation application is timely received, and the borrower appeals
within specific timeframes. Different personnel must review an appeal
than those responsible for evaluating the borrower's complete loss
mitigation application. Within 30 days of a borrower making an appeal,
the servicer must provide a notice to the borrower stating the
servicer's determination.
The CFPB recognizes that an appeal process similar to that in
existing Sec. 1024.41(h) may be useful when a borrower believes an
error has occurred in a loss mitigation determination. A borrower may
be more familiar with the concept of an appeal and thus might be more
likely to submit an appeal to a servicer rather than a notice of error
under Sec. 1024.35. Thus, the CFPB is proposing to retain a revised
appeals process in Sec. 1024.41(h). As described in proposed Sec.
1024.41(h)(2), however, when the appeal meets the error resolution
procedural requirements of Sec. 1024.35, the proposed rule would
require servicers to treat it as a notice of error and to comply with
those procedural requirements.
Similarly, proposed Sec. 1024.41(h)(2) would provide that if a
borrower submits a notice of error under Sec. 1024.35 relating to a
loss mitigation determination, the notice of error is also an appeal
under Sec. 1024.41(h) if the borrower submits notice of error within
14 days after the servicer provides its loss mitigation determination.
The CFPB also proposes to amend Sec. 1024.41(h)(4) to require that,
when a notice of error is also an appeal, a servicer must complete the
notice of error response requirements in Sec. 1024.35 prior to making
a determination about the borrower's appeal under Sec. 1024.41(h). As
a result, the proposed rule would require servicers to respond to a
notice of error within 30 days, the time allowed under existing Sec.
1024.41(h)(4) for an appeal, even in those circumstances when Sec.
1024.35 allows servicers more than 30 days to respond to notices of
error.
In addition, if a borrower contests a loss mitigation determination
in a manner that does not satisfy the procedural requirements of Sec.
1024.35, the proposed rule would require a servicer to continue to
treat the borrower's statement as an appeal under Sec. 1024.41(h) and
to respond to it in accordance with its policies and procedures for
appeals.
The appeal rights in Sec. 1024.41(h) currently apply only to loan
modification denials; they do not cover other types of loss mitigation.
In the 2013 Mortgage Servicing Final Rule, the CFPB explained that it
was limiting the appeal provision to loan modification denials because
this approach maintained consistency with existing appeals and
escalation processes established under State law or Federal regulatory
agency requirements, including obligations pursuant to the National
Mortgage Settlement and the California Homeowner Bill of Rights. This
limited approach was consistent with a national focus on loan
modifications as a necessary and under-used tool for addressing the
historic rates of foreclosures. As discussed in part II, default
mortgage servicing has changed dramatically in the intervening years.
As a result, the CFPB proposes to amend Sec. 1024.41(h) to apply to
all loss mitigation determinations, not just loan modification denials.
This proposed change would require servicers to provide appeal
determination notices. As discussed below in this part, in the case of
a loss mitigation offer, the primary benefit to borrowers of requiring
detailed determination notices is to assist the borrower with potential
appeals or notices of error in cases where the terms of the offer may
depend on borrower-provided inputs. By providing details on the inputs
used as basis for the determination, the proposed notices may enable
borrowers to recognize errors in determinations and to file a notice of
error or an appeal.

[[Page 60221]]

Finally, the CFPB proposes to amend Sec. 1024.41(h)(1) to remove
the reference to the servicer receiving a complete loss mitigation
application 90 days or more before a foreclosure sale, because it would
no longer be applicable under the proposed framework.
3. Loss Mitigation Determination Notices
The CFPB proposes to amend the loss mitigation determination notice
and loan modification denial notice provisions in existing Sec.
1024.41(c) and (d) to require that servicers provide determination
notices regarding both offers and denials as well as all types of loss
mitigation options, instead of just loan modifications. Under the
proposed rule, servicers would provide borrowers with additional
information in connection with their loss mitigation determinations,
including, for example, the specific reason or reasons for the
determination to offer or deny loss mitigation assistance and any key
borrower-provided inputs that served as the basis of the determination.
The CFPB also proposes requirements regarding offers of loss mitigation
from a servicer when a borrower has not requested loss mitigation
assistance. The CFPB proposes to make conforming changes to relevant
existing commentary and renumber certain provisions for alignment with
the proposed changes.
Additionally, under this proposal, existing Sec. 1024.41(c)(4),
which relates to denials of loss mitigation solely because the servicer
lacks required documents or information not in the borrowers' control
and associated determination notices, would be relocated to Sec.
1024.41(c)(2) with certain revisions.
Section 1024.41(c) currently requires servicers to evaluate a
borrower for all available loss mitigation options upon receipt of a
complete application and to provide, among other information, a notice
stating the servicer's determination of which loss mitigation options,
if any, it will offer to the borrower. Under existing Sec. 1024.41(d),
if the servicer denies the borrower any trial or permanent loan
modification option, the notice must include information such as the
specific reason or reasons for the servicer's determination, but this
requirement does not apply to determinations on loss mitigation options
other than loan modifications.
As discussed above in part IV.A, the CFPB proposes to replace the
existing loss mitigation framework with a new framework that will allow
servicers to review borrowers for loss mitigation options sequentially.
Accordingly, the CFPB proposes to amend Sec. 1024.41(c) to remove
references to complete applications and related timing requirements so
that it instead focuses on loss mitigation determination notice
requirements more generally. The notices would add new specific
information as well as include some of the information required under
existing Sec. 1024.41(c), such as the amount of a time a borrower has
to accept or to reject an offer and the right to appeal.
i. Expansion of Determination Notice Requirements to Offers and Loss
Mitigation Options Other Than Loan Modifications
Under existing Sec. 1024.41(d), borrowers only receive the
specific reason or reasons for a loss mitigation determination when
that determination is a denial. The CFPB preliminarily determines that
servicers should be required to disclose the same information for loss
mitigation offers in order to inform borrowers about the information
relied upon while conducting the review, as this information could
require correction or serve as the basis for an appeal. As noted in
part II, non-loan modification loss mitigation options, such as
forbearances, deferrals, and partial claims, have become increasingly
common in recent years. The CFPB therefore also proposes to broaden the
determination notice requirements to apply more generally to all types
of loss mitigation offers and denials, not solely denials of loan
modifications.
ii. Additional Information in Determination Notices
In addition to disclosing the amount of time the borrower has to
accept or to reject an offer, notice of the borrower's right to appeal
the loss mitigation determination, and the specific reason or reasons
for that loss mitigation determination, the CFPB is proposing to
require that servicers include the additional information discussed
below in determination notices.
a. Borrower-Provided and Non-Borrower Provided Inputs
Servicers may rely on a variety of borrower-provided and non-
borrower-provided inputs when determining whether to offer or to deny
loss mitigation assistance to a borrower. Borrower-provided inputs, for
example, can include information such as household income. Non-borrower
provided inputs, for example, can include property valuations and
credit scores. The CFPB proposes to require disclosure of the key
borrower-provided inputs that served as the basis for the
determination. For example, if a servicer relied on income information
provided by the borrower, the servicer would be required to state that
this information served as the basis for the determination and to
provide the income figure relied upon. The CFPB preliminarily
determines that borrowers would benefit from being made aware of the
specific information that went into the servicer's determination so
that they have an opportunity to correct any errors, file an appeal, or
both. Errors could prevent a borrower from being appropriately
evaluated for all available loss mitigation options for which they may
be eligible, and therefore lead to a foreclosure action that could have
been avoided. Allowing the borrower insight into the specific borrower-
provided inputs in the written determination notice may help ensure the
borrower promptly contacts the servicer and seeks a correction where
there is an error. The CFPB preliminarily determines that providing
this information to borrowers may prevent avoidable foreclosures.
The CFPB is not requiring proactive disclosure of all non-borrower
provided inputs, although a borrower or the borrower's representative
would be able to access this information via mail, telephone, or
website, as detailed in the notice. Such information may not be useful
to the borrower when they are simply used in the review process and do
not serve as the basis for the determination. For example, a servicer
could deny a loan modification after reviewing the borrower's income
information, credit score, and the property's present value. Under the
proposed rule, if the servicer only relied on the borrower's income in
making the determination, the servicer would only be required to
disclose the borrower's income relied on and not the property value or
credit score. If, however, credit score was determinative for the
servicer, the servicer would be required to disclose the credit score
as the specific reason for the determination. The CFPB is aware that
certain borrower-provided inputs constitute sensitive consumer
information. As the CFPB has previously noted, it expects servicers and
other financial institutions to take appropriate measures to protect
consumer data.\63\
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\63\ See CFPB, Consumer Financial Protection Circular 2022-04
(Aug 11, 2022), <a href="https://www.consumerfinance.gov/compliance/circulars/circular-2022-04-insufficient-data-protection-or-security-for-sensitive-consumer-information/">https://www.consumerfinance.gov/compliance/circulars/circular-2022-04-insufficient-data-protection-or-security-for-sensitive-consumer-information/</a>.
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The CFPB proposes that determination notices must include a
telephone number, mailing address, and website to access a list of non-
borrower provided inputs, if any, that the servicer

[[Page 60222]]

used in making the loss mitigation determination. The CFPB
preliminarily determines that it would be useful for borrowers
exercising their appeal rights and seeking this information to have
access to it upon request, such that borrowers could readily identify
and correct any errors on file with the servicer.
b. Enabling the Borrower To Access a List All Loss Mitigation Options
That May be Available From the Investor
Consistent with allowing for sequential loss mitigation review, the
CFPB proposes that a written determination notice must include a
telephone number and website to access a list of all loss mitigation
options that may be available from the investor. This proposed
requirement mirrors the CFPB's proposed requirements as to the written
early intervention notice, such that the borrower would be able to
access this resource readily at this stage of the loss mitigation
review process rather than solely at the point of early intervention.
Making this information more accessible to the borrower is expected to
allow borrowers to assess their options in deciding whether to use
their appeal rights, file a notice of error, accept or decline an
offer, or request review for a different loss mitigation option.
Under the proposed rule, the servicer would be responsible for
ensuring that the website is accessible, contains accurate information,
and that the lists are complete, but the servicer may outsource the
development and/or maintenance of the website to a third party. The
requirement that this information also be available via telephone is
intended to ensure that borrowers who may not have access to the
internet are still able to receive this information. The telephone
number may be, but is not required to be, the same as the telephone
number that a servicer may provide in order for the borrower to contact
assigned personnel under the continuity of contact provision pursuant
to Sec. 1024.40(a)(2). The CFPB anticipates that this requirement
should not overly burden servicers because it is the same information
made available in the written early intervention notice provided
pursuant to Sec. 1024.39(b).
c. Remaining Available Loss Mitigation Options, Previously Offered
Options, and Continued Availability of Offered Options
The CFPB also proposes to require servicers to disclose additional
information about remaining loss mitigation options, including
previously offered options that the borrower did not accept, and
whether offered options will remain available if the borrower requests
review for additional options prior to accepting or rejecting an offer.
Informing the borrower of all other loss mitigation options that are
still available, if applicable, along with a clear statement describing
the next steps the borrower must take to be reviewed for those options,
could be useful for the borrower to engage with the servicer as to what
loss mitigation assistance they could still request following the
determination. If no loss mitigation options remain available, then the
servicer would be required to include a statement that the servicer has
reviewed the borrower for all available loss mitigation options and
none remain. Additionally, the servicer would be required to include a
list of any loss mitigation options that were previously offered that
remain available, but that the borrower did not accept at the time. If
the loss mitigation determination results in an offer, the servicer
would be required to include a statement informing the borrower whether
the offered option would remain available if the borrower were to
request further review for other loss mitigation options prior to
accepting or rejecting the offer. If the determination results in a
loss mitigation offer of a forbearance, the servicer would be required
to include a statement informing the borrower of the specific payment
terms and duration of the forbearance. This proposed disclosure
requirement regarding forbearances is similar to an existing disclosure
requirement in current Sec. 1024.41(c)(2)(iii). As noted above, the
CFPB is proposing to delete that existing provision. However, the CFPB
expects that it would continue to benefit borrowers to have a written
notice confirming that their servicer is aware of and agrees to a
forbearance for a certain period of time.
iii. Denial Due to Missing Documents or Information Not in the
Borrower's Control
Existing Sec. 1024.41(c)(4) generally prohibits a servicer from
denying a loss mitigation application due solely to missing information
not in the borrower's or servicer's control unless the servicer has
exercised reasonable diligence to obtain that information and has been
unable to obtain it for a significant period of time following the 30-
day period during which servicers are generally required to make a
determination on a complete loss mitigation application under current
Sec. 1024.41(c)(1)(ii). If the servicer does deny such a loss
mitigation application, they must send a written notice informing the
borrower of the missing information, that the servicer has requested
the information, and that the servicer will evaluate the borrower for
all available loss mitigation options promptly upon receiving it. The
CFPB is proposing to replace current Sec. 1024.41(c)(4) and related
commentary with proposed Sec. 1024.41(c)(2), which would have similar
requirements but also include certain changes to align with the other
proposed changes in Sec. 1024.41.
As noted in part IV.A, the CFPB is proposing to remove existing
Sec. 1024.41(c)(1)(ii). Thus, the regulatory text in current Sec.
1024.41(c)(4) and related commentary pertaining to the 30-day review
period in existing Sec. 1024.41(c)(1)(ii) would no longer be relevant
under the new proposed loss mitigation framework. Instead, proposed
Sec. 1024.41(c)(2)(i) would prohibit servicers from denying a loss
mitigation application due solely to missing information not in the
borrower's or servicer's control unless the servicer has regularly
taken steps to obtain the missing information and has been unable to
obtain the information for at least 90 days. For example, if a servicer
receives a request for loss mitigation on a Monday and requests
information not in the borrower's or servicer's control on the
following Friday, assuming the servicer regularly took steps to obtain
the missing information, the servicer may send a written notice to the
borrower, in accordance with proposed Sec. 1024.41(c)(2), 90 days from
the Friday it requested the information not in the borrower's or
servicer's control. While every situation will vary, the CFPB expects
that regularly taking steps would minimally include repeated attempted
contact throughout the 90-day period with the relevant third party from
whom the servicer needs to obtain the information. Requiring that the
servicer has regularly taken steps to obtain any information and
documents necessary from a party other than the borrower or the
servicer is intended to ensure that servicers are making efforts to
obtain needed information before denying a loss mitigation application
due to missing information. While the CFPB proposes to replace the term
reasonable diligence with the regularly taking steps phrasing that uses
simpler language, it does not intend to reduce or to lessen a
servicer's current obligation to obtain missing documents or
information not in the borrower's control. The CFPB's proposal of 90
days is similar to the timeframe used for the unresponsive borrower
provision in proposed Sec. 1024.41(f)(2)(ii). The CFPB

[[Page 60223]]

preliminarily determines that proposed Sec. 1024.41(c)(2)(ii) will
provide an incentive to servicers to obtain needed information from
third parties in a timely manner.
Proposed Sec. 1024.41(c)(2)(ii) also would require servicers to
provide a notice to borrowers if they deny such an application. The
notice requirements in proposed Sec. 1024.41(c)(2)(iii) would retain
aspects of the notice requirements in existing Sec. 1024.41(c)(4),
including requiring a statement that the servicer will complete its
evaluation of the borrower for all available loss mitigation options
promptly upon receiving the missing third-party information, but also
would provide borrowers with additional information. Existing Sec.
1024.41(c)(4) does not allow the servicer to state a period of time
after which the servicer will not complete its loss mitigation
evaluation even if the servicer receives the missing information. As
noted in part IV.A, the CFPB is proposing a new Sec. 1024.41 loss
mitigation framework that would generally require a servicer to exhaust
review for all available loss mitigation options prior to advancing
foreclosure, and this new framework allows for the possibility of
sequential loss mitigation review. The CFPB preliminarily determines
that it is important for a servicer to be able to determine with
certainty whether it has met the procedural safeguards in proposed
Sec. 1024.41(f)(2)(i) to(ii) and can move forward with foreclosure.
This is especially the case if a servicer elects or is required by the
loan's investor to conduct review for loss mitigation options
sequentially, which could involve a lengthy overall process. Therefore,
the CFPB is proposing to require a servicer to inform the borrower that
the servicer will complete its evaluation of the request for loss
mitigation assistance if the servicer receives the referenced missing
documents or information within 14 days of providing the missing
information determination notice to the borrower. This proposed
timeframe is similar to the timeframe during which a servicer must
allow a borrower to appeal a loan modification denial pursuant to
existing Sec. 1024.41(h)(2).
Proposed Sec. 1024.41(c)(2)(iii) also would require servicers to
provide borrowers with the information contained in proposed Sec.
1024.41(c)(1)(iv) through (ix), which includes, among other things, a
list of all other loss mitigation options that are still available to
the borrower and a statement describing the next steps the borrower
must take to be reviewed for those loss mitigation options, or a
statement that the servicer has reviewed the borrower for all available
loss mitigation options and none remain. The CFPB preliminarily
determines that providing this information would aid borrowers in
protecting their rights, which may include filing an appeal pursuant to
proposed Sec. 1024.41(h), a notice of error pursuant to Sec. 1024.35,
or both.
The CFPB requests comment on all aspects of proposed Sec.
1024.41(c)(2). In particular, the CFPB is interested in whether a more
prescriptive standard would be helpful for determining whether a
servicer took regular steps to obtain missing information not in the
borrower's or servicer's control, or if there is clearer language to
convey the concept of ``regularly taking steps'' that still allows for
flexibility over a variety of circumstances over time.
iv. Unsolicited Loss Mitigation Offers
The CFPB understands that servicers may frequently and routinely
review borrowers for loss mitigation, using automated processes
required by investors, without a borrower request and solely based on
information already on record.\64\ While potentially helpful to
borrowers, these reviews and subsequent offers nevertheless may fail to
inform borrowers about other loss mitigation options for which they may
have been eligible, because such information is not required under
current Sec. 1024.41(c)(1)(ii).
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\64\ See, e.g., Bill Maguire, Freddie Mac, Guide Bulletin 2023-
8: Servicing Updates (Mar. 29. 2023), <a href="https://guide.freddiemac.com/app/guide/bulletin/2023-8">https://guide.freddiemac.com/app/guide/bulletin/2023-8</a>.
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The CFPB preliminary determines that, in these circumstances,
borrowers would not necessarily benefit from notices of denials, but
that the additional information regarding available options in notices
of offers would be helpful to borrowers deciding whether to seek
additional loss mitigation assistance. The CFPB proposes that servicers
provide the borrower with a notice when it offers a loss mitigation
option, even when the servicer has reviewed no borrower-provided
information. The notice would be required to include the amount of time
the borrower has to accept or reject the offer of loss mitigation, and
information notifying the borrower, among other things, of remaining
available loss mitigation options and investor information.
v. Removal and Amendment of Current Commentary
The CFPB proposes to remove comment 41(c)(1)-1 because the new
proposed framework refers to the servicer's review of a borrower's
request for loss mitigation assistance, and the language would be
updated throughout Regulation X consistent with this change. The new
proposed removal of comment 41(c)(1)-1 does not constitute a
substantive change in how the CFPB views the relationship between an
investor and servicer, including with respect to reviewing requests for
loss mitigation assistance in accordance with CFPB regulations. The
CFPB also proposes to make conforming edits to current comments 41(d)-1
through -4 in accordance with the changes to the loss mitigation
determination notice requirement described above. Under the proposed
rule, comment 41(d)-1 would no longer discuss disclosure requirements
if a denial was based on investor criteria, such as a waterfall,
because the current obligation to approve or deny every loss mitigation
option following the servicer's receipt of a complete loss mitigation
application would no longer apply under the new proposed framework.
Instead, even if a borrower qualifies for a loss mitigation option,
other options may still remain available for them rather than be
automatically denied because of the position of the option in the
investor's waterfall.
The CFPB proposes to remove comment 41(d)-2 because a net present
value (NPV) calculation is no longer a frequently used calculation in
the loss mitigation review process. Therefore, requiring disclosure of
the key borrower-provided inputs that served as the basis of the
determination, and all non-borrower provided inputs available via
telephone or on a website, should allow borrowers and their
representatives to better identify critical information and allow for
future changes to servicer practices in loss mitigation evaluations.
Additionally, the CFPB proposes to remove comment 41(d)-3 because
servicers would be required to send specific determination notices for
both offers and denials of all forms of loss mitigation, not solely for
denials of loan modification options.
Finally, the CFPB proposes to update comment 41(d)-4 to apply the
requirement that the specific reason or reasons for the denial be
listed in the notice to all determinations, and not solely denials. The
CFPB also proposes to remove references to the investor's hierarchy of
eligibility criteria in comment 41(d)-4. As noted above, borrowers who
are offered a loss mitigation option may remain eligible for other loss
mitigation options in the investor's waterfall for which they have not
yet been reviewed. Additionally, in connection with the proposed
removal

[[Page 60224]]

of Sec. 1024.41(d), the CFPB also proposes to relocate comments 41(d)-
1 and (d)-4 to appear as comments 41(c)-1 and 41(c)-2.
The CFPB proposes to update Sec. 1024.41(e)(1) to remove
references to a complete loss mitigation application and instead apply
the existing timing requirements to a borrower's request for loss
mitigation assistance. Under the new proposed framework, which allows
for sequential review for loss mitigation assistance, the timing
requirements of Sec. 1024.41(e)(1) would be triggered by a borrower's
initial request for loss mitigation assistance, regardless of whether
the servicer subsequently reviews the borrower for additional loss
mitigation options. For example, if a foreclosure sale is scheduled for
December 1 and a borrower makes a request for loss mitigation
assistance on August 1, the borrower would be entitled to the 14-day
period to accept or reject any offered loss mitigation option because
the initial request for loss mitigation assistance occurred 90 days or
more before a scheduled foreclosure sale. This would be the case
regardless of when the servicer makes the offer to the borrower.
The CFPB requests comment on all aspects of its proposal to amend
Regulation X's requirements related to loss mitigation determination
notices and, in particular, requests comment as to whether there are
opportunities for further simplification and streamlining of the loss
mitigation determination notices.

D. Language Access

The CFPB is proposing several requirements that would provide
borrowers with limited English proficiency greater access to mortgage
servicing communications in languages other than English. These
proposed requirements are a first step towards the goal of ensuring
that all borrowers have access to information they need, when they need
it, regardless of the language they may use to communicate. In general,
the proposed rule would require mortgage servicers to accurately
provide or make available in multiple languages certain written and
oral communications under the CFPB's mortgage servicing early
intervention and loss mitigation provisions, including any applicable
amendments to those provisions as discussed within this proposed rule.
The proposed rule would also impose certain requirements aimed at
helping to ensure that borrowers who receive marketing for a loan in a
language other than English receive the identified early intervention
and loss mitigation communications accurately in that same language.
Finally, the CFPB is also proposing conforming edits to Sec.
1024.32(a)(2), which currently provides for optional servicing
disclosures in languages other than English.
Based on the most recently available 2022 American Community Survey
of 1-Year Estimates from the United States Census, almost one fourth of
the population is estimated to reside in a household that speaks a
language other than English.\65\ Of those households, almost one fifth
have limited proficiency in English, meaning that while they may be
highly literate in their preferred language, they both do not speak
English as their primary language (sometimes referred to as ``non-
native English speakers'') and have a limited ability to read, speak,
write, or understand English.\66\ Nationally, the most frequently
spoken languages among these households are Spanish, Chinese (including
Mandarin or Cantonese), French/Cajun/Haitian, Russian/Polish/Other
Slavic languages, Tagalog (including Filipino), German or West Germanic
languages, Vietnamese, Arabic, and Korean. Additional languages may be
more common in particular regions. According to the survey, as of 2022,
Spanish-speaking households account for 13 percent of households in the
United States and for 59 percent of households with limited English
proficiency in the United States, while the other languages are used at
rates between 1 percent and 9 percent of households with limited
English proficiency nationally.\67\
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\65\ See U.S. Census Bureau, 2022 American Communities Survey
Estimates Data: Detailed Household Language by Household Limited
English Speaking Status, American Community Survey Table B16002,
<a href="https://data.census.gov/table/ACSDT1Y2022.B16002?t=Language%20Spoken%20at%20Home&y=2022">https://data.census.gov/table/ACSDT1Y2022.B16002?t=Language%20Spoken%20at%20Home&y=2022</a> (last
visited July 1, 2024) (2022 ACS Table). This survey identifies
``limited English-speaking households,'' which it defines as a
household in which no member 14 years old and over (1) speaks only
English or (2) speaks a non-English language and speaks English
``very well.'' This notice uses the term limited English
proficiency, which for purposes of this notice effectively has the
same meaning.
\66\ For more information about what ``limited English
proficiency'' means, see, e.g., Civ. Rights Div. of the U.S. Dep't
of Justice, Commonly Asked Questions, <a href="https://www.lep.gov/commonly-asked-questions">https://www.lep.gov/commonly-asked-questions</a>. (last visited July 1, 2024).
\67\ See, e.g., 2022 ACS Table; see also Edward Golding et al.,
Is Limited English Proficiency a Barrier to Homeownership?, Urb.
Inst. (Mar. 2018), <a href="https://www.urban.org/sites/default/files/publication/97436/is_limited_english_proficiency_a_barrier_to_homeownership.pdf">https://www.urban.org/sites/default/files/publication/97436/is_limited_english_proficiency_a_barrier_to_homeownership.pdf</a>.
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CFPB outreach and market monitoring has shown that when borrowers
with limited English proficiency are not able to access early
intervention and loss mitigation communications in their preferred
language or when they obtain inaccurate translations of these
communications, those borrowers may have reduced ability to receive
effective loss mitigation assistance and may experience avoidable
foreclosures.\68\ Mortgage servicing communications provide critical
information for borrowers, and when those communications relate to
delinquency, they are often the first step to help borrowers explore
loss mitigation options to avoid foreclosure. These communications
provide instructions and binding agreement details, and many contain
technical legal information or information about complex and
specialized financial topics. Borrowers who fluently communicate in
English may have difficulty understanding some of this legal and
financial text, and that difficulty may compound for borrowers with
limited English proficiency. The increased difficulty in understanding
this information may result in missed information or a lack of
communication with the servicer if borrowers do not receive language
assistance, or it may push borrowers to seek outside sources for
assistance that may not be well versed in these topics or may not act
in the borrower's interest.
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\68\ See, e.g., Amendments to the 2013 Mortgage Rules Under the
Real Estate Settlement Procedures Act (Regulation X) and the Truth
in Lending Act (Regulation Z) 81 FR 72160, 72163 (Oct. 19, 2016).
See also CFPB, Spotlight on serving limited English proficient
consumers: Language access in the consumer financial marketplace, at
6-7 (Nov. 2017), <a href="https://files.consumerfinance.gov/f/documents/cfpb_spotlight-serving-lep-consumers_112017.pdf">https://files.consumerfinance.gov/f/documents/cfpb_spotlight-serving-lep-consumers_112017.pdf</a>; CFPB, Statement
Regarding the Provision of Financial Products and Services to
Consumers With Limited English Proficiency, 86 FR 6306 (Jan. 21,
2021).
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Based on discussions with stakeholders, the CFPB understands that
there are some mortgage servicers that are successfully addressing
borrower language needs. These servicers effectively determine which
languages are necessary for the geographic areas in which they do
business, the investors they serve, and their business models. In
determining which languages are best for their business, these
servicers can quickly adapt as those borrower needs or business models
change. They can provide informed translations and interpretation
services, accurately conveying information to many borrowers in their
preferred language, and do so in hundreds of languages.
However, these efforts are not universal across the mortgage
market. Borrowers, consumer advocates, and industry stakeholders have
expressed concern that borrowers' ability to access mortgage
information in their preferred

[[Page 60225]]

language remains challenging.\69\ Some servicers may not offer
borrowers translated mortgage-related financial disclosures and written
documents or may not provide access to oral interpretation
services.\70\ Further, even when servicers make available
communications in a borrower's preferred language, borrowers may not be
able to obtain or effectively use those communications in their
preferred language because (1) the availability may not be widely
known, (2) the communications may have accuracy issues, or (3)
accessing the communications in the borrower's preferred language may
be prohibitively difficult.\71\ For example, borrowers that prefer
languages other than English often find that they encounter delays
using interpretation services offered by their mortgage servicer.\72\
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\69\ See, e.g., comments received in response to recent
rulemakings and requests for information, such as the CFPB's Request
for Information on the Equal Credit Opportunity Act and Regulation
B, 85 FR 46600 (Aug. 3, 2020), and the CFPB's Protections for
Borrowers Affected by the COVID-19 Emergency Under the Real Estate
Settlement Procedures Act (RESPA), Regulation X, 86 FR 34848 (June
30, 2021). See also Petition from NCLC to Rohit Chopra, Director,
CFPB Re. Request for RESPA Rulemaking: Home Equity Lines of Credit,
Home Equity Conversion Mortgages, Language Access, and Manufactured
Housing (Aug. 29, 2023), <a href="https://www.regulations.gov/document/CFPB-2023-0045-0001">https://www.regulations.gov/document/CFPB-2023-0045-0001</a>; Letter from Edward J. DeMarco, President, Hous.
Pol'y Council to Rohit Chopra, Director, CFPB Re. CFPB's Upcoming
Rulemaking on Regulation X Loss Mitigation Rules (Nov. 29, 2023),
<a href="https://www.housingpolicycouncil.org/_files/ugd/d315af_e2ce077e731d403f9c1f8407622158c8.pdf">https://www.housingpolicycouncil.org/_files/ugd/d315af_e2ce077e731d403f9c1f8407622158c8.pdf</a>; Letter from Pete Mills,
Senior Vice President, MBA to Rohit Chopra, Director, CFPB Re.
Upcoming Rulemaking to Modernize the Loss Mitigation Rules of
Regulation X (Dec. 6, 2023), <a href="https://www.mba.org/docs/default-source/advertising/mba-regulation-x_early-intervention-and-loss-mitigation-letter_december-2023.pdf">https://www.mba.org/docs/default-source/advertising/mba-regulation-x_early-intervention-and-loss-mitigation-letter_december-2023.pdf</a>.
\70\ CFPB, Spotlight on serving limited English proficient
consumers: Language access in the consumer financial marketplace, at
12 (Nov. 2017), <a href="https://files.consumerfinance.gov/f/documents/cfpb_spotlight-serving-lep-consumers_112017.pdf">https://files.consumerfinance.gov/f/documents/cfpb_spotlight-serving-lep-consumers_112017.pdf</a>.
\71\ See, e.g., NCLC, et al., Comments on the Federal Housing
Finance Agency's Request for Input on the Enterprise Equitable
Housing Finance Plans (Oct. 25, 2021), <a href="https://www.nclc.org/wp-content/uploads/2022/08/FHFA_Equitable_Hsg_Finance_RJ_LEP.pdf">https://www.nclc.org/wp-content/uploads/2022/08/FHFA_Equitable_Hsg_Finance_RJ_LEP.pdf</a>;
Kleimann Commc'n Grp., Language Access for Limited English
Proficiency Borrowers: Final Report (Apr. 2017), <a href="https://www.fhfa.gov/sites/default/files/2023-04/Borrower-Language-Access-Final-Report-June-2017.pdf">https://www.fhfa.gov/sites/default/files/2023-04/Borrower-Language-Access-Final-Report-June-2017.pdf</a> (Kleimann 2017 Report); Ams. for Fin.
Reform (AFR), Barriers to Language Access in the Housing Market:
Stories from the Field (May 2016), <a href="https://ourfinancialsecurity.org/wp-content/uploads/2016/05/AFR_LEP_Narratives_05.26.2016.pdf">https://ourfinancialsecurity.org/wp-content/uploads/2016/05/AFR_LEP_Narratives_05.26.2016.pdf</a> (AFR
2016 Paper).
\72\ See Kleimann 2017 Report; AFR 2016 Paper.
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The CFPB expects mortgage servicers to assist borrowers with
limited English proficiency. As noted in the 2016 Mortgage Servicing
Final Rule, this includes communicating with borrowers clearly in the
borrower's preferred language, where possible, and especially when
lenders advertise in the borrower's preferred language.\73\ In that
rule, the CFPB stated that it was not imposing mandatory language
translation requirements or other language access requirements at that
time because, among other reasons, it had not had the opportunity to
take comment from all interested parties about the challenges in
addressing language access in the mortgage servicing context. The CFPB
stated that it would continue to consider language access in connection
with mortgage servicing and that it would further consider translation
or interpretation in the mortgage servicing context, if
appropriate.\74\ Since that time, the CFPB has conducted outreach and
stakeholder engagement and received comments from borrowers, consumer
advocates, and industry stakeholders on more recent rulemakings and
requests for information. Based on the information received, the CFPB
better understands the challenges and obstacles faced by both mortgage
borrowers and the mortgage servicing industry, as well as the
successful actions some have taken to overcome these challenges.
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\73\ 81 FR 72160, 72163-64, (Oct. 19, 2016); See also CFPB, New
rule ensures mortgage servicers provide options to potentially
vulnerable borrowers exiting forbearance (Sept. 30, 2021), <a href="https://www.consumerfinance.gov/about-us/blog/new-rule-ensures-mortgage-servicers-provide-options-potentially-vulnerable-borrowers-exiting-forbearance/">https://www.consumerfinance.gov/about-us/blog/new-rule-ensures-mortgage-servicers-provide-options-potentially-vulnerable-borrowers-exiting-forbearance/</a>.
\74\ 81 FR 72160, 72163, (Oct. 19, 2016).
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In order to meet the language access goals identified above and in
recognition of the successful industry practices noted above, the CFPB
is proposing to require servicers to provide (1) Spanish-language
translations of certain written communications to all borrowers; (2)
upon borrower request, translation or interpretation services of
certain written and oral communications in the requested language (as
long as it is one of the ``servicer-selected languages'' discussed
below), as well as brief translated statements on certain written
communications in five servicer-selected languages identifying the
availability of translations in those languages and how the borrower
can request those translations (i.e., translation and interpretation
availability statements); and (3) upon borrower request, translation or
interpretation services of certain written and oral communications in
languages the servicer knows or should have known were used in
marketing to the borrower for that mortgage loan.
The CFPB is not including proposed regulation text for these
proposed requirements as there may be multiple ways to structure the
specific requirement options detailed above, which will vary based on
the aspects of the proposed rule ultimately finalized. The CFPB
recognizes that public input will help design an effective
intervention, including potentially identifying additional relevant
details or alternative approaches, and is eager to consider those
suggestions as it drafts regulatory text. Though the CFPB is currently
proposing to limit these requirements to delinquency-related
communications, it may also consider additional language access and
translation requirements in future rulemakings.
The CFPB is seeking comment generally on current language access
practices and standards in the mortgage servicing industry that could
help further inform the final rule, and specifically:
(i) What is the capacity and availability of translation and
interpretation services used by servicers, including third-party
translation services? Have servicers experienced difficulty obtaining
translation or interpretation services, and if so, what are the details
of those difficulties?
(ii) What difficulties have borrowers experienced obtaining
translation or interpretation services?
(iii) Are there servicers that specialize in servicing mortgage
loans for borrowers who speak languages other than English and Spanish,
and if so, do they also originate mortgages using those languages?
(iv) Are there details the CFPB should provide on the extent to
which and how servicers currently translate or engage interpretation
services for less frequently spoken languages in the United States?
(v) How accurate are translations and interpretations of mortgage
servicing communications currently and what practices are used to
ensure accuracy? Are there factors that affect the enforceability of
requiring accuracy that the CFPB might consider? Are there bona fide
errors that may occur that the CFPB should consider?
(vi) Are there any relevant State laws that may affect provision of
mortgage servicing communications in languages other than English?
(vii) Are there additional flexibilities the CFPB should consider
to help ensure servicers are able to properly tailor these requirements
to the language needs of their borrowers?

[[Page 60226]]

1. Specified Communications for the Proposed Rule
i. Specified Written Communications
The CFPB is proposing that the written communication requirements
discussed in this part would apply to the (1) written early
intervention notices required under Sec. 1024.39(b), including any
changes set forth in this proposal, (2) the Sec. 1024.39(e)(2)
proposed written notices for borrowers whose forbearances will end
soon, and (3) written notices regarding loss mitigation currently
required under Sec. 1024.41, as well as any content changes or
additions set forth in this proposal, as discussed above. Collectively,
these notices are referred to in this part as the specified written
communications. The CFPB is proposing that the requirements discussed
in this part would apply to the notices identified above, but would not
apply to the website referred to in those notices. For example, the
proposed requirements would apply to the early intervention notice, but
not the website listing loss mitigation options that the CFPB is
proposing to require servicers to reference in that notice. The CFPB is
seeking comment on whether it should make subject to these requirements
any other written communications required by the CFPB's mortgage
servicing rules (such as the transfer of servicing notice, etc.) or the
website that the CFPB is proposing to require servicers to reference in
certain notices.
ii. Specified Oral Communications
The CFPB is proposing that the oral communication requirements
discussed in this part would apply to (1) live contact communications
required under Sec. 1024.39(a) and, if finalized, Sec. 1024.39(e),
and (2) oral communications made in compliance with a servicer's
continuity of contact requirements under Sec. 1024.40. These
communications are referred to in this part as the specified oral
communications. The CFPB is seeking comment on whether it should make
subject to these requirements any additional oral communications
required by the CFPB's mortgage servicing rules.
2. Translation and Interpretation Service Proposed Requirements
i. Spanish Language Translations for Specified Written Communications
The CFPB is proposing to require that servicers accurately
translate each of the specified written communications into Spanish and
provide the Spanish versions with the English versions to all
borrowers. As noted above, Spanish-speaking households account for
almost one in eight households and a majority of households with
limited English proficiency nationally. The CFPB has preliminarily
determined that the number of Spanish-speaking households warrant
provision of requiring Spanish translations of the specified written
communications to all mortgage borrowers.
The CFPB is proposing that translations provided by the servicer in
Spanish must be accurate. Inaccurate translations would violate not
only this translation requirement, but also the underlying
communication content requirements. The CFPB is not proposing specific
format requirements (e.g., spacing, layout, font size, readability on
electronic devices) for servicers when providing both English and
Spanish versions of the specified written communications.
The CFPB seeks comment on these proposed requirements and on
whether it should consider (1) format or readability requirements and
(2) providing flexibility or exceptions (for example, for servicers
without any Spanish-speaking borrowers).
ii. Translations of Specified Written Communications and
Interpretations of Specified Oral Communications Upon Request
The CFPB also aims to address the language access needs of the 10
percent of United States households with limited English proficiency
that speak a language other than English or Spanish. First, the CFPB is
proposing to require that servicers, upon borrower request, provide
accurate translations of the specified written communications to
borrowers in certain servicer-selected languages. Second, the CFPB is
proposing to require that servicers, upon borrower request, make
available and establish a connection (e.g., making a telephone
connection in real time) with interpretation services before or within
a reasonable time of establishing connection with borrowers during the
specified oral communications to the extent that the borrower's
requested language is one selected by the servicer under the
requirements of the proposed rule. For this aspect of the proposed
rule, the CFPB is proposing to require that servicers would be the
party responsible for coordinating with the interpretation services
such that those services are able to translate in real-time (e.g.,
through a conference call) the conversation between the servicer
personnel and the borrower. The proposed rule would limit the burden on
borrowers that may prefer a language other than English by permitting
those borrowers to receive the specified communications in the
borrower's preferred language without having to spend additional time
waiting for connection to interpretation services or receive those
services in a separate phone call. For both aspects of this proposed
requirement, the CFPB is proposing to require a servicer to act only
upon receipt of a borrower's request for translation or interpretation
services.
The CFPB is proposing to require that servicers must ensure that
the translations and interpretation services used under this proposed
requirement are accurate. Failure to provide accurate translations or
interpretations would result in a violation of not only this proposed
requirement, but also the underlying requirements.
The CFPB is proposing to provide individual servicers with
discretion to select the languages used for translation and
interpretation, but also proposes caveats to that discretion. The
servicer would be required to select languages that (1) collectively
address the needs of at least a significant majority of their non-
Spanish speaking borrowers with limited English proficiency (although
interpretation services must also be made available in Spanish), and
(2) must include the five languages identified for the translation and
interpretation availability statement, as discussed below. The CFPB
acknowledges that servicers may need to reevaluate the language
decisions periodically, to ensure they continue to meet the standard
for discretion. The CFPB has also identified alternative methods for
determining the languages for which servicers must be able to provide
translations and discusses those alternatives in part IV.D below.
The CFPB has preliminarily determined that allowing a servicer
discretion to select which languages it uses to comply with this
proposed requirement will best serve borrowers over time as language
demographics and servicer business strategies may change. The CFPB
recognizes that the composition of the United States population is not
static, and the utilization of various languages in the United States
will change. Additionally, regional language usage may differ from
national language usage. Permitting individual servicer discretion also
allows for flexibility as a servicer changes its business strategies,
such as when a servicer shifts the regions in which it primarily
services mortgage loans. The flexibility would also prevent servicers
from being required to translate the specified written communications
in languages that are

[[Page 60227]]

not spoken by the borrowers that they serve, preventing servicers from
incurring unnecessary costs.
The CFPB is seeking comment on these proposed requirements and
specifically requests comment on:
(i) Should the CFPB provide minimum standards for identifying
translator or interpreter services, such as requiring ``qualified''
translators or interpreters, and if so, what the requirements should
be?
(ii) Should the CFPB provide minimum standards for language
selection, such as standards related to significant majority
determinations, and if so, what they should be?
(iii) Should the CFPB require servicers to periodically reevaluate
the language determinations?
(iv) Are there certain languages that the CFPB should consider
specifying as required for translation or interpretation, no matter the
preferences of the servicer's borrowers?
iii. Five Brief In-Language Statements (Other Than English or Spanish)
Regarding Translation and Interpretation Availability in the English
Specified Written Communications
To increase borrower awareness of the availability of the
translations and interpretations discussed above, the CFPB is proposing
to require servicers to provide five brief statements, accurately
translated into five languages other than English or Spanish, in the
English version of the specified written communications. Under the
proposed rule, these statements would identify the availability of
translated versions of the specified written communications and
interpretation services for the specified oral communications in those
five languages and how the borrower can request those translations or
interpretation services (i.e., translation and interpretation
availability statements).
According to stakeholder feedback, borrowers that prefer languages
other than English or Spanish may not be aware that translations or
interpretations are available from their servicer or may not know how
to obtain those services in their preferred language.\75\ In-language
statements highlighting the availability and instructions for obtaining
translations and interpretation services may increase the likelihood
that borrowers will successfully request translations and
interpretations services. For example, in complying with the proposed
translation and interpretation availability statement requirement, a
servicer might identify Chinese, Vietnamese, Tagalog, Russian, and
French as the top five languages used by a significant majority of its
collective non-Spanish speaking borrowers with limited English
proficiency. The servicer would include in the English version of the
specified written communications a statement in each of those five
languages (i.e., five statements in total) that tells the borrower
communications are available in [Chinese/Vietnamese/Tagalog/Russian/
French] upon request and briefly describes how the borrower can make
that request.
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\75\ See, e.g., Kleimann 2017 Report.
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For the languages selected for the translation and interpretation
availability statements, the CFPB is proposing that servicers must
select five of the most frequently used languages from the languages
spoken collectively by a significant majority of their borrowers with
limited English proficiency that prefer languages other than English
and Spanish, as discussed above. The CFPB has preliminarily determined
to limit the number of languages to five languages. Based on examples
reviewed by the CFPB of the specified written communications currently
in use with this type of statement, it appears that five statements
would be feasible to include on the specified written communications
without affecting their readability or significantly adding length.
The CFPB is not proposing specific model language for the
translation and interpretation availability statements for several
reasons. Regulation X currently provides flexibility to servicers to
develop their own terminology and scripts to use for many of their
required written and oral communications. The CFPB also recognizes that
some servicers already provide these types of statements in certain of
their written communications. To reduce implementation costs for those
currently providing statements that would comply with this proposal,
the CFPB has preliminarily determined servicers should have the
flexibility to determine the terminology and phrasing for the
statements.
The CFPB is seeking comment on these proposed requirements and
specifically requests comment on:
(i) Are there current process or technology limitations that may
prevent a servicer from complying with this proposed requirement, and
if so, what they are?
(ii) Are there certain languages that the CFPB should consider
specifying as required for the translation and interpretation
availability statements?
(iii) Should the CFPB consider requiring more or fewer than five
languages for the translation and interpretation availability
statements? Should the CFPB address situations where the languages
spoken collectively by a significant majority of a servicers' borrowers
with limited English proficiency are fewer than five different
languages?
(iv) How are servicers currently notifying borrowers of the
availability of translations or interpretation services, including the
language or languages currently used?
iv. Translation and Interpretation Services in Languages Used in
Marketing Upon Request
The CFPB is also proposing that, if a borrower received marketing
for their mortgage loan before origination in a language other than
English, and the servicer knows or should have known of that marketing,
the servicer must comply with the translation and interpretation
service requirements in part IV.D for that language, even if it is not
a language selected by the servicer under that requirement. For
example, if a servicer knows or should have known that a mortgage it
services was marketed to a borrower in Navajo, then, under the proposed
rule, it would be required to provide accurate Navajo translations of
the specified written communications upon the borrower's request and
must engage accurate Navajo interpreter services under the conditions
specified in the proposed rule upon the borrower's request. Failure to
provide accurate translations or interpretations would result in a
violation of not only this requirement, but also the underlying
requirements of the specified written or oral communications, as
applicable.
When marketing for financial products is provided in a borrower's
preferred language, the CFPB has preliminarily determined that such
marketing might falsely imply to the borrower (or sometimes explicitly
promise) that future communication regarding that financial product
will also be available in that language, regardless of any disclaimers
that might be used. Borrowers with limited English proficiency might
shop for mortgage products based on the implied or explicit promise of
future in-language communications to ensure that they can better
understand the terms of and communications about the mortgage product.
The CFPB recognizes that servicers may not have direct involvement
in the

[[Page 60228]]

marketing for the mortgage, and there may be limited information
available to the servicer about those marketing efforts. As such, the
CFPB is limiting the proposed rule to those situations where a servicer
knows or should have known of that in-language marketing.
The CFPB is seeking comment on these proposed requirements and
specifically requests comment on:
(i) What information is currently in a loan's servicing file or
information readily available elsewhere that might inform servicers of
the language that was used to market the borrower's mortgage loan
before origination?
(ii) How prevalent is it for institutions that originate a mortgage
to retain servicing rights for that mortgage?
(iii) Should the requirement described be limited to only those
servicers that originated the mortgages at issue, or are there other
exceptions that should be created?
(iv) Should the CFPB consider other ways to help ensure implied or
explicit promises about the future availability of language access made
to borrowers during marketing are upheld?
3. Alternatives for Determining Which and How Many Languages To Require
As discussed above, the CFPB is proposing to permit individual
servicers discretion to determine the languages used to comply with the
requirements above. Regarding this servicer discretion, the CFPB is
proposing the languages selected should be based on the collective
needs of a significant majority of a servicer's non-Spanis

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