CFPB Proposes New Rules for Mortgage Servicers

We’ve all grown accustomed to rules and change management, but what does the Consumer Financial Protection Bureau’s (CFPB) Proposed Rule mean for your organization?  As loss mitigation efforts straddle a higher interest rate environment and a more volatile economic landscape, the CFPB is influencing the industry path to right set loss mitigation guidance. Their recently proposed rule represents a major swing away from current loss mitigation practices, pulling from the pandemic experience, in addition to serving to rectify a number of consumer issues identified as a result of CFPB feedback and examination of practices.  Proposing modifications to the Real Estate Settlement Procedures Act, Regulation X (RESPA), the CFPB revisions touch on loss mitigation and early intervention procedures, as well as mortgage servicing errors.  

The scope of the CFPB’s proposed changes, while designed to promote process speed, reduce documentation, and create more flexibility in the loss mitigation process, could create a costly transition cycle, especially for servicers that may still be limited by inflexible systems, fragmented rules management, or processes that are too tightly coupled with third-party vendor systems. The CFPB’s proposed new approach to loss mitigation could become daunting for unprepared servicers. Supporting the proposed shift demands the capacity to be extremely fluid when implementing changed requirements, ensuring compliance, as well as an appropriate customer experience. Don’t underestimate the importance of innovating your loss mitigation efforts as you follow what the CFPB is proposing. Let Clarifire help make this experience transformative for both your organization and your customers.

The CFPB is looking for commentary on or before September 9, 2024, on four key areas designed to assist borrowers during both loss mitigation and early intervention, additionally they’ve included credit reporting.

Streamlined Loss Mitigation Procedures and Foreclosure Procedural Safeguards

In an effort to simplify Reg X procedures, the CFPB has proposed replacing existing requirements for loss mitigation on all incomplete and complete applications “with a new framework based on foreclosure procedural safeguards.”  This framework will initiate the loss mitigation review cycle once the borrower requests assistance and continues the cycle until the loan is brought current, or until there are no remaining loss mitigation options, or the borrower meets criteria for being “unresponsive”. 

The CFPB is also proposing that foreclosure would not advance, and certain fees would not accrue, during this outlined loss mitigation review cycle.  Additionally, some loss mitigation notices will no longer be required.

• Despite the intentions to significantly ease the complexity of existing loss mitigation processes, it is clear that transitioning to a “new framework” will entail substantial alterations to existing processes, systems, workout rules administration, workout workflows, letters and other borrower communications. CLARIFIRE^® is designed to readily facilitate these types of changes with a minimal need for resource dedication. Created to remove the complexity and clarify servicing processes, CLARIFIRE^® automates and simplifies loss mitigation processes easily.

Early Intervention Changes

Under the proposed rule, servicers would need to provide additional borrower-specific information on written early intervention notifications, including a list of all loss mitigation options made accessible via the servicers’ website. These clarified solicitations, along with process education, will help borrowers secure more positive outcomes and gain access to more opportunities. Additionally, borrowers who are performing under forbearance would further exempt servicers from some current early intervention and notification requirements.

• Analyzing data at a detailed level, whether loan level, borrower specific, or tied to loss mitigation options, is greatly simplified with CLARIFIRE®.  Milestone aggregation on dashboards, communication activities, and advanced metrics facilitates solid interactions and outcomes that all users can easily leverage. Our fluid technology facilitates evolving technology capabilities, from timeframes to loss mitigation statuses, including forbearance. 

Loss Mitigation Determination Notices and Appeals

In lieu of only providing loan modification options, servicers would be required to offer determination notices, including information on appeal rights, for all loss mitigation options, along with offers and denials.  Additional information would also be required on eligibility determination notices.  This information involves input related to “the basis for determination,” available loss mitigation options, next steps required of the borrower, list of options previously offered, and disclosure verbiage with respect to loss mitigation determinations.

• CLARIFIRE^® offers robust intelligent document processing capabilities that are designed to create, generate, and effectively deliver auditable communications. These same capabilities are easily tied to application status and eligibility determination in support of CFPB guidance.

Credit Reporting

Regulatory changes have not been proposed in this area; however, the CFPB is seeking comments on various alternative approaches to loss mitigation reporting that would improve accuracy and consistency amongst servicers.

• No matter what the outcome for credit reporting requirements, CLARIFIRE® can assist you in the rapid implementation of these changes, including traceability and oversight of required processes designed to ensure consistent compliance. Smart questions, using technology designed to elicit affordability from borrowers through automation, will greatly assist this effort.

Language Access

Requirements in this area have been proposed to address existing concerns that borrowers with limited English proficiency are not receiving access to information and/or communications in languages aside from English.  The proposed rule would require servicers to make denoted written and oral communications available to borrowers in multiple languages, with some specific communications translated in Spanish.  Servicers would also be required to disclose the availability of translations and interpretations for languages other than English.

• CLARIFIRE® is already positioned to assist with language requirements. Our flexible one-click indicator of language identifies the proper characteristic for handling. Utilizing intelligent document processing, communications can be generated in multiple languages specific to the corresponding borrower.  Any related disclosure requirements are also easily incorporated into the process, and documents, once approved by the servicer compliance team, are generated when and where needed.

Don’t forget to provide your feedback to the CFPB on the proposed rule and start your preparations for the changes now… with CLARIFIRE®.  Created to automate and easily change the complex workout and workflow rules tied to the mortgage industry, CLARIFIRE® is proven to innovate changing process workflows, delivering speed, efficiency, and transparency.  Our modern approach to automation will ensure you’re ready to meet industry change head-on, with minimal impact on resources, saving money, and providing borrower engagement.  Make sure you and your loss mitigation team are equipped to handle this new phase of default alternatives, approaches, and communications with CLARIFIRE®, truly BRIGHTER AUTOMATION®.

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Jane Mason | @janemasonceo

Jane has applied her vast experience (over 25 years) operating process-driven businesses to successfully redefine client-focused service. Jane has worked with expert programmers to apply cutting-edge web-based technology to automate complex processes in industries such as Financial Services, Healthcare and enterprise workflow. Her vision confirms Clarifire's trajectory as a successful, scaling, Software-as-a-Service (SaaS) provider. A University of South Florida graduate, Jane has received many awards related to her entrepreneurial skills.

 

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