Analysis of the Comments Submitted in Response to the CFPB's Proposed Amendments to Regulation X
The comments on the Consumer Financial Protection Bureau’s (CFPB) proposed amendments to Regulation X reflect a complex and multi-faceted discussion among various stakeholders. These comments include feedback from key industry groups such as the Mortgage Bankers Association (MBA), Housing Policy Council (HPC), American Bankers Association (ABA), government-backed entities like Fannie Mae and Freddie Mac, state regulators including the New York Attorney General (NY AG) and the New York Department of Financial Services (NY DFS), consumer advocacy groups like the National Consumer Law Center (NCLC), and data-driven organizations such as the Urban Institute.
Each group has expressed a mixture of support and criticism regarding the proposed changes. Some areas, such as the need for streamlining processes and improving language access for Limited English Proficiency (LEP) borrowers, reveal common ground. However, there are significant points of contention, particularly regarding the broadening of loss mitigation triggers, changes to the appeals process, and fee restrictions during the loss mitigation process.
1. Industry Groups (MBA, HPC, ABA)
Industry groups representing mortgage lenders and servicers have expressed general support for the CFPB’s goals of streamlining the loss mitigation process to better serve borrowers, but their comments are marked by caution and concerns about the practical implications of several proposed changes. Key points include:
1.1 General Support for Streamlining
Groups like the Mortgage Bankers Association (MBA), the Housing Policy Council (HPC), and the American Bankers Association (ABA) generally support efforts to streamline the loss mitigation process. They believe that simplifying and expediting assistance for struggling borrowers is essential for both improving operational efficiency and achieving positive outcomes for homeowners facing financial difficulties. The MBA, for instance, acknowledges that the foreclosure crisis of 2008 revealed significant gaps in the mortgage servicing industry, particularly when it came to the timely and consistent provision of loss mitigation options. They argue that changes to Regulation X that remove redundant steps or allow servicers more flexibility could prevent similar failures in the future.
The industry groups also highlight that since the regulatory framework was largely built in response to the 2008 foreclosure crisis, many of the provisions in the current version of Regulation X were designed for a different market environment. MBA and HPC stress that as the mortgage landscape evolves, particularly with rising interest rates, the rules should also adapt. This evolution in the market has led to fewer adjustable-rate mortgages and more fixed-rate loans, which calls for a more flexible approach to managing borrower delinquency and default risks.
However, even though they support the idea of streamlining, the industry groups point out that some elements of the proposed rule could inadvertently create more complexity, confusion, or delay, particularly if they are not clearly defined or if they require servicers to implement significant operational changes.
1.2 Pushback on the Broadening of Loss Mitigation Triggers
One of the most contentious areas of the proposed rule, according to industry stakeholders, is the expansion of what constitutes a "request for loss mitigation assistance." The proposed rule would allow borrowers to initiate a request for loss mitigation through any oral or written communication, through any typical channel of communication with the servicer, such as a phone call, text message, or potentially even a tweet.
Industry groups argue that this could create ambiguity about what exactly constitutes an "official" request. They are concerned that the broadening of these triggers would result in operational challenges, as servicers would have to monitor a wide range of communication channels for potential loss mitigation requests. MBA, for instance, warns that a borrower could theoretically send a text message or tweet at a servicer’s social media account, and this might be construed as a formal request for assistance, which would start the loss mitigation review process.
These groups argue that while they support increasing borrower access to loss mitigation, the lack of specificity in defining what triggers the loss mitigation process could lead to miscommunication, delays, and unnecessary legal complications. Freddie Mac, in particular, emphasizes that ambiguity in what constitutes a request could lead to delays in loss mitigation processing and encourage bad-faith behavior from borrowers attempting to exploit the system to stall foreclosure proceedings.
Industry groups recommend that the CFPB adopt a more structured definition of what constitutes a loss mitigation request. One example they offer is the "Quality Right Party Contact" (QRPC) standard used by Fannie Mae and Freddie Mac. QRPC ensures that communications are clear, mutual, and focused on resolving the borrower’s delinquency. They argue that this would allow for greater clarity while still ensuring that borrowers can easily access assistance.
1.3 Fee Prohibitions
The proposed rule includes a prohibition on servicers charging default-related fees during a loss mitigation review cycle. This provision has garnered significant pushback from industry groups, who argue that while some fees, such as late fees, may justifiably be paused during a loss mitigation review, other fees—such as those for property preservation, insurance advances, or tax advances—are necessary to protect the investor’s and borrower’s interests. MBA and HPC argue that servicers must still bear the cost of these necessary services, and prohibiting fees across the board would increase the financial burden on servicers, which could ultimately lead to higher borrowing costs for all homeowners.
Freddie Mac further highlights the operational difficulties that could arise from this broad fee prohibition. For example, if a borrower requests loss mitigation assistance just before a key legal proceeding in the foreclosure process (e.g., a dispositive motion), it may be impossible to cancel the hearing in time, and the servicer would still incur legal fees. The inability to pass these costs onto the borrower could be financially detrimental to the servicer.
Moreover, Fannie Mae and Freddie Mac emphasize that the requirement to calculate delinquent interest as if the borrower had made all contractual payments on time (during the loss mitigation review cycle) would create significant operational challenges. They explain that this would require servicers to constantly shift between different accounting methods as borrowers move in and out of loss mitigation review cycles. Both entities argue that this provision, though similar to what was implemented during the CARES Act for COVID-19 relief, would be far too complex to operationalize on a permanent basis.
1.4 Concerns About Multiple Loss Mitigation Requests
Another significant concern is the proposed rule’s allowance for borrowers to make multiple requests for loss mitigation assistance during the same delinquency period. MBA, HPC, and ABA argue that this could lead to abuse of the system, as borrowers could repeatedly request loss mitigation reviews to delay foreclosure proceedings without any genuine intent to resolve the delinquency. Freddie Mac highlights the potential for this to significantly increase operational costs, as servicers and foreclosure counsel would have to start and stop legal proceedings repeatedly, causing unnecessary delays and expenses.
Industry groups suggest that the CFPB should impose stricter limitations on how often a borrower can request a loss mitigation review during a single delinquency period, and that these requests should be subject to clearer standards to prevent misuse.
2. Fannie Mae and Freddie Mac
Government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac play a critical role in the mortgage market, and their feedback on the proposed changes to Regulation X is particularly significant. Both entities support the general objective of streamlining loss mitigation processes, but they express substantial concerns about specific aspects of the rule.
2.1 Strong Opposition to the Appeals Process
One of the most significant areas of opposition from both Fannie Mae and Freddie Mac is the expansion of the appeals process for loss mitigation decisions. Under the proposed rule, borrowers would have the right to appeal decisions related to any loss mitigation option, not just loan modifications. The GSEs argue that this change is unnecessary and would add undue complexity to an already structured process.
Freddie Mac, in particular, points out that there is little to no subjectivity involved in determining eligibility for most loss mitigation options. For example, whether a borrower qualifies for a repayment plan is largely determined by the borrower’s delinquency status and their agreement to the terms of the repayment. There is no need for a second review or "appeal" of such decisions because they are purely mechanical.
Fannie Mae and Freddie Mac suggest that the appeals process be eliminated entirely and that any disputes over loss mitigation decisions be handled through the existing error resolution process. This, they argue, would streamline the process, reduce confusion for borrowers, and minimize the potential for unnecessary delays in providing assistance.
2.2 Concerns About Loss Mitigation Request Definitions
Similar to the concerns raised by other industry groups, Fannie Mae and Freddie Mac express strong reservations about the broad definition of what constitutes a loss mitigation request under the proposed rule. They emphasize that informal requests made through non-traditional channels (such as text messages or social media) could lead to confusion and operational challenges. They argue that this could increase the likelihood of errors and delays in responding to borrower requests, ultimately hurting both borrowers and servicers.
Both GSEs advocate for clearer, more structured guidelines that define what constitutes a formal request for loss mitigation assistance. They recommend adopting standards similar to those outlined in their servicing guides, which require "Quality Right Party Contact" (QRPC) to initiate the loss mitigation process. This ensures that communications are clear and mutually understood to be a formal request for assistance.
2.3 Opposition to Broad Fee Prohibitions
Fannie Mae and Freddie Mac echo the concerns of other industry groups regarding the proposed fee prohibitions. They argue that while it may be appropriate to pause certain fees during the loss mitigation review process, prohibiting all fees could be detrimental to both servicers and investors. For example, property-related expenses (such as insurance or tax advances) must still be paid, and servicers should be allowed to recoup these costs from the borrower.
Moreover, both entities warn that prohibiting fees during loss mitigation reviews could reduce the availability of loss mitigation options for borrowers. If servicers are unable to recover costs associated with delinquency-related services, investors may restrict the types of loss mitigation they are willing to offer, which could ultimately harm borrowers by reducing their options.
3. State Regulators (NY AG, NY DFS, CSBS)
State regulators, including the New York Attorney General (NY AG), the New York Department of Financial Services (NY DFS), and the Conference of State Bank Supervisors (CSBS), generally support the CFPB’s efforts to enhance borrower protections and streamline the loss mitigation process. However, they raise several concerns related to the potential for preemption of state laws and the need for more clarity in certain provisions.
3.1 Support for Language Access and Consumer Protections
State regulators are particularly supportive of the CFPB’s proposals related to language access for Limited English Proficiency (LEP) borrowers. The NY AG, NY DFS, and CSBS all commend the CFPB for recognizing the challenges that LEP borrowers face in navigating the loss mitigation process. They argue that providing key documents and communications in multiple languages is critical to ensuring that LEP borrowers can fully understand their options and avoid unnecessary foreclosures.
The NY DFS, for instance, points out that New York State already has language access requirements for foreclosure notices and that the CFPB’s proposed rule aligns with these existing state regulations. However, they call for more specific guidelines on how servicers should meet these requirements, including which languages should be prioritized and how to ensure consistency in translations.
CSBS similarly supports expanding language access but recommends that the CFPB adopt uniform standards to ensure a consistent approach across servicers. They express concern that allowing servicers to choose which languages to prioritize could lead to inconsistent implementation, potentially leaving some LEP borrowers underserved.
3.2 Criticism of More Complex Determination Notices
While state regulators generally support the CFPB’s goal of increasing transparency for borrowers, they express concerns about the complexity of the proposed determination notices. The NY DFS and CSBS argue that providing detailed information about every potential loss mitigation option could overwhelm borrowers, particularly those with limited financial literacy or LEP. They caution that overly complex notices could lead to confusion, delays, and even discourage borrowers from pursuing loss mitigation options.
State regulators recommend that the CFPB simplify the determination notices to focus on the options most relevant to each borrower’s situation, rather than providing exhaustive lists of all potential options. They argue that this would improve clarity and reduce the burden on both borrowers and servicers.
3.3 Preemption Concerns
A key concern for state regulators is the potential for federal regulations to preempt existing state laws. Both the NY AG and CSBS urge the CFPB to carefully consider how the proposed rule might conflict with state loss mitigation laws, which in many cases provide greater protections for borrowers. For example, New York’s Mortgage Servicing Regulations (codified at 3 NYCRR Part 419) include detailed provisions governing loss mitigation applications, timelines for responses, and borrower rights. The NY DFS emphasizes that these state laws are designed to provide robust protections for New York homeowners and should not be undermined by federal regulations.
CSBS similarly highlights the importance of preserving state-level protections, particularly in states with comprehensive loss mitigation frameworks like California, New York, and Washington. They recommend that the CFPB clarify the preemption standards in Regulation X to ensure that state laws providing greater consumer protections are not inadvertently overridden.
4. Consumer Advocacy Groups (NCLC)
Consumer advocacy groups like the National Consumer Law Center (NCLC) have long advocated for stronger borrower protections and greater accountability for mortgage servicers. Their comments on the proposed changes to Regulation X are generally supportive, with a particular focus on enhancing transparency, expanding access to loss mitigation, and strengthening penalties for non-compliant servicers.
4.1 Support for Stronger Consumer Protections
The NCLC strongly supports the CFPB’s efforts to expand foreclosure protections and increase transparency in the loss mitigation process. They argue that many borrowers, particularly those from low-income communities and communities of color, face significant barriers in accessing loss mitigation options, and that stronger regulatory oversight is necessary to ensure fair treatment.
NCLC particularly commends the CFPB’s proposal to prohibit the accrual of delinquency-related fees during the loss mitigation review process. They argue that many borrowers facing financial hardship are unable to catch up on missed payments due to the compounding effect of late fees, legal fees, and other default-related charges. By pausing these fees, the NCLC believes that more borrowers will be able to successfully navigate the loss mitigation process and avoid foreclosure.
4.2 Advocacy for Expanded Language Access
The NCLC is also a strong advocate for expanding language access for LEP borrowers. They point out that many LEP borrowers struggle to communicate with their servicers and often miss critical information about their loss mitigation options. The NCLC supports the CFPB’s proposal to require servicers to provide key notices and documents in multiple languages but argues that the CFPB should go even further by expanding the types of documents covered and increasing the number of languages required.
Additionally, the NCLC urges the CFPB to provide more detailed guidelines for servicers on how to implement these language access requirements. They argue that without clear guidance, servicers may fail to provide consistent and accurate translations, which could undermine the effectiveness of the rule.
5. Data-Driven Perspectives (Urban Institute)
The Urban Institute, a research organization focused on economic and social policy, provides a data-driven perspective on the proposed changes to Regulation X. While they generally support efforts to improve borrower access to loss mitigation, they raise concerns about the scalability and necessity of some provisions, particularly those related to language access.
5.1 Data on LEP Borrowers and Scalability of Provisions
The Urban Institute provides data on the population of LEP borrowers and questions whether the CFPB’s proposed language access provisions are scalable for smaller servicers. They argue that while larger servicers may have the resources to provide translations and interpretation services in multiple languages, smaller servicers may struggle to implement these requirements without significant cost burdens.
The Urban Institute suggests that the CFPB consider providing additional support or resources for smaller servicers to help them comply with the language access requirements. This could include offering standardized translations of key documents or creating a centralized translation service that servicers could use to ensure consistency and accuracy.
5.2 Questions About the Need for Expansive LEP Provisions
While the Urban Institute acknowledges the importance of language access, they question whether the CFPB’s proposed requirements are necessary in all cases. They point out that in some regions of the country, the population of LEP borrowers may be relatively small, and the cost of providing multilingual services may outweigh the benefits. The Urban Institute recommends that the CFPB conduct further research to determine the actual demand for language access services and tailor the requirements accordingly.
6. Points of Consensus
Despite the diverse perspectives offered in the comments, there are several areas of consensus among the various stakeholders:
6.1 General Support for Simplification
Across all comments, there is broad support for simplifying the loss mitigation process and improving servicer transparency. Stakeholders agree that borrowers should have clearer, quicker access to assistance and that servicers should be able to respond more efficiently to borrower requests.
Both industry groups and consumer advocates recognize that the current system can be overly complex and burdensome, and they support efforts to streamline the process. However, there is disagreement about how best to achieve this goal, with industry groups emphasizing the need for operational clarity and consumer advocates focusing on expanding borrower protections.
6.2 Consensus on Language Access
Most stakeholders agree that improving language access is important, particularly for LEP borrowers who may struggle to understand their loss mitigation options. State regulators, consumer advocates, and industry groups all acknowledge that language barriers can prevent borrowers from accessing the assistance they need, and they support efforts to address this issue.
However, there is disagreement about how to implement these language access provisions. While consumer groups and state regulators advocate for more stringent requirements, industry groups and data-driven organizations like the Urban Institute are concerned about the operational burden and scalability of these provisions.
7. Key Points of Disagreement
While there are areas of consensus, there are also several significant points of disagreement that will need to be resolved as the CFPB finalizes the rule:
7.1 Fee Prohibitions
One of the most contentious issues is the prohibition on fees during the loss mitigation review process. While consumer advocacy groups and state regulators tend to support this provision, arguing that it will help borrowers avoid falling further behind on their payments, industry groups and government-backed entities like Fannie Mae and Freddie Mac are strongly opposed. They argue that prohibiting all fees, particularly those related to property preservation and insurance advances, could lead to higher costs for servicers and investors, which would ultimately be passed on to borrowers in the form of higher mortgage prices.
7.2 Appeals Process
There is a clear division between industry players and government-backed entities like Fannie Mae and Freddie Mac, who oppose the expanded appeals process, and consumer groups, who generally support more avenues for borrower challenges. Industry groups argue that the appeals process is redundant and unnecessary, while consumer advocates believe it is an important tool for ensuring that borrowers are treated fairly and that errors are corrected.
8. Impact on the Servicing Industry and Secondary Mortgage Market
Many industry stakeholders raised concerns about the broader impact of the proposed changes on the mortgage servicing industry, particularly in relation to the secondary mortgage market. They noted that more stringent loss mitigation and foreclosure rules could lead to higher operational costs and increased uncertainty in servicing portfolios. This could make certain loans less attractive to investors, especially if default resolution is delayed or becomes more complex due to extended regulatory timelines.
Additionally, concerns were raised about the effect these changes could have on liquidity within the secondary market. If servicers are unable to efficiently resolve delinquent loans, this could lead to bottlenecks in the system and reduce investor confidence in mortgage-backed securities. Industry commenters called for the CFPB to carefully consider the downstream effects on the market and suggested conducting a more thorough cost-benefit analysis before finalizing the rule.
9. Conclusion
In conclusion, the comments on the CFPB’s proposed changes to Regulation X reveal a complex and multi-faceted debate. While there is broad support for the goal of streamlining the loss mitigation process and improving transparency, there are significant disagreements about how to implement these changes. Industry groups and government-backed entities like Fannie Mae and Freddie Mac are primarily concerned about operational efficiency and cost control, while consumer advocates and state regulators are focused on expanding borrower protections and ensuring that servicers are held accountable.
As the CFPB moves forward with finalizing the rule, it will need to carefully balance these competing interests to create a regulatory framework that both improves borrower access to loss mitigation and ensures the long-term sustainability of the mortgage servicing industry. Given the complexity of these issues, many commenters have called for additional clarity and guidance from the CFPB to ensure the smooth implementation of any final rules.
For the most up-to-date analysis or citation of actual comments, the public comment docket on Regulations.gov would be a primary source. Additionally, final rule publications by the CFPB will include a summary of significant comments received and the agency’s response to those comments.
Next Steps:
Monitor the CFPB’s response to public comments and any modifications to the proposed rule.
Evaluate the operational and compliance impact of potential changes on servicing practices.
Prepare for the possibility of enhanced borrower communication and loss mitigation requirements, especially in terms of training staff and updating servicing platforms.
Consider collaboration with industry peers to advocate for practical solutions that balance borrower protection with operational efficiency.