The Consumer Financial Protection Bureau should retain a key provision of its pandemic-era servicing rules that allows servicers to offer streamlined loan modifications to borrowers based on incomplete applications for loss mitigation, the American Bankers Association said in a letter to the bureau.
The CFPB in 2021 issued a rule amending Regulation X – which implements consumer protections for mortgage loans – to provide additional safeguards for distressed borrowers experiencing COVID-19-related hardships. Included in the rule was a provision allowing servicers to offer streamlined modifications to distressed borrowers without a complete application for all loss mitigation options. The bureau has proposed rescinding the protections created by the rule because the COVID-19 public health emergency ended in May 2023, and as part of a Trump administration effort to streamline regulation. ABA said it should keep the provision allowing for streamlined loan modifications based on an incomplete application for loss mitigation.
“This exception, introduced in the 2021 rule, provides critical flexibility for servicers to assist a broad range of borrowers, including but not limited to those facing hardships related to COVID-19,” ABA said. “As a result, servicers may rely on this exception to offer streamlined modifications to borrowers struggling to pay their mortgages for reasons unrelated to COVID.”
ABA suggested the CFPB instead engage in rulemaking to permanently remove the outdated anti-evasion provision that warranted the need for the exception.
Advances in servicing technology “have enabled more dynamic borrower engagement across multiple channels of communication and allow servicers to evaluate borrowers sequentially, under investor-prescribed hierarchy of options (also known as waterfalls),” ABA said. “Servicers can often address borrower hardships quickly and efficiently with ready-to-go options provided by mortgage loan investors, without requiring a borrower to endure the full formal loss mitigation application process.”
