Streamlining Mortgage Servicing for Borrowers Experiencing Payment Difficulties; Regulation X, 60204-60254 [2024-15475]

Agencies

• CONSUMER FINANCIAL PROTECTION BUREAU

[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 [www.gpo.gov]
[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:
     Federal Rulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments. A brief summary of 
this document will be available at https://www.regulations.gov/docket/CFPB-2024-0024.
     Email: [email protected]. Include 
Docket No. CFPB-2024-0024 or RIN 3170-AB04 in the subject line of the 
message.
     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 https://www.regulations.gov.
    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 https://reginquiries.consumerfinance.gov/. If you 
require this document in an alternative electronic format, please 
contact [email protected].

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

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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), https://www.congress.gov/111/cprt/JPRT52671/CPRT-111JPRT52671.pdf (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, https://www.federalreservehistory.org/essays/great-recession-and-its-aftermath (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

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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), https://www.brookings.edu/wp-content/uploads/2016/06/11_origins_crisis_baily_litan.pdf.
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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), https://www.nber.org/system/files/working_papers/w15159/w15159.pdf.
    \9\ Lynn Adler, U.S. 2009 foreclosures shatter record despite 
aid, Reuters (Jan. 14, 2010), https://www.reuters.com/article/us-usa-housing-foreclosures-idUSTRE60D0LZ20100114/.
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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

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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), https://library.nclc.org/book/mortgage-servicing-and-loan-modifications/6725-hamp-waterfall (last visited July 1, 
2024).
    \11\ U.S. Dep't of Treas., Making Home Affordable (MHA), https://home.treasury.gov/data/troubled-assets-relief-program/housing/mha 
(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), https://www.sigtarp.gov/sites/sigtarp/files/Audit_Reports/Factors_Affecting_Implementation_of_the_Home_Affordable_Modification_Program.pdf.
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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), https://library.nclc.org/book/mortgage-servicing-and-loan-modifications/1061-hamp-review-prerequisite-foreclosure 
(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?, https://www.consumerfinance.gov/ask-cfpb/what-was-the-national-mortgage-settlement-en-2071/ (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), https://www.consumerfinancialserviceswatch.com/2012/04/05/national-mortgage-foreclosure-settlement-tackles-dual-tracking-of-foreclosure-and-loan-modification/.
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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), https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rule-assessment_report.pdf (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

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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), https://singlefamily.fanniemae.com/media/19256/display. 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), https://guide.freddiemac.com/ci/okcsFattach/get/1006761_3. 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), https://www.urban.org/urban-wire/streamlining-increases-success-mortgage-modifications-34-percent (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), 
https://www.fhfa.gov/blog/statistics/measures-of-home-retention-following-a-loan-modification.
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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), https://www.consumerfinance.gov/about-us/blog/new-data-show-improving-yet-sustained-housing-insecurity-risks/.
    \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), https://www.gao.gov/assets/gao-21-554.pdf.
    \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), https://files.consumerfinance.gov/f/documents/cfpb_csbs_industry-forbearance-guide_2020-06.pdf. 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), 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/. 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), https://www.fhfa.gov/news/news-release/fhfa-extends-covid-19-forbearance-period-and-foreclosure-and-reo-eviction-moratoriums.
    \37\ Intercontinental Exchange, Inc. (ICE), Mortgage Monitor 
report--December 2023, at 23 (Dec. 2023), https://www.blackknightinc.com/wp-content/uploads/2023/12/ICE_MM_DEC2023_Report.pdf.
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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), https://www.mba.org/news-and-research/newsroom/news/2023/11/20/share-of-mortgage-loans-in-forbearance-decreases-to-0.29-in-october.
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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), https://www.sigtarp.gov/sites/sigtarp/files/Audit_Reports/Rising_Redefaults_of_HAMP_Mortgage_Modifications.pdf.
    \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), https://www.alstonconsumerfinance.com/fha-and-va-announce-new-loss-mitigation-options/.
---------------------------------------------------------------------------

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), https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-outlines-guiding-principles-future-foreclosure-prevention/.
    \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).
---------------------------------------------------------------------------

    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).
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    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), https://www.consumerfinance.gov/rules-policy/notice-opportunities-comment/archive-closed/request-for-information-regarding-mortgage-refinances-and-forbearances/.
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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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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, https://www.regulations.gov/document/CFPB-2022-0059-0001/comment (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), 
https://singlefamily.fanniemae.com/media/39096/display (Fannie Mae 
Forbearance Plan Terms); Freddie Mac Single Family, Contact 
Requirements when transitioning from a forbearance plan (Oct. 11, 
2023), https://guide.freddiemac.com/app/guide/section/9203.14.
---------------------------------------------------------------------------

    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), https://www.consumerfinance.gov/compliance/circulars/circular-2022-04-insufficient-data-protection-or-security-for-sensitive-consumer-information/.
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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), https://guide.freddiemac.com/app/guide/bulletin/2023-8.
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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, 
https://data.census.gov/table/ACSDT1Y2022.B16002?t=Language%20Spoken%20at%20Home&y=2022 (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, https://www.lep.gov/commonly-asked-questions. (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), https://www.urban.org/sites/default/files/publication/97436/is_limited_english_proficiency_a_barrier_to_homeownership.pdf.
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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), https://files.consumerfinance.gov/f/documents/cfpb_spotlight-serving-lep-consumers_112017.pdf; 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), https://www.regulations.gov/document/CFPB-2023-0045-0001; 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), 
https://www.housingpolicycouncil.org/_files/ugd/d315af_e2ce077e731d403f9c1f8407622158c8.pdf; 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), https://www.mba.org/docs/default-source/advertising/mba-regulation-x_early-intervention-and-loss-mitigation-letter_december-2023.pdf.
    \70\ CFPB, Spotlight on serving limited English proficient 
consumers: Language access in the consumer financial marketplace, at 
12 (Nov. 2017), https://files.consumerfinance.gov/f/documents/cfpb_spotlight-serving-lep-consumers_112017.pdf.
    \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), https://www.nclc.org/wp-content/uploads/2022/08/FHFA_Equitable_Hsg_Finance_RJ_LEP.pdf; 
Kleimann Commc'n Grp., Language Access for Limited English 
Proficiency Borrowers: Final Report (Apr. 2017), https://www.fhfa.gov/sites/default/files/2023-04/Borrower-Language-Access-Final-Report-June-2017.pdf (Kleimann 2017 Report); Ams. for Fin. 
Reform (AFR), Barriers to Language Access in the Housing Market: 
Stories from the Field (May 2016), https://ourfinancialsecurity.org/wp-content/uploads/2016/05/AFR_LEP_Narratives_05.26.2016.pdf (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), https://www.consumerfinance.gov/about-us/blog/new-rule-ensures-mortgage-servicers-provide-options-potentially-vulnerable-borrowers-exiting-forbearance/.
    \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.
---------------------------------------------------------------------------

    \75\ See, e.g., Kleimann 2017 Report.
---------------------------------------------------------------------------

    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-Spanish-speaking 
borrowers with limited English proficiency. The CFPB is seeking comment 
on whether the proposed servicer discretion described above is the 
appropriate method to determine how many and which languages a servicer 
should use or whether alternative methods, such as a list maintained by 
a designated source outside the regulation, or a threshold or ranking 
system established by the CFPB would be better suited for the proposed 
requirements.
4. Interaction With Sec.  1024.32(a)(2)
    Because the CFPB is proposing to require translations for the 
specified written and oral communications, the CFPB is also proposing 
conforming amendments to existing Sec.  1024.32(a)(2). Section 
1024.32(a)(2) currently provides servicers the option of providing 
borrowers with servicing disclosures required under subpart C of 
Regulation X in languages other than English, provided that the 
disclosures are also made available in English upon a recipient's 
request. The CFPB is proposing to amend this requirement to make clear 
that this optionality remains as to subpart C, except as otherwise 
required by the sections this proposal would amend to require 
translations for the written communications discussed in part IV.D.

E. Credit Reporting Protections for Borrowers Undergoing Loss 
Mitigation Review

    Through the CFPB's market monitoring activities, 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.
    First, the CFPB has learned that some servicers furnish information 
indicating a consumer is delinquent in making a payment even after a 
borrower and servicer have agreed to some type of loss mitigation 
option, and the borrower is performing according to the terms of that 
loss mitigation option. For example, the CFPB is aware of situations 
where the servicer has agreed to reduce a borrower's monthly payment by 
modifying the underlying mortgage loan agreement, but the servicer 
continues to furnish negative credit reporting information after the 
borrower performs on the modified agreement. The CFPB has heard that 
this occurs when the servicer has not implemented the loss mitigation 
option in their servicing system in a timely manner and instead 
continues to report delinquency based on the loan terms that were in 
place prior to the loss mitigation option. Continuing to report 
delinquency based on the loan terms in place before the loss mitigation 
agreement may raise questions about the accuracy and consistency of 
credit reports.
    Second, the CFPB has learned that some servicers may be using the 
Metro 2 Format and associated Consumer Data Industry Association (CDIA) 
guidance inconsistently, or not at all, when reporting tradeline data 
when the borrower is affected by a natural disaster.\76\ For example, 
the CFPB has heard that some servicers report the ``AW'' code for some 
mortgages that the servicer knows were affected by a natural disaster 
but not others. While the CFPB is aware that CDIA has characterized 
some tradeline data as optional, reporting optional tradeline data for 
certain mortgages, but not others, raises questions about credit 
reporting accuracy and consistency.
---------------------------------------------------------------------------

    \76\ Most servicers provide consumer credit information to one 
or more credit reporting agencies (CRAs) using a standardized 
electronic data reporting format called the ``Metro 2 Format.'' The 
Metro 2 Format transmits consumer credit account data and is 
maintained and updated by the Consumer Data Industry Association 
(CDIA). From time to time, CDIA will provide guidance to furnishers 
on how to report data to CRAs. Tradelines are the accounts in a 
borrower's name reported by furnishers such as mortgage servicers. 
For each tradeline, furnishers generally provide the type of credit 
(e.g., mortgage), the loan amount, the account balance, the account 
payment history (including the timeliness of payments), whether the 
account is delinquent or in forbearance, and other relevant 
information that pertains to the type of credit being reported.
---------------------------------------------------------------------------

    The CFPB is aware that some creditors already make policy decisions 
to not factor in certain types of negative credit reporting 
information, such as late payments, that are associated with the ``AW'' 
code when assessing credit risk. By excluding the ``AW'' code from 
credit reports for certain borrowers that the servicer knows are 
affected by a natural disaster but not others that the servicer also 
knows are affected by a natural disaster, servicers may undermine the 
utility of credit reporting data for future creditors.
    The CFPB also understands that some servicers furnish tradeline 
data without context that could give creditors more complete and 
accurate information about a borrower's potential credit risk. For 
example, some servicers do not consistently report a mortgage in 
forbearance using the forbearance code set forth under CDIA's guidance 
on reporting accounts placed in forbearance as a result of a natural or 
declared disaster.\77\ Failing to include the forbearance code or other 
tradeline data that provides needed context about a mortgage that is in 
loss mitigation review may lead creditors to falsely conclude that a 
borrower merely stopped making payments for a certain period of time 
without the mortgage servicer's agreement. This circumstance also 
raises questions about the report's accuracy.
---------------------------------------------------------------------------

    \77\ CDIA incorporates its FAQs in their Credit Reporting 
Resource Guide, which is a resource that includes the Metro 2 
Format. CDIA's guidance on reporting accounts placed in forbearance 
is found in FAQ 45. See Consumer Data Indus. Ass'n, Credit Reporting 
Resource Guide, Question 45: How should accounts in forbearance be 
reported?, https://crrg.s3.amazonaws.com/FAQ+45.pdf (last visited 
July 1, 2024).
---------------------------------------------------------------------------

    Inaccurate information may result in lenders inaccurately assessing 
a borrower's credit risk for several years after the information 
appears on a credit report. Moreover, the information in these reports 
is used by many different types of businesses, such as insurers, 
landlords, and employers, to make eligibility and other decisions about 
borrowers. Thus, inaccurate information in a credit report may have 
far-reaching effects on a borrower.

[[Page 60229]]

    In light of the concerns mentioned above, the CFPB is considering a 
variety of solutions that could improve the accuracy and consistency of 
credit reporting information furnished by servicers. These solutions 
could include adding to or amending CFPB regulations to ensure 
servicers report accurate information or amending furnisher guidance to 
improve or enhance the guidance provided to furnishers on how to report 
tradeline data. The CFPB seeks to learn more about furnishing concerns 
so that it can better understand how to address them.
    The CFPB is requesting comment about possible approaches it could 
take to ensure mortgage servicers are furnishing accurate and 
consistent credit reporting information for borrowers undergoing loss 
mitigation review. In particular, the CFPB requests comments on the 
following issues:
    (i) What servicer practices may result in the furnishing of 
inaccurate or inconsistent information about mortgages undergoing loss 
mitigation review?
    (ii) What protocols or practices do servicers currently use to 
ensure that mortgages are being reported accurately and consistently? 
Are there specific protocols or practices for ensuring loans in 
forbearance or borrowers affected by a natural disaster are reported 
accurately and consistently?
    (iii) Would it be helpful to have a special code that would be used 
to flag all mortgages undergoing loss mitigation review in tradeline 
data?
    (iv) What steps should the CFPB take to ensure servicers furnish 
accurate and consistent tradeline data?

F. Record Retention (Sec.  1024.38)

    The CFPB is proposing to amend existing Sec.  1024.38(c)(1) to 
specify that the requirement to retain records that document actions 
taken with respect to a borrower's mortgage loan account includes 
retention of records evidencing compliance with Regulation X. The CFPB 
is also proposing to amend existing comment 38(c)(1)-1 with an example 
illustrating these requirements as they would apply if this proposal's 
amendments to the loss mitigation framework are finalized.
    In the 2013 Mortgage Servicing Final Rule, the CFPB noted that the 
record retention requirement and timeframe were necessary for servicer 
compliance with specific legal obligations and to ensure that the CFPB 
and other regulators have an opportunity to supervise servicers' 
compliance with applicable laws effectively. However, the CFPB has 
heard from stakeholders that some servicers may be interpreting the 
existing requirement to be more limited. Existing Sec.  1024.38(c)(1) 
requires that a servicer retain records of actions taken with respect 
to a borrower's mortgage loan account. That category of actions is 
broad, and it includes actions taken to evidence compliance with 
Regulation X. To make clearer that servicers must retain records that 
evidence compliance with Regulation X, the CFPB is proposing to amend 
Sec.  1024.38(c)(1). The CFPB is also proposing to amend comment 
38(c)(1)-1 to provide an example illustrating requirements regarding 
methods of record retention if this proposal's amendments to the loss 
mitigation framework are finalized. The proposed comment notes that a 
servicer could use a computer program to create and retain records of 
the date a borrower makes a request for loss mitigation assistance, so 
long as the servicer ensures it can easily access those records. The 
CFPB notes that, if this proposal is finalized, a servicer would also 
be required to create and retain records of additional actions taken to 
evidence compliance with its requirements, such as creating and 
retaining records demonstrating the date the servicer stops advancement 
of the foreclosure process or creating and retaining records that 
demonstrate the servicer's steps regularly taken to identify and obtain 
information and documents necessary for loss mitigation review or to 
notify a borrower of a loss mitigation determination.
    The CFPB is seeking comment on these proposed requirements and, in 
particular, whether the CFPB should provide minimum standards to 
evidence compliance or specific requirements for recordkeeping, 
including whether it should provide data standards for mortgage 
servicers.

G. Removal of Regulations Implemented in Response to the COVID-19 
Pandemic

    In response to the COVID-19 pandemic, the CFPB amended Sec. Sec.  
1024.31, 1024.39, 1024.41 and related commentary in its June 2020 and 
June 2021 servicing rules. Among other things, the CFPB added COVID-19-
related hardship as a defined term, added temporary COVID-19-related 
additional early intervention live contact requirements, added 
temporary special COVID-19-related loss mitigation procedural 
safeguards, added temporary exceptions from the general anti-evasion 
requirements for certain COVID-19 related loss mitigation options, and 
addressed servicer's contact and reasonable diligence requirements 
relating to delinquent borrowers exiting a short-term payment 
forbearance program made available to borrowers experiencing a COVID-
19-related hardship.
    Because both the temporary additional early intervention live 
contact requirements and the temporary special COVID-19 loss mitigation 
procedural safeguards have expired and the COVID-19 Public Health 
Emergency expired on May 11, 2023,\78\ the CFPB proposes to remove the 
language relating to the COVID-19 pandemic added by the June 2020 and 
June 2021 servicing rules from Sec. Sec.  1024.31, 1024.39(a), 
1024.39(e), 1024.41(c)(2)(i), 1024.41(c)(2)(v), 1024.41(c)(2)(vi), 
1024.41(f)(3) and comments 39(a)-3, 39(a)-4.i, 39(a)-4.ii, 39(a)-6, 
41(b)(1)-4.iv, 41(f)(3)-1, 41(f)(3)(ii)(C)-1, and 41(f)(3)(ii)(C)-2.
---------------------------------------------------------------------------

    \78\ Press Release, U.S. Dep't of Health & Human Servs., HHS 
Secretary Xavier Becerra Statement on End of the COVID-19 Public 
Health Emergency (May 11, 2023), https://www.hhs.gov/about/news/2023/05/11/hhs-secretary-xavier-becerra-statement-on-end-of-the-covid-19-public-health-emergency.html.
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H. Other Conforming Changes

    In addition to the changes discussed in part IV above, the proposed 
rule would amend regulatory text in 1024.35(9) and (10), 
1024.38(b)(2)(iv)-(vi) and (b)(3)(iii), 1024.40(b)(1)(ii)-(iv) and 
(b)(2)(ii) and various commentary to Sec.  1024.31, 1024.38, 1024.39, 
and 1024.41 to conform with other changes in the proposed rule. For 
example, the proposed rule would update commentary to Sec.  1024.38 
regarding servicer policies and procedures to delete references to a 
complete application and instead refer to a borrower making a request 
for loss mitigation assistance.

I. Other Servicing Issues--Requests for Comment

1. Zombie Mortgages
    In recent years, some borrowers are hearing from companies that 
claim to own or have the right to collect on long-dormant second 
mortgages, also known as zombie mortgages. Many borrowers, having not 
received any notices or periodic statements for years, concluded that 
these second mortgages had been modified along with the first mortgage, 
discharged in bankruptcy, or forgiven. These companies often demand the 
outstanding balance on the second mortgage, plus fees and interest, and 
threaten to foreclose if the borrower does not or cannot pay. The CFPB 
is concerned about homeowners who may be facing foreclosure threats and 
other collection activity because of long-dormant second mortgages.
    The CFPB issued an April 2023 advisory opinion providing guidance 
on

[[Page 60230]]

debt collectors attempting to foreclose on zombie mortgages.\79\ The 
advisory opinion noted that entities selling or collecting on these 
second mortgages may also be subject to certain requirements under 
RESPA, the Truth in Lending Act, and the CFPB's mortgage servicing 
rules. For example, unless an exemption applies, the CFPB's mortgage 
servicing rules require servicers to provide periodic statements to 
consumers. The CFPB seeks data and information on the prevalence of 
this issue. The CFPB also seeks comments on whether and to what extent 
this issue may continue to cause consumer harm in the future, and any 
additional actions the CFPB could take, including amending existing 
rules, to better protect borrowers from harm caused by collection 
activity on these types of mortgages.
---------------------------------------------------------------------------

    \79\ See 88 FR 26475 (May 2023).
---------------------------------------------------------------------------

2. Disclosure of Deferred Amounts
    As noted in part II, non-loan modification loss mitigation options, 
including deferrals, have become increasingly common in recent years. 
In a deferral, missed payments are typically moved to the end of the 
loan term and generally become due when a borrower refinances, sells, 
or otherwise terminates their mortgage. The CFPB wants to ensure that 
borrowers are not taken by surprise when these amounts become due. The 
CFPB therefore requests comment on whether there are actions it could 
take, including amending existing rules, to help ensure that borrowers 
are regularly reminded of deferred amounts that may be due at the end 
of their loan terms.
3. Successors in Interest
    In 2016, the CFPB finalized three sets of rule changes relating to 
successors in interest. First, the CFPB adopted definitions of 
successor in interest for purposes of Regulation X's subpart C and 
Regulation Z that are modeled on the categories of transfers protected 
under section 341(d) of the Garn-St. Germain Depository Institutions 
Act of 1982. Second, the CFPB finalized rules relating to how a 
mortgage servicer confirms a successor in interest's identity and 
ownership interest. Third, the CFPB finalized rules providing that a 
confirmed successor in interest is a borrower for purposes of Sec.  
1024.17 and subpart C of Regulation X and a consumer for purposes of 
Sec.  1026.20(c) through (e), 1026.36(c), 1026.39, and 1026.41 of 
Regulation Z.\80\
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    \80\ See 12 CFR 1024.30(d); 12 CFR 1026.2(a)(11).
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    Despite these added protections, the CFPB has received reports from 
housing counselors and consumer advocates indicating that potential 
successors in interest continue to encounter delays and other 
communication difficulties when contacting servicers in an effort to 
confirm their successor in interest status. These challenges can have 
downstream implications for successors in interest by interfering with 
their ability to obtain loss mitigation reviews and to trigger 
foreclosure protections. Additionally, the CFPB has received reports 
from housing counselors and consumer advocates indicating that there 
are categories of homeowners who do not fit the current Regulation X 
definition of a successor in interest, such as, for example, non-
relatives who receive property upon the death of a borrower or co-
owners who do not sign their home's promissory note. Often servicers 
will not allow such homeowners to access information about the mortgage 
on their home or to apply for loss mitigation.
    The CFPB seeks comment on additional actions it could take, 
including amending existing rules, to better protect potential 
successors in interest, confirmed successors in interest, and 
homeowners who do not fit the current Regulation X definition of a 
successor in interest. The CFPB also seeks data and information on the 
prevalence of consumer protection issues relating to these consumers.
4. Relation to State laws
    Section 1024.5(c)(1) provides that state laws that are inconsistent 
with RESPA and Regulation X are preempted, but only to the extent of 
that inconsistency. Comment 5(c)(1)-1 provides that State laws that 
give greater protection to consumers are not inconsistent with and are 
not preempted by RESPA or Regulation X. The CFPB recognizes that some 
States impose their own mortgage servicing requirements and that those 
requirements may be based on the early intervention and loss mitigation 
requirements in the CFPB's current mortgage servicing rules, resulting 
in some overlap if this proposal to amend those requirements were 
finalized.
    The CFPB is requesting comment on possible preemption interventions 
it could undertake if this proposal is finalized. The CFPB seeks 
comment on the following:
(i) Are there inconsistencies between the CFPB's proposal, if 
finalized, and existing State law? If so, what are the details of such 
inconsistency?
    (ii) Are there specific burdens or costs caused by any potential 
inconsistency or overlap between the CFPB's proposal, if finalized, and 
State laws related to early intervention and loss mitigation?

V. Proposed Effective and Compliance Dates

    The CFPB proposes that all changes proposed herein, except for the 
proposed language access requirements discussed in part IV.D, take 
effect 12 months after publication of a final rule in the Federal 
Register. This timing is consistent with the 2013 Mortgage Servicing 
Final Rule, which provided servicers 11 months (330 days) from its 
publication in the Federal Register to implement requirements relating 
to force-placed insurance, error resolution and information requests, 
general servicing policies and procedures, early intervention, 
continuity of contact, and loss mitigation procedures.\81\ Apart from 
the proposed language access requirements, the current proposal largely 
streamlines or builds upon requirements in the current regulation. 
Therefore, the CFPB preliminarily determines that 12 months would be an 
appropriate amount of time for servicers to implement all proposed 
changes other than the proposed language access requirements.
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    \81\ 78 FR 10696, 10842 (Feb. 14, 2013).
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    The CFPB proposes that the proposed language access provisions 
discussed in part IV.D take effect 18 months after publication of a 
final rule in the Federal Register. These proposed language access 
provisions generally would require mortgage servicers to make certain 
written and oral communications under the CFPB's mortgage servicing 
early intervention and loss mitigation provisions available in multiple 
languages. To implement these proposed provisions, the CFPB anticipates 
that servicers would need additional time to complete tasks, such as 
updating systems and software, coordinating with third party service 
providers, revising policies and procedures, training staff, and 
performing compliance testing; therefore, the CFPB preliminarily finds 
that an effective date of 18 months after publication in the Federal 
Register may be appropriate. The CFPB seeks comments on the proposed 
effective dates.
    The CFPB also seeks comment on whether it should allow servicers to 
comply early with any or all of the proposed provisions. With respect 
to provisions that have a proposed effective date of 12 months after 
publication of a final rule in the Federal Register, the CFPB proposes 
to permit optional early compliance only to the extent that a servicer 
could comply with

[[Page 60231]]

all provisions that have the same 12-month effective date. For example, 
under the proposed rule, a servicer could not begin to conduct 
sequential reviews of loss mitigation options as would be permitted 
under proposed Sec.  1024.41(f)(2) prior to the final rule's effective 
date unless they also were able to comply with all other provisions in 
the rule with an effective date of 12 months. The CFPB preliminarily 
determines that the provisions with a 12-month effective date are too 
intertwined and too interdependent to allow early compliance on a 
provision-by-provision basis. For the language access provisions that 
have a proposed effective date of 18 months after publication of a 
final rule in the Federal Register, the CFPB proposes to permit 
servicers to choose optional early compliance with those provisions 
without requiring early compliance with other provisions. The CFPB 
understands that some servicers already offer translations of certain 
written communications and the CFPB would not wish to discourage 
servicers from continuing to offer such translations prior to the 
rule's effective date.

VI. CFPA Section 1022(b) Analysis

    In developing this proposed rule, the CFPB has considered the 
proposed rule's potential benefits, costs, and impacts as required by 
section 1022(b)(2)(A) of the Dodd-Frank Act.\82\ The CFPB requests 
comment on the preliminary analysis presented below as well as 
submissions of additional data that could inform the CFPB's analysis of 
the benefits, costs, and impacts.
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    \82\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act 
requires the CFPB to consider the potential benefits and costs of 
the regulation to consumers and covered persons, including the 
potential reduction of access by consumers to consumer financial 
products and services; the impact of rules on insured depository 
institutions and insured credit unions with less than $10 billion in 
total assets as described in section 1026 of the Dodd-Frank Act; and 
the impact on consumers in rural areas.
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A. Data Limitations and Quantification of Benefits, Costs, and Impacts

    The discussion below relies on information that the CFPB has 
obtained from industry, other regulatory agencies, and publicly 
available sources, including reports published by the CFPB. These 
sources form the basis for the CFPB's consideration of the likely 
impacts of the proposed rule. The CFPB provides estimates, to the 
extent possible, of the potential benefits and costs to consumers and 
covered persons of the proposed rule given available data. However, as 
discussed further below, the data with which to quantify the potential 
costs, benefits, and impacts of the proposed rule are generally 
limited.
    Considering these data limitations, the analysis below generally 
includes a qualitative discussion of the benefits, costs, and impacts 
of the proposed rule. General economic principles and the CFPB's 
expertise in consumer financial markets, together with the limited data 
that are available, provide insight into these benefits, costs, and 
impacts.

B. Small Servicer Exemption

    Small servicers--generally, those that service 5,000 or fewer 
mortgage loans, all of which the servicer or affiliates own or 
originated--are exempt from all new requirements under the proposed 
rule.\83\ Therefore, the discussion of potential benefits and costs 
below generally does not apply to small servicers or to consumers whose 
mortgage loans are serviced by small servicers.
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    \83\ Regulation Z Sec.  1026.41(e)(4)(ii) defines the term 
``small servicer'' as a servicer that either: ``(A) Services, 
together with any affiliates, 5,000 or fewer mortgage loans, for all 
of which the servicer (or an affiliate) is the creditor or assignee; 
(B) Is a Housing Finance Agency, as defined in 24 CFR 266.5; or (C) 
Is a nonprofit entity that services 5,000 or fewer mortgage loans, 
including any mortgage loans serviced on behalf of associated 
nonprofit entities, for all of which the servicer or an associated 
nonprofit entity is the creditor . . .''
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C. Baseline for Analysis

    In evaluating the benefits, costs, and impacts of this proposed 
rule, the CFPB considers the impacts of the proposed rule against a 
baseline in which the CFPB takes no action. This baseline includes the 
Mortgage Servicing Final Rules as currently in effect.\84\
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    \84\ The CFPB has discretion in any rulemaking to choose an 
appropriate scope of analysis with respect to potential benefits, 
costs, and impacts, and an appropriate baseline.
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D. Potential Benefits and Costs to Consumers and Covered Persons of the 
Proposed Rule

    This section discusses the benefits and costs to consumers and 
covered persons of the following main provisions in the proposed rule: 
(1) the replacement of the complete application framework with a 
streamlined process that allows for the possibility of sequential loss 
mitigation reviews and includes proposed foreclosure procedural 
safeguards throughout a loss mitigation review cycle; (2) ensuring 
consumers are informed of all available loss mitigation options early 
in the process and changes to early intervention requirements when 
consumers are in forbearance; (3) fee protections during a loss 
mitigation review cycle; (4) changes to loss mitigation determination 
notice requirements; (5) clarification of notice of error requirements 
and appeal rights; and (6) new language access requirements discussed 
in the preamble.
    The primary goal of these proposed amendments would be to reduce 
avoidable foreclosures, including by getting homeowners into loss 
mitigation solutions more quickly. These proposed amendments aim to 
address this goal by removing certain prescriptive requirements from 
the existing rules and proposing certain procedural safeguards to 
protect borrowers and align servicer incentives with reviewing 
borrowers for loss mitigation assistance quickly and accurately. As 
such, the discussion below of the primary costs and benefits to 
consumers and covered persons focuses on proposed changes in the rule 
as they relate to the goals of reducing avoidable foreclosures and 
protecting borrowers from harms that can occur during the loss 
mitigation review process.
    The CFPB also would amend existing record retention requirements to 
clarify that they include retention of records evidencing compliance 
with the regulation overall. For covered persons who are not already 
retaining these records, the CFPB anticipates that this proposed 
amendment would impose at most minimal costs to update policies and 
procedures since the relevant records are already produced through 
compliance with the existing rule, and storage systems are already in 
place to comply with other record retention requirements.
1. Updating the Complete Application Framework
    Proposed amendments to Sec.  1024.41 would replace the existing 
rule's complete application framework with a streamlined process that 
allows for the possibility of sequential loss mitigation reviews. A 
loss mitigation review cycle would begin when the borrower requests 
loss mitigation assistance and would terminate at the time the mortgage 
is successfully brought current or one of the procedural safeguards in 
proposed Sec.  1024.41(f)(2) is met. Certain procedural safeguards 
against foreclosure would persist during the loss mitigation review 
cycle. Under the proposed rule, investors could still require that 
servicers perform a simultaneous review for all available loss 
mitigation options. However, the proposed rule would allow flexibility 
for sequential loss mitigation reviews with corresponding proposed 
foreclosure procedural safeguards throughout a loss mitigation review

[[Page 60232]]

cycle, and thus this analysis focuses on that approach.
i. Benefits and Costs to Consumers
    Generally, the goal of this proposed amendment would be to reduce 
avoidable foreclosure by aligning servicer incentives so that servicers 
could review borrowers for loss mitigation options quickly and 
accurately. There are two primary considerations of costs and benefits 
to consumers in this proposed rule. The first relates to preventing 
borrower harm by preventing avoidable foreclosures and other 
consequences of delinquency. For example, for borrowers experiencing 
financial distress, allowing flexibility for an expedited review of 
loss mitigation options may prevent the borrower from incurring costs 
associated with the foreclosure process and experiencing negative 
impacts to their credit reporting. As outlined below, the cost of 
foreclosure to borrowers is large and manifests through both monetary 
and non-monetary costs.
    The second consideration relates to the potential consequences for 
borrowers' consideration of all available loss mitigation options. The 
existing rule provides that once an application is complete, the 
servicer must evaluate the borrower for all loss mitigation options 
simultaneously. This includes options for the borrower to sell their 
home or liquidation options even if the borrower has indicated they 
would like to remain in the home. The proposed framework would allow 
servicers to evaluate borrowers more quickly and would provide 
flexibility to the servicer so that the servicer would not need to 
review the borrower for non-retention options in instances where the 
borrower has indicated they would like to remain in the home, for 
example. Upon informing the borrower of the results of a loss 
mitigation review, the new framework also would require servicers to 
provide information about other available loss mitigation options. This 
will allow borrowers to ask for review for other loss mitigation 
options that they may prefer.
Avoidance of Foreclosure and Other Consequences of Delinquency
    Both the proposed loss mitigation review framework and proposed 
foreclosure procedural safeguards would play an important role in 
reducing the probability that a borrower enters foreclosure and that an 
avoidable foreclosure is completed, which would otherwise cause 
borrowers to lose their homes, incur expenditures associated with the 
foreclosure process and incur non-monetary costs associated with 
foreclosure. The proposed loss mitigation review framework would 
provide greater flexibility to servicers to evaluate borrowers for loss 
mitigation options more quickly and accurately. The CFPB expects that 
the proposed loss mitigation review framework would increase access to 
loss mitigation for many borrowers, allowing more borrowers to be 
evaluated for loss mitigation options than they otherwise would have 
and reducing avoidable foreclosures. Furthermore, the proposed rule 
would expand foreclosure procedural safeguards to begin the moment the 
borrower requests loss mitigation assistance as opposed to the existing 
rule's foreclosure protections, which generally begin only after the 
receipt of a complete loss mitigation application. The proposed rule 
would prevent servicers from initiating or advancing foreclosure 
proceedings against borrowers from the moment they request loss 
mitigation assistance until the mortgage is successfully brought 
current or one of the procedural safeguards in proposed Sec.  
1024.41(f)(2) is met. The CFPB expects that the proposed foreclosure 
procedural safeguards would reduce the probability of foreclosure, as 
described in more detail below.
    The proposed loss mitigation review framework would be expected to 
reduce avoidable foreclosures by increasing the likelihood that a 
borrower receives a loss mitigation option sooner. The CFPB understands 
there are a subset of borrowers who fail to complete a loss mitigation 
application despite significant improvements in mortgage servicing 
practices since the 2013 Mortgage Servicing Rules. The barriers to 
completing a loss mitigation application were well demonstrated during 
HAMP. Responses to the American Survey of Mortgage Borrowers \85\ (ASMB 
2020 Survey) also suggest that borrowers experiencing financial 
distress had difficulty accessing loss mitigation programs during the 
COVID-19 pandemic. Among borrowers who had payment concerns or 
difficulties in 2020, half of respondents reported that they did not 
think they qualified for a program or that they did not know how or 
where to apply for programs. More than one-quarter of respondents 
experiencing financial distress reported that they experienced 
``challenges in getting help to address loan payment concerns or 
difficulties'' due to the application process being ``too much 
trouble.'' \86\ In interviews conducted for the CFPB's 2019 RESPA 
Servicing Assessment, housing counselors reported that the leeway 
servicers have in defining when an application is complete under the 
existing rule makes it challenging to determine whether their 
application is complete or what additional information is necessary to 
complete it.\87\ Taken together, this suggests that a substantial share 
of borrowers who initiate applications may not complete them and that, 
across servicers, many delinquent borrowers do not initiate 
applications at all.\88\
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    \85\ The American Survey of Mortgage Borrowers (ASMB) is a 
survey conducted annually and jointly sponsored by the FHFA and the 
CFPB as part of the National Mortgage Database (NMDB) program. The 
purpose of the ASMB is to collect voluntary feedback directly from 
mortgage borrowers about their experience with their mortgage and 
property. The feedback collected by the ASMB on past surveys 
includes information about a range of topics related to maintaining 
a mortgage and property. The ASMB 2020 Survey focused on borrower 
experiences with their mortgage during the COVID-19 pandemic and 
received over 1700 responses. See 85 FR 46104 (July 31, 2020).
    \86\ See Lynn Conell-Price et al., CFPB, Borrower Experiences 
with Mortgage Servicing During the COVID-19 Pandemic, at 3, 10-11 
(June 2024), https://files.consumerfinance.gov/f/documents/cfpb_borrower-experiences-with-mortgage-servicing_2024-06.pdf (CFPB 
June 2024 Report). This question, Question 38 in the ASMB, asked 
borrowers, ``Were any of the following a challenge to you in getting 
help to address your concerns or payment difficulties?'' See 85 FR 
46104, 46113 (July 31, 2020).
    \87\ Servicing Rule Assessment Report at 171-72.
    \88\ Analysis of five servicers' data reported by the CFPB in 
the Servicing Rule Assessment Report showed a wide range in share of 
initiated loss mitigation applications that were completed across 
servicers from about 40 to 95 percent. This variation likely 
reflects in part differences in how servicers tracked and compiled 
data on completed applications. Servicing Rule Assessment Report at 
139.
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    Under the existing rule, servicers generally are required to 
collect documentation for all the options that may be available to the 
borrower prior to making a determination as to what loss mitigation 
option or options the servicer may offer to the borrower. This 
framework proved beneficial for many borrowers. However, as discussed 
above, it remains the case that some borrowers do not complete the 
application for loss mitigation assistance in a timely manner or at 
all. The requirement to obtain and submit documents that may not be 
relevant to options the borrower is interested in may contribute to 
borrowers' difficulties in completing an application. Moreover, delays 
in processing an application can occur when a borrower submits a 
partial application or otherwise. This delay can result in the borrower 
needing to resubmit documents that may have become stale (i.e., proof 
of income). Servicers following investor guidelines might ask borrowers 
to resubmit

[[Page 60233]]

documents multiple times before conducting a review for loss mitigation 
options. Providing flexibility to servicers by allowing sequential 
review for loss mitigation options, as proposed, would increase the 
likelihood that a borrower receives at least one suitable loss 
mitigation option quickly \89\ and, therefore, would increase their 
chances of avoiding foreclosure.\90\
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    \89\ Under existing Sec.  1024.41(c), servicers may under some 
circumstances evaluate an incomplete loss mitigation application and 
offer a borrower a loss mitigation option based on the incomplete 
application if the application has remained incomplete for a 
significant period of time. See 12 CFR 1024.41(c)(2)(ii). By 
lowering barriers to receiving an offer, the proposed application 
framework is expected to lead to more loss mitigation offers, a 
portion of which will allow consumers to avoid foreclosures that 
would have occurred under the existing rule.
    \90\ See Urban Wire 2018.
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    For some borrowers, the ability to enter a particular loss 
mitigation option may be the only way for them to become or remain 
current and avoid foreclosure. Delays in loss mitigation review can 
directly lead to foreclosure and the borrower losing their home. For 
example, some loss mitigation programs are subject to a cap of 12 
cumulative deferred past due principal and interest payments,\91\ which 
includes the period of loss mitigation review. Borrowers will be 
ineligible for this type of loss mitigation program if loss mitigation 
review and offer are delayed past the 12-month mark for any reason.
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    \91\ See Freddie Mac, Payment Deferral Solutions, https://sf.freddiemac.com/working-with-us/servicing/products-programs/payment-deferral (last visited July 1, 2024).
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    Furthermore, reducing the hurdles to obtain a loss mitigation 
option may benefit borrowers who would successfully complete a loss 
mitigation application and receive and accept a loss mitigation option 
under the current framework. To the extent those borrowers receive a 
loss mitigation option more quickly under the proposal than under the 
existing rule, their period of delinquency would be reduced. This will 
reduce negative impact on their credit history. It also would reduce 
their exposure to fees associated with default, such as late fees, 
property inspection fees, and foreclosure-related fees.
    The CFPB does not have data enabling us to estimate how much the 
proposed provision would shorten loss mitigation processes. Interviews 
with servicers conducted for the CFPB's 2019 RESPA Servicing Assessment 
indicate that the requirement to evaluate the borrower for all options 
at once is time-consuming for servicers.\92\ The same report analyzed 
seven servicers' operations data and found longer durations between a 
borrower initiating and completing a loss mitigation application after 
the complete application framework became effective (median 63 days in 
2015, post-Rule, relative to a median of 36 days in 2012, pre-Rule, 
i.e., in the absence of a complete application requirement).\93\ We 
caution that these data do not allow us to estimate the increase in 
time directly attributable to the complete application requirement as 
opposed to changes in conditions over these three years or other 
aspects of the rule. These findings suggest that the proposed provision 
may allow borrowers to be reviewed for loss mitigation options more 
quickly.
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    \92\ Servicing Rule Assessment Report at 152, 155-56.
    \93\ The CFPB assessed the 2013 Mortgage Servicing Final Rule 
between 2018 and 2019 and released a report detailing its findings 
in early 2019. Id. at 142.
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    The CFPB also believes that the proposed foreclosure procedural 
safeguards would benefit consumers significantly by providing them with 
foreclosure protections more quickly. Under the proposed rule, 
borrowers would have protection from foreclosure as soon as they 
indicate that they need mortgage assistance as opposed to waiting until 
an application is complete. This means most borrowers would receive 
foreclosure protections earlier in the process. Moreover, because many 
borrowers do not complete a loss mitigation application under the 
existing rules, these borrowers would receive foreclosure protections 
under the proposed rule, which could increase their likelihood of 
accessing loss mitigation. The CFPB expects that by receiving 
foreclosure protections earlier in the process borrowers would have an 
increased likelihood of avoiding foreclosure.
    The proposed rule also could prevent some foreclosures by requiring 
that servicers evaluate borrowers for other available loss mitigation 
options if the initially chosen loss mitigation option is not 
successfully implemented (e.g., if the borrower does not complete trial 
modification payments). Under the existing framework, servicers are 
required to simultaneously evaluate borrowers for all available options 
and offer or deny the available options at the same time. Servicers are 
not required to review another application or re-evaluate previously 
denied options if the borrower remains delinquent (as in the case where 
the borrower does not complete trial modification payments). For 
borrowers whose circumstances change (e.g., new employment), this can 
result in borrowers being denied access to loss mitigation options 
because they were not eligible at the time of application completion 
even though they become newly eligible after application. The CFPB 
expects that, because it would require servicers to evaluate borrowers 
for other available loss mitigation options if a previously offered 
loss mitigation option is not finalized, the proposed rule would 
provide borrowers with increased opportunities to finalize a loss 
mitigation option successfully and to become current.
    The CFPB does not have data to estimate how many borrowers would 
avoid foreclosure due to this additional opportunity for evaluation. 
However, the CFPB understands that some borrowers who accept a loss 
mitigation option and enter a trial payment plan do not succeed at 
bringing their loan current through that option. Borrowers in this 
situation who have not yet been reviewed for all available loss 
mitigation options might be able to become current or remain in their 
home under the proposed rule if they were approved for and successfully 
completed a different loss mitigation option after failing a trial 
payment plan.
    For borrowers who avoid foreclosure due to the proposed provision, 
the per borrower benefits would be substantial. Estimates of the cost 
of foreclosure to consumers are large and include substantial monetary 
and non-monetary costs. Some of these costs are borne directly by the 
borrower and others are borne by non-borrowers. In the CFPB's June 2021 
Final Rule, we estimated an average per-borrower benefit of avoiding 
foreclosure of at least $30,100 or $35,300 in 2023 dollars.\94\ This 
figure relies on a study by the Department of Housing and Urban 
Development in 2010, which estimated a borrower's average out-of-pocket 
cost from a completed foreclosure of $10,300 or $14,630 in 2023 dollars 
and estimated the average effect of foreclosure on close neighboring 
house values at $14,531, or $20,640 in 2023 dollars.\95\ This number

[[Page 60234]]

likely underestimates the average borrower benefit of avoiding 
foreclosure due to additional monetary and non-monetary costs to the 
borrower of foreclosure not included in this estimate. Additional 
monetary costs to the borrower include loss of equity \96\ and the 
option value from realizing future housing price appreciation.\97\ 
Additional non-monetary costs may include, but are not limited to, 
increased housing instability, reduced homeownership, financial 
distress,\98\ and adverse medical conditions.\99\ While these estimates 
are based on data from 2008 or earlier, the CFPB believes the 
inflation-adjusted estimates provide a reasonable lower bound for the 
cost of foreclosure to borrowers.
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    \94\ 86 FR 34848 (June 30, 2021).
    \95\ Estimates from HUD include direct costs to the borrower: 
moving costs, legal fees, tax penalties, and administrative charges. 
These estimates from HUD are based on a number of assumptions and 
circumstances that may not apply to all borrowers who experience a 
foreclosure sale or those that remediate through non-foreclosures 
options. U.S. Dep't of Hous. & Urb. Dev., Economic Impact Analysis 
of the FHA Refinance Program for Borrowers in Negative Equity 
Positions (2010), Adjustment for inflation uses the change in the 
Consumer Price Index for All Urban Consumers (CPI-U) U.S. city 
average series for all items, not seasonally adjusted, from January 
2010 to September 2023. See U.S. Bureau of Lab. Stat., Consumer 
Price Index, https://www.bls.gov/cpi/ (last visited July 1, 2024).
    \96\ Campbell et al., Forced Sales and House Prices, Am. Econ. 
Rev. 101 (2011), https://www.aeaweb.org/articles?id=10.1257/aer.101.5.2108.
    \97\ Janice Eberly & Arvind Krishnamurthy, Efficient credit 
policies in a housing debt crisis, Brookings Papers on Econ. 
Activity, Fall 2014, at 73-136 (2014).
    \98\ Rebecca Diamond et al., The Effect of Foreclosures on 
Homeowners, Tenants, and Landlords, Nat'l Bureau of Econ. Res., 
Working Paper No. 27358 (2020).
    \99\ See Janet Currie et al., Is there a link between 
foreclosure and health?, 7 Am. Econ. J.: Econ. Pol'y 63 (2015), 
https://www.aeaweb.org/articles?id=10.1257/pol.20120325.
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    In addition to the above estimate, there would be significant 
benefits to the borrower of avoiding foreclosure with respect to their 
credit profile. Foreclosure has a significant impact on a borrower's 
credit score that can make it difficult to access future credit.\100\ 
The benefit to consumers is even larger if the borrower can shorten the 
period of loan delinquency by entering a loss mitigation solution 
faster under the proposed rule compared to baseline.
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    \100\ See Jim Akin, How Does a Foreclosure Affect Credit?, 
Experian (July 27, 2023), https://www.experian.com/blogs/ask-experian/how-does-a-foreclosure-affect-credit/.
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    The CFPB does not have data to estimate the number of borrowers 
experiencing financial distress who would not complete a loss 
mitigation application under existing rules and would not therefore 
receive a loss mitigation offer but would receive a loss mitigation 
offer under the proposed rule. The CFPB also does not have data to 
predict how many borrowers would experience foreclosure but for a loss 
mitigation solution received under the proposed loss mitigation review 
framework. However, existing evidence suggests that the number of 
borrowers who would receive a loss mitigation solution under the 
proposed rule might be substantial. At the national level, a November 
2023 report from Intercontinental Exchange (ICE) Mortgage Technology 
estimates that 751,000 loans were at least 60 days delinquent. The same 
report estimates 214,000 total loans in active foreclosure in 
September.\101\ The CFPB's 2019 RESPA Servicing Rule Assessment reports 
on the share of delinquent borrowers from a sample of five servicers 
who initiated loss mitigation applications in 2015 under the existing 
complete application framework. Out of the population of borrowers who 
became 60 days delinquent in 2015, six months later 45 percent of 
borrowers had initiated a loss mitigation application.\102\ The CFPB 
requests data and other information that could help estimate the extent 
to which the proposed provisions would increase the number of consumers 
who receive a loss mitigation option and the number that could avoid 
foreclosure as a result.
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    \101\ ICE, Mortgage Monitor report, at 23-24 (Nov. 2023), 
https://www.blackknightinc.com/wp-content/uploads/2023/11/ICE_MM_NOV2023_Report.pdf.
    \102\ Servicing Rule Assessment Report at 124-25.
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Consequences for Borrower Consideration of All Available Loss 
Mitigation Options
    The proposed loss mitigation review framework may create costs for 
borrowers if it prevents them from considering and receiving loss 
mitigation options that they would prefer to those for which they are 
initially considered. For example, under the proposal, a borrower might 
be considered for and receive an offer of payment deferral without 
having provided the documentation required to be considered for a loan 
modification. This could be harmful to borrowers that would, instead, 
benefit from a loan modification and who may not understand the 
difference between the two loss mitigation options. Assuming the 
borrower is eligible for both options but does not know this, an 
immediate offer of deferral may induce the borrower to accept that 
option because they do not realize there are other options available 
that may be more fitting for their circumstances. Borrowers who receive 
a streamlined offer may not understand all the loss mitigation options 
they may have been eligible for if they had submitted a complete 
application.
    In the 2013 RESPA Servicing Final Rule, the CFPB explained that 
borrowers would benefit from the complete application requirement, in 
part, because borrowers would generally be better able to choose among 
available loss mitigation options if the servicer is required to review 
them for all options and present any options for which they are 
eligible simultaneously. The CFPB acknowledges that borrowers accepting 
an offer without being reviewed for all available options could be 
prevented from considering loss mitigation options that they may prefer 
to the initial option for which they are reviewed. However, if a 
borrower is interested in and eligible for another form of loss 
mitigation, the proposed rule would allow them to request and receive a 
review for all available options that they have not already been 
reviewed for after the servicer's initial offer. In addition, other 
proposed revisions to the early intervention notice requirements in the 
proposed rule, discussed below in (2), are designed to ensure the 
borrower has access to information about and the opportunity to seek 
review for all options for which they may qualify. These parts of the 
proposal should mitigate the risk that a borrower is not evaluated for 
all options in which they may have an interest.
    The CFPB's 2019 RESPA Servicing Rule Assessment also showed that 
servicers generally only offered borrowers one loss mitigation option 
even under the existing rule's complete application framework. 
Investor-required evaluation rules sometimes prescribe sequential 
review and automatically deny a borrower all other options for which 
the borrower qualifies.\103\ This indicates that in many cases the 
existing complete application framework may not result in the borrower 
receiving detailed information on multiple available options.
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    \103\ See Servicing Rule Assessment Report at 158.
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ii. Benefits and Costs to Covered Persons
    The primary benefits to servicers would be a reduction in costs for 
collecting and processing paperwork associated with loss mitigation 
applications. Evaluating a complete application for all loss mitigation 
options is more resource intensive than evaluating eligibility for a 
single option or subset of options. Thus, if a servicer evaluates a 
borrower for fewer than all loss mitigation options--as the proposed 
rule would allow--the servicer will save resources, avoiding parts of 
the evaluation process that would have occurred under the existing 
complete application framework. These benefits could be especially 
beneficial to servicers when a borrower applies for options that are 
designed to be streamlined and made available quickly with no or 
minimal paperwork. In those cases, the servicer would avoid

[[Page 60235]]

evaluation costs for options that require more extensive documentation 
that is time-consuming to collect, compile, evaluate, and retain in 
servicing systems.
    The CFPB understands that the process of conducting an evaluation 
for all loss mitigation options and communicating the determination to 
consumers can require considerable staff time. Among other things, 
servicers must communicate with borrowers, exercise diligence to obtain 
all documents and information needed for review of any potentially 
available loss mitigation options, and review of all possible options, 
even ones in which the borrower may not be interested. In the CFPB's 
2019 RESPA Servicing Assessment and based on interviews with servicers, 
the CFPB discussed that the requirement of evaluation for all options 
at once and a decision letter on outcomes for all options was the 
costliest provision of the 2013 Rule for servicers.\104\
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    \104\ Id. at 152, 155-56.
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    The proposal would also remove the existing requirement in Sec.  
1024.41(b)(2) that a servicer send, within five days of receiving the 
borrower's loss mitigation application, a written notice containing 
information about the completeness of the borrower's loss mitigation 
application and any needed documents and information. The removal of 
this notice requirement would constitute a cost savings to servicers.
    The total number of loss mitigation applications servicers receive 
annually may vary considerably with market conditions that affect 
borrower delinquency rates. To come up with a rough estimate, we 
consider the 1.8 percent rate of delinquent borrowers at the end of 
2023,\105\ or roughly 56 million currently active mortgage loans, and 
the 45 percent rate of delinquent borrowers who initiated loss 
mitigation applications in the 2015 servicer operations data analyzed 
for the CFPB's 2019 RESPA Servicing Rule Assessment.\106\ These inputs 
imply a rough estimate of 450,000 loss mitigation applications 
annually. The CFPB does not have data to quantify the reduction in 
costs to servicers from the provision in terms of average savings per 
loss mitigation application. Given the large number of loss mitigation 
applications, even a modest reduction in staff time needed for 
communication or review of loss mitigation options with borrowers and 
efforts to obtain all documents needed for review of all possible 
options could lead to substantial cost savings.
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    \105\ Estimate from MBA's National Delinquency Survey for 2023 
Q4 combining borrowers either 60 to 89 days delinquent (0.7 percent 
of active loans) or 90 days or more delinquent (1.1 percent of 
active loans). See MBA, Mortgage Delinquencies Increase in the 
Fourth Quarter of 2023 (Feb. 8, 2024), https://www.mba.org/news-and-research/newsroom/news/2024/02/08/mortgage-delinquencies-increase-in-the-fourth-quarter-of-2023.
    \106\ Servicing Rule Assessment Report at 125.
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    The proposed rule may increase costs to servicers if it delays 
foreclosures that would have occurred under the existing rule. The CFPB 
understands that the cost of servicing nonperforming loans is greater 
than the cost of servicing performing loans. By delaying initial 
foreclosure proceedings, servicers may have to advance principal and 
interest payments to investors and continue to fund escrow. Once the 
foreclosure process has started there continues to be an array of fees, 
which vary by state. Only some of these fees are recoverable for the 
servicer when the foreclosure is completed. In addition, servicers may 
incur significant penalties if foreclosure is initiated after the 
foreclosure start deadline outlined in the servicer agreement. For 
example, the Federal Housing Administration penalizes servicers that do 
not refer by 180 days after initial delinquency,\107\ and the 
Government Sponsored Enterprises (GSEs) impose penalties if foreclosure 
is not completed within state-specific timelines.\108\ Because the 
proposed rule is intended to align servicer incentives and provide for 
servicer incentives to review borrowers for loss mitigation quickly and 
accurately, the CFPB expects any foreclosure delays relative to 
baseline will be minimal and, therefore, the additional costs of the 
proposal will be minimal.
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    \107\ See Karan Kaul et al., Reforming the FHA's Foreclosure and 
Conveyance Processes, Urb. Inst. (Feb. 2018), https://www.urban.org/sites/default/files/publication/96801/reforming_the_fhas_foreclosure_and_conveyance_processes_1.pdf.
    \108\ See, e.g., Fannie Mae, Servicing Guide, A1-4.2-02, 
Compensatory Fees for Delays in the Liquidation Process (Feb. 13, 
2019), https://servicing-guide.fanniemae.com/svc/a1-4.2-02/compensatory-fees-delays-liquidation-process; Freddie Mac, Single 
Family Seller Servicer Guide- 9301.46 Allowable delays in completing 
a foreclosure, https://guide.freddiemac.com/app/guide/section/9301.46 (last visited July 1, 2024).
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    Relative to the existing rule, the proposed foreclosure procedural 
safeguards may begin earlier (when the borrower first requests loss 
mitigation assistance rather than when there is a complete application) 
and potentially end later (such as, for example, when a loss mitigation 
option is successfully implemented rather than when the borrower enters 
an option that may not be successfully implemented). The proposed 
foreclosure procedural safeguards also would continue for a borrower 
who fails a trial payment plan if the borrower has not yet been 
reviewed for all available options; and those protections would 
generally continue until the borrower has either been reviewed for all 
available options and none remain, another loss mitigation option has 
been successfully implemented, the loan is brought current, or the 
borrower remains unresponsive for a specified period of time despite 
the servicer regularly taking steps to reach the borrower. Assuming 
some borrowers in that situation would ultimately face foreclosure, the 
proposed foreclosure procedural safeguards could be more costly for the 
servicer than a prompt foreclosure following the borrower's initial 
failure of the trial payment plan.
    The CFPB expects that the costs of beginning foreclosure 
protections earlier and expanding them from initiation and sale to 
cover all foreclosure advancement may be minimal. The CFPB understands 
that many servicers already place a pause on foreclosure proceedings as 
soon as the loss mitigation process begins, and some investor 
guidelines may require foreclosure to be paused even before an 
application is complete (when the existing framework's prohibition on 
these practices begins).\109\ Nevertheless, the main difference in time 
preceding a foreclosure under the proposal would result from the 
prevention of dual tracking after a request for loss mitigation 
assistance but before the loss mitigation application is completed. By 
providing clear requirements, these amendments may reduce complexity 
for servicers.
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    \109\ Servicing Rule Assessment Report at 171-73. For example, 
guidance for loans with GSE investors is that foreclosure can 
proceed if the borrower isn't being reviewed for loss mitigation but 
if a borrower calls and the servicer can determine that the borrower 
would like to be reviewed for loss mitigation either the foreclosure 
is held for loss mitigation review or it will continue if it is 
determined that the borrower is not eligible for loss mitigation.
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    The CFPB does not have data to predict the additional possible 
duration of the proposed foreclosure procedural safeguards or number of 
borrowers to whom they would apply. The CFPB previously estimated that, 
under the existing rule, the typical duration from initiating a loss 
mitigation application to completing it was roughly two months.\110\ 
Under the proposed rule, this suggests that the gap between the start 
of loss mitigation review and foreclosure initiation is two months for

[[Page 60236]]

the typical borrower. The CFPB expects that servicers would incur 
additional costs for less than this two-month period due to the likely 
earlier onset of loss mitigation review, which will partially offset 
this two-month period relative to baseline. For example, if loss 
mitigation review begins one month earlier compared to baseline, then 
foreclosure initiation will be delayed by only one month (not two) for 
a typical borrower compared to baseline. In this example, the 
additional cost to the servicer from the proposal would be one month of 
servicing the non-performing loan. The CFPB understands that there may 
be some cases where the gap between the start of loss mitigation review 
and foreclosure initiation may be longer than the two months proposed 
here, but any costs incurred due to the delay will still be partially 
offset by starting loss mitigation review sooner.
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    \110\ This estimate is based on the 63-day median durations 
between loss mitigation application initiation and completion in 
2015 at five large servicers analyzed in the Servicing Rule 
Assessment Report. See Servicing Rule Assessment Report at 140.
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    Any delay in completing foreclosure would create additional costs 
to service the loan before foreclosure. The Mortgage Bankers 
Association reported an annual cost of servicing non-performing loans 
of $1,857 and performing loans of $176.\111\ The difference in mortgage 
servicing costs between non-performing and performing loans is $1,681, 
or $140 per month, on average. Thus, the CFPB estimates that the 
additional average servicing costs associated with servicing non-
performing loans would be near $140 per month. The average monthly cost 
may be lower if some of these costs are recoverable from the investor.
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    \111\ See Marina Walsh, Chart of the Week--June 21, 2024: Annual 
Cost of Servicing Performing and Non-Performing Loans, MBA Newslink 
(June 24, 2024), https://newslink.mba.org/servicing-newslink/2024/june/chart-of-the-week-annual-cost-of-servicing-performing-and-non-performing-loans/.
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    Servicers also would incur costs to manage compliance risk and 
ensure that the provision is not violated. This would encompass the 
cost of developing systems to ensure compliance with the conditions 
under which a loss mitigation review cycle ends along with the 
prohibition on initiating or advancing foreclosures, to ensure that 
they do not inadvertently violate the protections. On net, these costs 
may be lower than compliance costs under the existing rule compared to 
baseline due to the simpler prohibition on initiating or advancing 
foreclosure.
    The proposed changes also would bring the servicing rules into 
closer alignment with current servicing practices, which are largely 
set by investors. If the proposed rule increases the likelihood that 
non-performing loans are modified or speeds the process of achieving a 
permanent loss mitigation, then servicers and investors may benefit 
from either or both changes.
2. Changes to Early Intervention Notice Requirements
    The proposal would make changes to the early intervention notice 
requirements in Sec.  1024.39. Specifically, the proposal would amend 
the content of Sec.  1024.39(b) written notices by adding to existing 
notice requirements a new requirement that the notices identify the 
name of the owner or assignee, currently holding the borrower's 
mortgage, a brief description of each type of loss mitigation option 
that is generally available from the investor, and a website address 
and phone number where the borrower can obtain a list of all of the 
loss mitigation options that may be available from that borrower's 
investor. Additionally, the proposal would create alternative early 
intervention notice requirements at Sec.  1024.39(e) for borrowers 
performing under the terms of a forbearance. Under the proposed 
alternative notice requirements, servicers would receive a partial 
exemption from the live contact and early intervention written 
disclosure requirements of Sec.  1024.39(a) and (b) while a borrower is 
performing pursuant to the terms of a forbearance. However, servicers 
would be required to provide new oral and written notices to delinquent 
borrowers near the scheduled end of their forbearance period.
i. Benefits and Costs to Consumers
    Proposed Sec.  1024.39(b) would benefit borrowers by better 
informing them about their possible loss mitigation options earlier in 
the loss mitigation process. Given that the proposed rule would allow 
servicers to consider borrowers for loss mitigation options one at a 
time (as discussed above in this part), it may be more critical for 
borrowers to receive information about all available options upfront 
than under the existing rule. That is, providing information on all 
options upfront may mitigate the chance that borrowers accept an 
inferior option for their needs due to ignorance of a superior 
alternative for which they have not yet been reviewed.
    The existing written early intervention notices rules do not 
require the servicer to inform the borrower of the investor's identity 
and do not require a servicer to provide any resource from which the 
borrower can obtain information regarding each loss mitigation option 
that may be available from that investor. This can make it difficult or 
impossible for a borrower to discover the investor's identity and to 
determine which loss mitigation options are available for their loan. 
The main benefit of the proposed provision would be to remedy that 
problem for some borrowers, allowing them to learn more about their 
available loss mitigation options. This information may benefit 
borrowers by enabling them to request a loss mitigation option that may 
seem appropriate for their situation. In addition, making borrowers 
aware of options that may be appropriate to their situation earlier in 
the process may prompt some borrowers to contact their servicer and 
apply for help sooner. Borrowers who apply for consideration sooner 
also may successfully enter a loss mitigation option sooner and benefit 
from avoiding potential fees and other consequences that accompany a 
longer period of loan delinquency (as discussed above in this part).
    Proposed Sec.  1024.39(e) would benefit borrowers in two ways. 
First, it would eliminate borrower confusion that may currently occur 
when borrowers receive early intervention notices that do not reflect 
the fact that a forbearance is in place. Proposed Sec.  1024.39(e) 
would eliminate this source of borrower confusion by exempting 
servicers from the early intervention notice requirements of Sec.  
1024.39(a) and (b) while borrowers perform under the terms of a 
forbearance agreement.
    Second, proposed Sec.  1024.39(e) would benefit borrowers who are 
delinquent and are nearing the end of a forbearance period by making it 
more likely that they are aware of their options at the end of the 
forbearance period with sufficient time to take the action most 
appropriate for their circumstances. Borrower responses to the ASMB 
2020 Survey demonstrated that many borrowers in forbearance plans in 
2020 were unsure of how their deferred payments would be repaid when 
their forbearance period was up (roughly 13 percent of 
respondents).\112\ Borrowers in this situation may benefit from 
receiving contact from their servicer prior to the end of their 
scheduled forbearance because it would help them work with their 
servicer to find other loss mitigation options. This, in turn, might 
result in more borrowers resolving their delinquencies and reducing 
delinquency related fees than would

[[Page 60237]]

occur in the absence of the proposed rule.
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    \112\ See CFPB June 2024 Report at 19-20. Question 26 of the 
ASMB 2020 Survey asked, ``When your forbearance period ends or has 
ended, which of the following best describes how your deferred or 
reduced payments will be repaid?'' Roughly 13 percent of the 
applicable respondents selected ``Unsure/Don't know.'' See 85 FR 
46104, 46112 (July 31, 2020).
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    For both proposed provisions, the total benefits to borrowers would 
depend on the number of borrowers who might benefit as discussed above. 
The CFPB cannot currently quantify this number due to lack of 
information about how many people respond to early intervention notices 
today, how many recipients of early intervention notices would find the 
new information important, and how this might change the rate of 
responses to the notices. The CFPB requests data and other information 
that could help estimate these quantities.
ii. Benefits and Costs to Covered Persons
    For servicers, the main costs of these provisions would come from 
the costs of developing the new disclosures. Determining the 
appropriate information about the relevant investor for a borrower's 
loan and their loss mitigation options may be the costliest addition 
because it is tailored to each loan. This may require additional 
employee time to develop a process for linking loan investor and loss 
mitigation information to production of early intervention written 
notices. However, the added cost should not be overstated; under the 
existing rule, servicers must provide relevant loss mitigation 
information to borrowers when they contact the servicer to ask for 
help. Thus, the existing rule already requires servicers to have a way 
of knowing the investors' requirements for individual loans upon 
request. There may be additional costs to servicers from developing and 
maintaining the website and telephone resources that provide 
information on the relevant loss mitigation options for different 
investors to borrowers.
    Additionally, with respect to Sec.  1024.39(e), servicers may 
benefit from no longer providing early intervention notices while 
borrowers are in forbearance, although they would incur an additional 
cost for sending end-of-forbearance notices to these borrowers. 
Assuming typical forbearance periods of three to six months, the net 
effect of these two changes for the average borrower may be minimal. 
That is, the increased cost of providing the proposed end of 
forbearance notices and the reduced cost of no longer providing notices 
under Sec.  1024.39(a) and (b) may offset each other.
    The CFPB does not have data to estimate these increased costs to 
servicers. However, we note that any additional costs of gathering, 
maintaining, and providing this information may be smaller than the 
reductions in costs to servicers associated with simplifying the 
required application and evaluation process as discussed above in (1). 
The CFPB also requests data or other information to help estimate 
changes in costs associated with more expansive early intervention 
notices.
3. Fee Protections
    Proposed amendments to Sec.  1024.41(f)(3) would prohibit 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 beginning when a borrower requests loss mitigation 
assistance and continuing throughout a loss mitigation review cycle. 
This prohibition would encompass both amounts typically imposed on a 
borrower's account directly by the servicer, such as late charges and 
stop payment fees, as well as payments to third party companies for 
delinquency-related services, such as property inspections.
i. Benefits and Costs to Consumers
    The benefit of this provision to the borrower would be the value of 
delinquency-related fees prevented while a loss mitigation application 
is pending. The CFPB does not have data to estimate the average amount 
of fees that would otherwise be incurred by borrowers during the loss 
mitigation application process. However, GSE loan guidelines provide a 
ceiling with maximum allowable charges: monthly late charges cannot 
exceed 5 percent of the principal and interest payment, or roughly $88 
for the average outstanding mortgage at the end of 2023 \113\ and 
allowable reimbursements for monthly property inspection fees cannot 
exceed $30 for exterior inspections and $45 for interior 
inspections.\114\
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    \113\ The estimate of $88 is based on the average monthly 
principal & interest payment of $1,760 estimated for outstanding 
mortgages nationally as of the third quarter of 2023 estimate in the 
NMDB Aggregate Statistics. See FHFA, National Mortgage Database 
(NMDB[supreg]) Aggregate Statistics, https://www.fhfa.gov/DataTools/Downloads/Pages/National-Mortgage-Database-Aggregate-Data.aspx (last 
updated June 28, 2024); see also Freddie Mac, Single-Family Seller/
Servicer Guide, Section 9102.2: Late charges (Mar. 2, 2016), https://guide.freddiemac.com/app/guide/section/9102.2; and Fannie Mae, 
Single-Family Selling Guide, B8-3-02, Special Note Provisions and 
Language Requirements (June 3, 2020), https://selling-guide.fanniemae.com/Selling-Guide/Origination-through-Closing/Subpart-B8-Closing-Legal-Documents/Chapter-B8-3-Notes/1032999801/B8-3-02-Special-Note-Provisions-and-Language-Requirements-06-03-2020.htm#Late.20Charges.20for.20Conventional.20Mortgages.
    \114\ See Freddie Mac, Single-Family Seller/Servicer Guide, 
Exhibit 57: 1-to 4-Unit Property Approved Expense Amounts, https://guide.freddiemac.com/app/guide/exhibit/57 (last visited July 1, 
2024); see also Fannie Mae, Single-Family Servicing Guide, F-1-05: 
Expense Reimbursement (Oct. 11, 2023), https://servicing-guide.fanniemae.com/THE-SERVICING-GUIDE/Part-F-Servicing-Guide-Procedures-Exhibits-Quick-Referen/Chapter-F-1-Servicing-Guide-Procedures/F-1-05-Expense-Reimbursement/1045188371/F-1-05-Expense-Reimbursement-03-08-2023.htm.
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    Given uncertainty about the impact of the proposed changes on loss 
mitigation review cycle durations, it is not possible to estimate the 
number of months borrowers would receive these protections on average. 
Under the existing rule (and prior to COVID-19 temporary exceptions), 
2015 servicer operations data from the CFPB's 2019 Servicing Rule 
Assessment suggests the typical duration from initiating a loss 
mitigation application to receiving an evaluation from the servicer was 
roughly two months under the existing rule and slightly more than one 
month prior to the 2013 Mortgage Servicing Final Rule.\115\ Under the 
proposed rule, the CFPB expects that for many borrowers the protections 
may apply for less than a month and have no impact on monthly fees 
incurred (both for borrower benefit and servicer cost) in cases where 
servicers offer and borrowers accept streamlined loss mitigation 
options that require little or no documentation. The CFPB understands 
that in an environment where servicers predominantly offer streamlined 
loss mitigation options it is likely that many borrowers who request 
help will experience these protections for under a month, but that in 
some cases where evaluation is more involved, the average borrower may 
experience protections for near two months and benefit from avoiding 
roughly $236 in fees.\116\ Estimating the total benefit to consumers 
also requires information on the number of consumers submitting loss 
mitigation applications. As discussed above in section (1), we estimate 
roughly 450,000 loss mitigation applications annually given current 
delinquency rates and market size but note that this number

[[Page 60238]]

may vary considerably with market conditions.
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    \115\ This estimate is based on combining the requirement under 
the existing rule that servicers evaluate complete applications 
within 30 days and the 63-day median durations between loss 
mitigation application initiation and completion in 2015 at five 
large servicers analyzed in the Servicing Rule Assessment Report. 
The same report indicates that 88 percent of complete loss 
mitigation options received servicer decisions within 30 days, and 
many received decisions within the first week. See Servicing Rule 
Assessment Report at 140, 157.
    \116\ This estimate ranges from $236 for a duration of 2 months 
with monthly late fees of $88 and exterior inspection fees of $30.
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ii. Benefits and Costs to Covered Persons
    The cost to servicers of the proposed fee prohibition would be the 
value of the lost fees they would otherwise charge to borrowers with 
the same estimates discussed above regarding consumer benefit. The CFPB 
understands that investors typically require their servicers to engage 
and pay third party companies during delinquencies for a variety of 
activities, such as regular property inspections. In these cases, the 
prohibition would prevent servicers from recouping their expenses from 
payments they must make to third party companies for delinquency-
related services, although they may still be able to recoup these 
expenses later at a foreclosure sale. Incurring these expenses may 
further incentivize servicers to process loss mitigation applications 
expediently, mitigating the overall expenses incurred by servicers as 
well as for borrowers. To the extent servicers either are able to 
retain any fee income or are required to advance the fees to investors 
(as may be the case for late fees), servicers will likewise have 
increased incentives to process loss mitigation applications 
expediently, mitigating the overall expenses incurred by servicers as 
well as for borrowers.
4. Loss Mitigation Determination Notices
    Proposed amendments to Sec.  1024.41(c) would add new requirements 
for loss mitigation determination notices that would, in relevant part, 
(a) require offer and denial notices for all loss mitigation options, 
(b) require more detail in the notices specifying the key borrower-
provided inputs that served as the basis for the determination, (c) 
provide contact information that the borrower can use to access a list 
of non-borrower provided inputs, if any, used by the servicer in making 
the loss mitigation determination, (d) require the servicer to provide 
a website through which a borrower could access a list of non-borrower 
provided inputs, if any, used by the servicer in making the loss 
mitigation determination; (e) require certain disclosures regarding 
loss mitigation options that may remain available to the borrower, and 
(f) require that the servicer inform the borrower as to whether an 
offer will still be available if the borrower requests to be reviewed 
for other loss mitigation options. If the loss mitigation offer is for 
a forbearance, the amendments also would require that the determination 
notice include information regarding the terms and duration of the 
forbearance. Disclosure of the terms and duration of the forbearance is 
not a new requirement but is being moved into the proposed 
determinations section to provide the borrower additional information 
and because of the proposed amendment of Sec.  1024.41(c)(2)(iii), 
where the requirement currently resides.
i. Benefits and Costs to Consumers
    The purpose of the existing loan modification denial notice 
provision in Sec.  1024.41(d) is to provide borrowers with information 
that might help them correct an erroneous denial, and the proposed 
changes to determination notices would extend that benefit to any loss 
mitigation determination rather than to permanent loan modification 
denials only. Additionally, the proposed changes would require detail 
to be included in the notices on specific inputs used in the 
determination, better enabling borrowers to recognize potentially 
erroneous denials and fully understand the basis for the determination.
    In the case of a denial, ensuring the consumer understands the 
reasons for the denial including any specific numerical input used in 
the determination is necessary to enable the consumer to recognize and 
respond to potential errors that may occur in determinations. Requiring 
this for all loss mitigation options rather than only permanent loan 
modifications as specified under the existing rule recognizes the 
increasing prevalence of alternative types of loss mitigation options, 
such as forbearances and deferrals. This additional information could 
reduce confusion for borrowers and help some borrowers understand their 
loss mitigation determinations better under the proposal compared to 
baseline.
    In the case of an offer, the primary benefit to borrowers of 
requiring detailed determination notices is to assist the borrower with 
potential appeals in cases where the terms of the offer may depend on 
certain inputs. By providing details on the inputs used as basis for 
the determination, the proposed notices may enable borrowers to 
recognize errors in determinations that may have led to worse terms in 
the offer than if the correct information had been used. In such cases, 
if the borrower appeals an error that they would not otherwise have 
recognized or been able to substantiate, and accepts an offer on better 
terms, they will benefit by the difference in terms between the initial 
and appealed offer terms.\117\ The total number of borrowers affected 
would depend on two things: the number of borrowers who would newly 
receive determination notices and the share of those borrowers who 
would appeal successfully due to those notices.
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    \117\ CFPB is proposing to expand appeal provisions to loss 
mitigation offers as well as denials, as discussed in part IV.D.
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    Due to uncertainty about trends in borrower distress, prevalence of 
loss mitigation options other than permanent loan modifications, and 
the rate of loss mitigation applications that servicers would deny, the 
CFPB does not have sufficient information to estimate the additional 
number of required notices. ICE Mortgage Technology reported that 
roughly 8.8 million borrowers had entered temporary forbearance between 
when the CARES Act was passed in Spring 2020 and the end of 2023.\118\ 
Although this was a period of unprecedented high volumes of forbearance 
plans, it serves as an upper bound on the number of borrowers who could 
benefit from the proposed changes to required notices. It is especially 
relevant given that proposal would newly require more detailed 
determination notices for forbearances.
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    \118\ ICE, Mortgage Monitor report, at 26 (Feb. 2024), https://www.blackknightinc.com/wp-content/uploads/2024/02/ICE_MM_FEB2024_Report.pdf; see also ICE Mortgage Technology, First 
Look at December 2023 Mortgage Data (Jan. 24, 2024), https://www.icemortgagetechnology.com/resources/data-reports/first-look-at-december-2023-mortgage-data.
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    The CFPB does not have data to estimate the share of those 
borrowers who would newly appeal a determination successfully. Based on 
data on loss mitigation applications and appeals from five large 
servicers in 2015 analyzed for the CFPB's 2019 Servicing Rule 
Assessment, the rate of successful appeals on loss mitigation 
applications was 0.1 percent.\119\ This data offers a rough estimate of 
the current rate of successful appeals, although we recognize 
uncertainty in this estimate due to potential differences between the 
servicers these data characterize and the population of all servicers, 
as well as other market changes in the last nine years. The CFPB 
requests data and other information that could help estimate the extent 
to which the proposed provisions would increase the number of consumers 
who newly receive determination notices and increase the likelihood of 
appeals that successfully result in a change to the loss mitigation 
decision or terms.
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    \119\ Servicing Rule Assessment Report at 163.
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    In addition, the proposed rule requires that the servicer inform 
the borrower as to what loss mitigation

[[Page 60239]]

options are still or will remain available. This would benefit 
borrowers by better informing them about their available loss 
mitigation options, if any, after an initial loss mitigation 
determination. This should reduce confusion for borrowers and ensure 
they understand all potential options available before making a choice 
about accepting an offer from the servicer. In the case of an 
acceptance, it may prevent borrowers from accepting an inferior option 
for their needs. For borrowers that receive a forbearance, this change 
should help reduce confusion among borrowers receiving forbearance 
offers that was common with forbearance offers during the COVID-19 
pandemic.\120\ The CFPB requests data and other information about how 
many and the extent to which borrowers would benefit from these 
changes.
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    \120\ See CFPB June 2024 Report at 18-20.
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ii. Benefits and Costs to Covered Persons
    Requiring determination notices for all loss mitigation 
determinations--not only for denials of permanent loan modifications 
relating to complete applications--could increase costs to servicers 
associated with preparing and mailing a greater number of determination 
notices, as well as identifying and making available borrower-provided 
and non-borrower-provided inputs used in the determination. However, 
the CFPB anticipates that the costs of additional determination notices 
for non-loan modification options should be partially offset by the 
proposed removal of the required notice under existing Sec.  
1024.41(c)(2)(iii), which requires servicers to provide borrowers with 
a notice stating the terms of any forbearance or repayment plan they 
are offered.\121\ In other words, when the servicer offers the borrower 
a forbearance or repayment plan, the provision will essentially require 
them to send a notice with different content requirements than under 
the existing rule, but not increase the overall volume of notices in 
such cases. The CFPB expects servicers may incur one-time costs to 
update their processes when offering this type of loss mitigation 
option.
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    \121\ Note that, notwithstanding the requirements of 
1024.41(c)(2)(iii), in some cases investors may require servicers to 
send other notices related to forbearance and repayment plan offers. 
See, e.g., Fannie Mae Forbearance Plan Terms.
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    The increased detail required in determination notices may not 
substantially affect costs per notice given that servicers already have 
the required information on inputs underlying their determinations, 
other loss mitigation options available, and forbearance terms and 
durations. However, including this information may increase questions 
and/or alleged errors from borrowers, particularly if numerical inputs 
are difficult to understand or do not align with other common usages of 
the same term (e.g., the servicer's definition of income might be 
different from the borrower's understanding of their income).
    An estimate of the increased costs to servicers would depend on the 
costs of identifying the relevant borrower-provided and non-borrower-
provided inputs, which may vary depending on the complexity of the 
determination process, the costs of developing and maintaining a 
website through which consumers can access the required information, 
and the additional number of required notices and the average cost of 
providing and mailing each notice. However, the CFPB understands that 
most loss mitigation determinations are relatively standardized due to 
servicers' obligations to follow investor requirements. Due to 
uncertainty about trends in the incidence of borrower distress, 
prevalence of loss mitigation options other than permanent loan 
modifications, and the rate of loss mitigation applications that 
servicers would deny, the CFPB does not have sufficient information to 
estimate the additional number of required notices. However, as 
discussed above regarding consumers' benefits, recent circumstances 
relating to COVID-19 related forbearances provide an example of 
extenuating circumstances when loss mitigation options other than 
permanent loan modifications affect very large numbers of borrowers.
5. Notice of Error and Appeals Requirements
    Amendments to Sec.  1024.35(b) make explicit that loss mitigation 
determinations are subject to notice of error provisions. As discussed 
in the preamble to Sec.  1024.35, the CFPB has consistently viewed 
servicer errors related to loss mitigation determinations as errors 
subject to the notice of error provisions. Amendments to Sec.  
1024.41(h) also provide that that section's right of appeal applies for 
all loss mitigation options, not just permanent loan modifications. For 
example, some forbearance options may not currently be subject to 
appeal rights, and appeal rights would be extended to them under the 
proposal.
i. Benefits and Costs to Consumers
    The main aim of explicitly listing loss mitigation determinations 
as within the scope of the existing error resolution provision would be 
to provide clarity to both consumers and servicers that notice of error 
requirements apply to loss mitigation determinations. For consumers, 
the main value of this addition would be to increase servicer 
accountability by increasing the likelihood, timeliness, and quality of 
servicers' responses. For example, this clarity may help ensure that a 
servicer responds to a notice of error about a loss mitigation 
determination from a borrower by conducting a reasonable investigation 
and correcting any error if their investigation confirms one. This may 
benefit the borrower if the correction allows them to be offered an 
appropriate loss mitigation option. Borrowers also could save on legal 
costs if they can resolve the issues through error resolution instead 
of through outside legal action. While the CFPB does not have 
information to precisely estimate the expected number of borrowers this 
would affect, prior analysis by the CFPB indicates that loss mitigation 
is already a common reason for formal error assertions.\122\ Beyond 
this additional clarity, the CFPB anticipates this provision will have 
minimal impact on benefits and costs to servicers and borrowers as it 
does not change Regulation X's requirements.
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    \122\ Servicing Rule Assessment Report at 211. Analysis of 
Servicer Operations Data from seven large servicers on formal 
written error assertions (both Qualified Written Requests asserting 
errors and Notices of Error) for loans serviced in 2015 indicate 
that ``loss mitigation'' was the most commonly reported reason for 
these assertions.
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    The main benefit to borrowers of expanding the right to appeal in 
Sec.  1024.41(h) such that it applies to all loss mitigation options 
would be an increased likelihood of successful loss mitigation.\123\ If 
the borrower believes a mistake was made and that the resulting loss 
mitigation determination was incorrect, they may appeal that outcome 
and the appeal is required to be reviewed by different personnel than 
those responsible for the original determination. If an appeal confirms 
that the servicer incorrectly denied a loss mitigation option, then the 
borrower gains access to a new loss mitigation opportunity through the 
appeal. Thus, expanded appeal rights may allow more borrowers to 
achieve suitable loss mitigation arrangements.
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    \123\ Note that the proposed changes do not change the existing 
right to use the error resolution process for loss mitigation.
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ii. Benefits and Costs to Covered Persons
    Newly allowing borrowers to appeal denials of loss mitigation 
options beyond permanent loan modifications

[[Page 60240]]

as well as newly allowing borrowers to appeal loss mitigation offers 
under proposed Sec.  1024.41(h) may increase the volume of appeals. 
Some servicers' costs may increase to cover any expenses associated 
with responding to a higher volume of appeals. The CFPB does not have 
data to estimate the additional volume of appeals requests resulting 
from these changes nor to precisely estimate the average cost to 
servicers of responding to an additional appeal.
    The proposed amendment to Sec.  1024.35(b) also clarifies that the 
CFPB has always interpreted that loss mitigation determinations are and 
continue to be covered by the notice of error provision. Though Sec.  
1024.35(b) is a provision that applies to small servicers, the 
clarification the CFPB is proposing to add to this provision is not a 
change to the existing rule, so the CFPB does not expect any changes in 
the costs and benefits to covered persons, including small servicers, 
from this clarification.
6. Language Access Requirements
    As discussed in part IV.D, the CFPB is proposing requirements to 
provide borrowers with limited English proficiency greater language 
access to mortgage servicing communications. These include requirements 
to provide select written and oral mortgage servicing communications--
including the early intervention notice and loss mitigation option 
determination notices--in a borrower's preferred language in certain 
cases. For the specified written communications, the proposal requires 
an accurate Spanish language translation of the communication to be 
provided to all borrowers with the English version. The proposal also 
requires servicers to provide, upon borrower request, accurate 
translations of the specified written communications to the borrower in 
certain servicer-selected languages (as detailed in part IV.D) and to 
include five brief in-language statements in the English version of the 
specified written communications stating the availability of 
translations and interpretation services for those languages and 
providing how the borrower can request those translations or 
interpretation services. For the specified oral communications, the 
CFPB proposes requiring servicers, upon borrower request, to make 
available and establish connection with interpretation services before 
or within a reasonable time of establishing connection with borrowers, 
to the extent the borrower's requested language is one of the servicer-
selected languages. The proposal also would require a servicer, under 
certain circumstances, to provide translations of the specified written 
communications and interpretations of the specified oral communications 
in languages that were used in marketing the mortgage product to the 
borrower upon the borrower's request.
i. Benefits and Costs to Consumers
    The main benefit to borrowers of these proposed changes would be to 
increase access to and understanding of servicer communications, as 
well as lowered costs to borrowers with limited English proficiency to 
obtain that access. For example, if borrowers with limited English 
proficiency previously used translation services through other sources, 
receiving critical written materials in their preferred language from 
their servicer may save them time and/or expense in obtaining 
translations or interpretations. This increased access and 
understanding may in turn increase the likelihood the servicer is able 
to complete early intervention with a delinquent borrower and, if 
applicable, the borrower is able to identify available loss mitigation 
options and make a request for loss mitigation assistance. If borrowers 
with limited English proficiency were previously unable to obtain a 
translation or interpretation of these materials, or were deterred from 
doing so by cost, the complexity of the task, or privacy concerns, the 
new requirements could significantly increase the likelihood that a 
borrower may now have access to this information, increasing the 
likelihood the borrower completes a loss mitigation application. For 
example, translated materials may increase borrowers' awareness of 
important deadlines or necessary steps to obtain their preferred loss 
mitigation options. Obtaining better outcomes in this way may enable 
some borrowers to avoid foreclosures they would otherwise have 
experienced, reducing costs associated with foreclosure as discussed 
above in this part. Further, access to reliable translations and 
interpretation services may enable some borrowers to avoid harm where 
they would otherwise obtain inaccurate or incomplete translations or 
interpretations, including harm caused by predatory practices.\124\ 
Better access and understanding of servicer communications may allow 
borrowers to obtain better loss mitigation options for their situation.
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    \124\ For example, borrowers with limited English proficiency 
may place trust in interpreters who speak their preferred language 
without receiving full information on the incentives and business 
interests of their interpreter. See, e.g., Kleimann 2017 Report.
---------------------------------------------------------------------------

    As discussed in part IV.D, the proposed requirements for 
establishing specified oral communications may reduce additional hold 
times some borrowers with limited English proficiency currently incur 
to establish a connection to translation services provided by the 
servicer during oral communications or may result in previously 
unavailable real-time interpretations. In some cases, the removal of 
these delays may increase the likelihood that more borrowers with 
limited English proficiency use existing translation services and may 
impact the efficacy of servicers' early intervention and loss 
mitigation efforts through oral communication.
    The proposed language access changes may benefit a large subset of 
borrowers. Roughly 30 million U.S. households speak a language other 
than English at home and nearly 5.5 million households within that 
population have limited English proficiency according to estimates from 
the 2022 American Community Survey. Borrowers from those households 
might substantively benefit from increased access to key written and 
oral communications in a language they understand very well, although 
the CFPB does not have data to precisely estimate the average benefit 
of improved understanding to each borrower. Spanish speakers represent 
the second largest language group in the United States after English 
speakers and, thus, a large share of borrowers with limited English 
proficiency would benefit from the requirement to send specified 
written servicing communications in Spanish as well as English.\125\ 
While the CFPB recognizes that the number of households with limited 
English proficiency responsive to the 2022 American Community Survey 
does not equate to the number of borrowers with limited English 
proficiency who have mortgages, let alone mortgages in distress, the 
CFPB has preliminarily concluded these estimates are representative of 
the scale of borrowers with limited English proficiency that could be 
impacted by the proposal.
---------------------------------------------------------------------------

    \125\ The 2022 American Community Survey 1-Year Estimates 
indicate that 16.9 million US households (out of 130 million total) 
speak Spanish at home and over 3.2 million of those are also Limited 
English-speaking households. See U.S. Census Bureau, Language Spoken 
at Home, https://data.census.gov/table/ACSST1Y2022.S1601?q=language%20at%20home (last visited July 1, 
2024); see also 2022 ACS Table.
---------------------------------------------------------------------------

    Data from the ASMB 2020 Survey supports this preliminary 
conclusion. Responses to the ASMB 2020 Survey indicate a similar share 
of respondents experiencing financial distress who

[[Page 60241]]

speak a language other than English at home and speak English less than 
``very well'' to the analogous shares for the total population reported 
in the 2022 American Community Survey 1-year Estimates from the United 
States Census. Specifically, 22 percent of respondents experiencing 
financial distress indicated that they speak a language other than 
English at home and 6 percent of borrowers indicated that they speak 
another language at home and speak English less than ``very well.'' 
\126\ Because this survey is administered only in English and Spanish, 
it does not address the prevalence of borrowers with limited English 
proficiency who speak languages other than Spanish. Thus, we expect 
that the ASMB 2020 Survey data likely underestimates the full share of 
borrowers with limited English proficiency experiencing financial 
distress.
---------------------------------------------------------------------------

    \126\ See CFPB June 2024 Report at 8. ``Distressed borrower'' 
respondents are defined as those who agreed with the question ``Did 
you have any concerns or difficulties making your mortgage payments 
at any time in 2020?'' Respondents who reported that they speak a 
language other than English at home were asked ``How well do you 
speak English?'' with possible responses of ``very well'', ``well'', 
``not well'', and ``not at all.'' For comparison, the 2022 American 
Community Survey 1-Year Estimates indicate that 23 percent of U.S. 
households speak a language other than English at home and 4 percent 
of US households speak a language other than English at home and are 
considered ``Limited English'' speaking households. See 2022 ACS 
Table.
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ii. Benefits and Costs to Covered Persons
    Requiring certain written mortgage servicing communications in 
specified languages other than English may impose new or additional 
costs on servicers. A requirement to send both English- and Spanish-
language communications to all borrowers may result in updates to 
software systems to create the Spanish version of the communications 
and may increase mailing costs for communications sent by mail if these 
require additional pages of text. Smaller costs for software system 
updates may apply for some servicers when adding the in-language 
translation availability statements to the English version of the 
written communications. Servicers may incur similar software system 
update and mailing costs to provide translations upon borrower request 
in certain servicer-selected languages, as detailed in part IV.D. A 
requirement to provide specified written communications in languages 
other than English and Spanish when the servicer has or should have 
knowledge of in-language marketing to the borrower before origination, 
and upon borrower request, could increase costs by requiring servicers 
to develop and maintain systems for tracking languages used in 
marketing and sending appropriate written communications based on that 
request. Servicers also may incur one-time costs to develop 
translations in languages they currently do not offer and may incur 
ongoing costs to maintain these translations or to tailor the 
translated templates they develop to borrower circumstances. A 
requirement that servicers comply with the translation and 
interpretation service requirements for languages used in marketing 
before origination for the borrower, if the servicer knows or should 
have known of that marketing, also could prompt servicers to develop 
and maintain systems for tracking this information when servicing 
rights are obtained, at least in cases where the servicer is not the 
originator of the loan. The CFPB has heard from stakeholders concern 
that requiring servicers that know or should have known of languages 
used in marketing to provide translation and interpretation services, 
as applicable, in those languages could create incentives for firms 
that originate loans to avoid marketing in languages other than English 
to reduce anticipated servicing costs.
    The proposed requirement to ease access to interpretation services 
over the phone by connecting these services before or within a 
reasonable time of establishing connection with borrowers with limited 
English proficiency may require servicers to adapt processes and could 
require additional staff or additional staff time. Servicers who are 
not already following this practice may need to establish a process for 
connecting stored information on borrower language preference with 
their process for oral communications. In some cases, this may not 
impose meaningful ongoing costs beyond those described above for 
complying with the changes to written notice requirements. However, 
complying with this requirement may require some servicers to make 
interpretation services available for more time overall in order to 
establish connections with them before or within a reasonable time of 
establishing connection with borrowers with limited English 
proficiency. Servicers that currently do not offer or only offer a 
limited number of languages for interpretation may experience 
additional costs for increasing the languages available for interpreter 
services to borrowers. Estimates of total servicer costs to comply with 
these language access requirements would depend on the language access 
methods currently offered by the servicer, the volume of borrowers with 
limited English proficiency, and the rate the servicer pays staff or 
third-party services for translations or interpretations.
    The CFPB requests data and other information that could help 
estimate the benefits and costs of providing language access services 
of the types we are considering.
    The CFPB expects that, if finalized as proposed, the rule would 
impose ongoing compliance costs on servicers. The CFPB requests 
comments on potential compliance costs 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

    The CFPB believes that a large majority of depository institutions 
and credit unions with $10 billion or less in total assets that are 
engaged in servicing mortgage loans qualify as ``small servicers'' for 
purposes of Regulation X because they service 5,000 or fewer loans, all 
of which they or an affiliate own or originated. In the past, the CFPB 
has estimated that more than 95 percent of insured depositories and 
credit unions with $10 billion or less in total assets service 5,000 
mortgage loans or fewer.\127\ The CFPB believes that servicers that 
service loans that they neither own nor originated tend to service more 
than 5,000 loans, given the returns to scale in servicing technology. 
Small servicers are exempt from the new proposed requirements and 
therefore would not be directly affected by them.
---------------------------------------------------------------------------

    \127\ 81 FR 72160 (Oct. 19, 2016).
---------------------------------------------------------------------------

    The CFPB believes that the consideration of benefits and costs of 
covered persons presented above generally describes the impacts of the 
rule on the minority of depository institutions and credit unions with 
$10 billion or less in total assets that service more than 5,000 loans.

F. Potential Specific Impacts of the Proposed Rule on Consumer Access 
to Credit

    Restrictions on servicers' ability to foreclose on mortgage loans 
could, in theory, reduce mortgage lending profitability and cause 
lenders to increase interest rates or reduce access to mortgage credit, 
particularly for loans with a higher estimated risk of default. The 
CFPB cannot rule out the possibility that the rule will have the effect 
of increasing mortgage interest

[[Page 60242]]

rates or restricting access to credit for some borrowers, particularly 
for borrowers with lower credit scores whom financial institutions may 
judge to have a higher likelihood of default in the first few months of 
the loan term. The CFPB believes it is unlikely that the rule would 
result in changes in mortgage interest rates or access but acknowledges 
these outcomes are possible if costs to servicers increase 
substantially as a result of the proposal.

G. Potential Specific Impacts of the Proposed Rule on Consumers in 
Rural Areas

    Consumers in rural areas may experience benefits from the rule that 
are different in certain respects from the benefits experienced by 
consumers in general. Consumers in rural areas may be more likely to 
obtain mortgages from small local banks and credit unions that either 
service the loans in portfolio or sell the loans and retain the 
servicing rights.\128\ These servicers may be small servicers that are 
exempt from the rule.
---------------------------------------------------------------------------

    \128\ See CFPB, Data Point: Servicer Size in the Mortgage 
Market, at 18-19 (Nov. 2019), https://files.consumerfinance.gov/f/documents/cfpb_2019-servicer-size-mortgage-market_report.pdf 
(Servicer Size Data Point) (estimating that, as of 2018, over 23 
percent of mortgages serviced by small servicers are in non-metro or 
completely rural counties, compared to only 13 and 9 percent of 
mortgages at mid-size and large servicers, respectively.)
---------------------------------------------------------------------------

    The CFPB will further consider the impact of the proposed rule on 
consumers in rural areas. The CFPB therefore asks interested parties to 
provide data, research results, and other factual information on the 
impact of the proposed rule on consumers in rural areas.

VII. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct an initial regulatory flexibility analysis (IRFA) and a 
final regulatory flexibility analysis (FRFA) of any rule subject to 
notice-and-comment rulemaking requirements, unless the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities.\129\ The CFPB also is subject to 
certain additional procedures under the RFA involving the convening of 
a panel to consult with small business representatives prior to 
proposing a rule for which an IRFA is required.\130\
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    \129\ 5 U.S.C. 601 et seq.
    \130\ 5 U.S.C. 609.
---------------------------------------------------------------------------

A. Application of the Proposed Rule to Small Entities

    The analysis below evaluates the potential economic impact of the 
proposed rule on small entities as defined by the RFA.\131\ The 
analysis uses existing mortgage servicing final rules as a baseline. 
The CFPB has identified five categories of small entities that may be 
subject to the proposed rule for purposes of the RFA: Commercial banks/
savings institutions \132\ (NAICS 522110 and 522180), credit unions 
(NAICS 522130), firms providing real estate credit (NAICS 522292), 
firms engaged in other activities related to credit intermediation 
(NAICS 522390), and small non-profit organizations.\133\ Commercial 
banks, savings institutions, and credit unions are small businesses if 
they have $850 million or less in assets. Firms providing real estate 
credit are small businesses if average annual receipts do not exceed 
$47.0 million, and firms engaged in other activities related to credit 
intermediation are small businesses if their average annual receipts do 
not exceed $28.5 million. A small non-profit organization is any not-
for-profit enterprise which is independently owned and operated and is 
not dominant in its field.
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    \131\ For purposes of assessing the impacts of the proposed rule 
on small entities, ``small entities'' is defined in the RFA to 
include small businesses, small not-for-profit organizations, and 
small government jurisdictions. 5 U.S.C. 601(6). A ``small 
business'' is determined by application of Small Business 
Administration regulations and reference to the North American 
Industry Classification System (``NAICS'') classifications and size 
standards. 5 U.S.C. 601(3). A ``small organization'' is any ``not-
for-profit enterprise which is independently owned and operated and 
is not dominant in its field.'' 5 U.S.C. 601(4). A ``small 
governmental jurisdiction'' is the government of a city, county, 
town, township, village, school district, or special district with a 
population of less than 50,000. 5 U.S.C. 601(5). See also Small Bus. 
Admin., Table of small business size standards by industry, https://www.sba.gov/document/support--table-size-standards (last visited 
July 1, 2024).
    \132\ Savings institutions include thrifts, savings banks, 
mutual banks, and similar institutions.
    \133\ These categories reference the NAICS 2022 standard.
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    The CFPB estimates that there are approximately 7,990 depositories 
(commercial banks, savings institutions, and credit unions) that engage 
in mortgage servicing and are therefore subject to the Mortgage 
Servicing Rules. Of these, the CFPB estimates that approximately 6,370 
depositories are ``small entities'' as defined in the RFA.

[[Page 60243]]

[GRAPHIC] [TIFF OMITTED] TP24JY24.073

    For commercial banks, savings institutions, and credit unions, the 
number of entities and asset sizes were obtained from December 2023 
Call Report data. Banks and savings institutions are counted as 
engaging in mortgage loan servicing if they hold closed-end loans 
secured by one to four family residential property or they are 
servicing mortgage loans for others. Credit unions are counted as 
engaging in mortgage loan servicing if they have closed-end one to four 
family mortgages in portfolio, or hold real estate loans that have been 
sold but remain serviced by the institution.134 135 136 137
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    \134\ U.S. Census Bureau, All Sectors: Summary Statistics for 
the U.S., States, and Selected Geographies 2017, https://data.census.gov/table/ECNBASIC2017.EC1700BASIC?q=522292:%20Real%20estate%20credit&y=2017 
(last visited July 1, 2024).
    \135\ U.S. Census Bureau, Selected Sectors: Sales, Value of 
Shipments, of Revenue Size of Firms for the U.S.: 2017, https://data.census.gov/table/ECNSIZE2017.EC1700SIZEREVFIRM?q=522292:%20Real%20estate%20credit&y=2017 (last visited July 1 2024) Range reflects number of firms with 
annual revenue less than $25 million to the number of firms with 
annual revenue less than $100 million.
    \136\ Estimate based on the share of DIs and non-DIs the CFPB 
estimated were engaged in servicing in the 2013 Final Rule (78 FR 
10696, 10864 (Feb. 14, 2013) extrapolated for non-DI growth in 
market share over the next decade. See Fin. Stability Oversight 
Council (FSOC), Report on Nonbank Mortgage Servicing--2024, https://home.treasury.gov/system/files/261/FSOC-2024-Nonbank-Mortgage-Servicing-Report.pdf (last visited July 1, 2024).
    \137\ U.S. Census Bureau, Selected Sectors: Sales, Value of 
Shipments, of Revenue Size of Firms for the U.S.: 2017, https://data.census.gov/table/ECNSIZE2017.EC1700SIZEREVFIRM?y=2017&n=522390 
(last visited July 2, 2024).
---------------------------------------------------------------------------

    For firms providing real estate credit and firms engaged in other 
activities related to credit intermediation, the total number of 
entities and small entities comes from the 2017 Economic Census. For 
firms engaged in other activities related to credit intermediation, the 
number of entities engaged in mortgage servicing also comes from the 
2017 Economic Census. The CFPB has not been able to separately estimate 
the number of these entities and small entities that are engaged in 
mortgage servicing. However, with the 2013 Final Rule the CFPB 
published analysis showing that approximately 90 percent of the 
estimated total entities engaged in servicing were depository 
institutions (DIs), while the remainder were non-depository 
institutions (non-DIs). The market share of non-DIs has grown 
considerably, with a report by the Financial Stability Oversight 
Committee (FSOC) showing that the share of Agency loans serviced by 
non-DIs rose from roughly 35 percent in 2014 to over 60 percent in 
2023. Taking the assumption that the relationship between entity size 
and loans serviced within servicer type has remained stable over that 
period, this implies that the non-DI share of servicer entities has 
grown from roughly 10 percent to 17 percent over that decade. Using 
this figure, the CFPB estimates that there are currently approximately 
1,637 non-DI entities engaged in servicing and 1,320 non-DI small 
entities engaged in servicing. The CFPB considers these the best 
available approximations to the current number of non-DI servicers, but 
also recognizes that they are rough estimates.\138\
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    \138\ As discussed below, the estimate of the number of small 
entities potentially affected by the rule is very small. As a 
result, even if the share of non-DI's engaged in servicing has grown 
significantly, it is unlikely to affect the overall conclusion.
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    Non-profits and small non-profits engaged in mortgage servicing 
would be included under real estate credit if their primary activity is 
originating loans and under other activities related to credit 
intermediation if their primary activity is servicing. The CFPB has not 
been able to separately estimate the number of non-profits and small 
non-profits engaged in mortgage loan servicing.
    The large majority of small entities discussed above qualify as 
``small servicers'' for the purposes of the Mortgage Servicing Rule, 
which exempts servicers that service 5,000 mortgage loans or less, all 
of which the servicer or an affiliate owns or originated, from all the 
provisions affected by the proposed rule.\139\ The CFPB estimates that 
nearly all insured depositories or credit unions that meet the Small 
Business Administration (SBA) asset threshold for a small entity also 
qualify for the small servicer exemption (over 99 percent or all but 
61). The methodology for this estimate is straightforward in the case 
of credit unions. The credit union Call Report presents the number of 
mortgages held in credit union portfolios and the amount of assets. 
This allows one to readily determine which credit union small servicers 
(as defined by the SBA asset threshold) serviced 5,000 mortgage loans 
or less.\140\ In contrast, the bank and thrift Call Report does not 
present the number of mortgages, only the aggregate unpaid principal 
balance, and the amount of assets. The CFPB developed estimates of the 
average

[[Page 60244]]

unpaid principal balance at banks and thrifts of different sizes and 
used this with the information on aggregate unpaid principal balance to 
derive loan counts at each bank and thrift \141\ to determine which 
bank and thrift small servicers (as defined by the SBA asset 
threshold), together with affiliates, serviced 5,000 mortgage loans or 
less.
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    \139\ See 12 CFR 1024.30(b)(1); 12 CFR 1026.41(e)(4).
    \140\ We assume that mortgages held by banks and credit unions 
are also serviced by them as the CFPB does not have data on 
servicing rights institutions sell off.
    \141\ For banks and thrifts with under $10 billion in assets, 
the CFPB calculated the average unpaid principal balance of 
portfolio mortgages by state for credit unions with less than $1 
billion in assets and applied the state specific figures to these 
banks and thrifts. For banks and thrifts with over $10 billion in 
assets, the CFPB applied the OCC's mortgage metrics estimate of 
$233,000.
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    It is not possible to observe in the data whether the loans that 
servicers are servicing for others were originated by those servicers 
or their affiliates. However, all insured depositories and credit 
unions that meet both the SBA asset threshold and the loan count 
threshold likely qualify for the exception. In principle, these 
entities may not qualify for the exception because they service loans 
that they did not originate and do not own and that their affiliates 
did not originate and do not own; however, this situation is extremely 
unlikely. First, most entities servicing loans they did not originate 
and do not own most likely view servicing as a stand-alone line of 
business. In this case they would most likely choose to service 
substantially more than 5,000 loans in order to obtain a profitable 
return on their investment in servicing.\142\ Taking this into account, 
the CFPB determines that essentially all insured depositories and 
credit unions that meet the SBA threshold and the loan count condition 
likely qualify for the exception.
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    \142\ 86 FR 34848, 34898 (June 30, 2021). For example, one 
industry participant estimated that most servicers would need a 
portfolio of 175,000 to 200,000 loans to be profitable. Bonnie 
Sinnock, Servicers Search for `Goldilocks' Size for Max Profits, Am. 
Banker (Sept. 10, 2015), https://www.americanbanker.com/news/servicers-search-for-goldilocks-size-for-max-profits.
---------------------------------------------------------------------------

    The CFPB does not have the data necessary to precisely estimate the 
number of small entity non-DIs that would be covered by the exemption. 
To obtain a rough estimate, the CFPB draws on prior CFPB analysis in 
the preamble to the 2013 Mortgage Servicing Final Rule estimating that 
all but 4 percent of non-depository servicers would service, together 
with affiliates, 5,000 loans or less. This estimate implies that 1,253 
(all but 4 percent of 1,305, or 52) non-DI servicers would service 
5,000 loans or less. The CFPB determines this to be the best available 
approximation to the number of non-DI servicers that would not qualify 
for the exemption, but also recognizes that these figures are rough.
    The CFPB estimates that out of 7,675 small entities engaged in 
servicing, approximately 1 percent (or 113 entities) are not small 
servicers and would therefore be affected by the rule. While these 
estimates are somewhat uncertain, the estimate that roughly 1 percent 
of small entities would be affected implies that it is unlikely that a 
substantial number of small entities would be affected.

B. Certification

    Accordingly, the undersigned certifies that this proposal, if 
adopted, would not have a significant economic impact on a substantial 
number of small entities. The CFPB requests comment on the analysis 
above and requests any relevant data.

VIII. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA),\143\ Federal 
agencies are generally required to seek approval from the Office of 
Management and Budget (OMB) for data collection, disclosure, and 
recordkeeping requirements (collectively, information collection 
requirements) prior to implementation. Under the PRA, the Bureau may 
not conduct or sponsor, and, notwithstanding any other provision of 
law, a person is not required to respond to, an information collection 
unless the information collection displays a valid control number 
assigned by OMB. As part of its continuing effort to reduce paperwork 
and respondent burden, the Bureau conducts a preclearance consultation 
program to provide the general public and Federal agencies with an 
opportunity to comment on the information collection requirements in 
accordance with the PRA. This helps ensure that the public understands 
the Bureau's requirements or instructions, respondents can provide the 
requested data in the desired format, reporting burden (time and 
financial resources) is minimized, information collection instruments 
are clearly understood, and the Bureau can properly assess the impact 
of information collection requirements on respondents.
---------------------------------------------------------------------------

    \143\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    This proposed rule would amend 12 CFR part 1024 (Regulation X). The 
Bureau's OMB control number for Regulation X is 3170-0016 which 
currently expires on December 31, 2026. As described below, the 
proposed rule would revise existing information collections and create 
the following new information collection requirements in Regulation X:
     The proposed rule would require that a servicer provide a 
delinquent borrower who is performing pursuant to the terms of a 
forbearance agreement with a written notice containing certain 
information relating to loss mitigation and the borrower's forbearance 
when the forbearance is nearing its scheduled end.
     The proposed rule would require that a servicer provide 
certain additional information to delinquent borrowers in early 
intervention notices, such as the name of the investor on the 
borrower's 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 and telephone number where the borrower can obtain 
information about all of the loss mitigation options that may be 
available from that investor.
     The proposed rule would require that a servicer send loss 
mitigation determination notices to borrowers when a servicer offers a 
borrower a loss mitigation option and when a servicer denies the 
borrower for any loss mitigation option. Currently, servicers are 
required to send detailed determination notices only for denials of 
loan modifications. The proposed rule would (a) require more detail in 
the notices specifying the borrower-provided inputs that served as the 
basis for the determination, (b) provide contact information that the 
borrower can use to access a list of non-borrower provided inputs, if 
any, used by the servicer in making the loss mitigation determination, 
(c) require certain disclosures regarding loss mitigation options that 
may remain available to the borrower, and (d) require that the servicer 
inform the borrower as to whether an offer will still be available if 
the borrower requests to be reviewed for other loss mitigation options.
     The proposed rule would expand the information that is 
currently required to be disclosed when a servicer denies a borrower 
for a loss mitigation option due to missing documents and information 
not in the borrower's control, to include, for example, a list of loss 
mitigation options that are still available to the borrower.
     The proposed rule would require that certain written early 
intervention and loss mitigation communications contain statements 
making a borrower aware of the availability of translation of the 
notices into non-English languages, that all such communications be 
made available to borrowers in both English and Spanish, and that 
servicers make available additional translations and oral 
interpretations under certain other circumstances.
    The collections of information contained in this proposed rule, and

[[Page 60245]]

identified as such, have been submitted to OMB for review under section 
3507(d) of the PRA. A complete description of the information 
collection requirements (including the burden estimate methods) is 
provided in the supporting statement accompanying the information 
collection request (ICR) that the Bureau has submitted to OMB under the 
requirements of the PRA. Please send your comments to the Office of 
Information and Regulatory Affairs, OMB, Attention: Desk Officer for 
the Consumer Financial Protection Bureau. Send these comments by email 
to [email protected] or by fax to 202-395-6974. If you wish 
to share your comments with the Bureau, please send a copy of these 
comments as described in the ADDRESSES section above. The ICR submitted 
to OMB requesting approval under the PRA for the information collection 
requirements contained herein is available at www.regulations.gov as 
well as on OMB's public-facing docket at www.reginfo.gov.
    Title of Collection: Regulation X: Real Estate Settlement Procedure 
Act.
    OMB Control Number: 3170-0016.
    Type of Review: Revision of a currently approved collection.
    Affected Public: Private Sector.
    Estimated Number of Respondents: 9,627.
    Estimated Total Annual Burden Hours: 1,155,284.
    Comments are invited on: (a) Whether the collection of information 
is necessary for the proper performance of the functions of the Bureau, 
including whether the information will have practical utility; (b) The 
accuracy of the Bureau's estimate of the burden of the collection of 
information, including the validity of the methods and the assumptions 
used; (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected; and (d) Ways to minimize the burden of the 
collection of information on respondents, including through the use of 
automated collection techniques or other forms of information 
technology. Comments submitted in response to this notification will be 
summarized and/or included in the request for OMB approval. All 
comments will become a matter of public record.
    If applicable, the final rule will inform the public of OMB's 
approval of the new information collection requirements proposed herein 
and adopted in the final rule. If OMB has not approved the new 
information collection requirements prior to publication of the final 
rule in the Federal Register, the Bureau will publish a separate 
notification in the Federal Register announcing OMB's approval prior to 
the effective date of the final rule.

IX. Request for Comments

    The CFPB seeks comment on all aspects of this proposed rule. 
Additionally, the CFPB specifically requests comments or information on 
the following:
    Are there ways in which the early intervention and loss mitigation 
provisions in Regulation X could be further simplified or streamlined?
    Are there different or additional policy and procedure requirements 
that might be needed in Sec.  1024.38 in light of the proposed changes?
    What additional information or clarification, if any, should the 
CFPB consider for the continuity of contact provisions in Sec.  
1024.40?

X. Severability

    The CFPB preliminarily intends that, if any provision of the final 
rule, or any application of a provision, is stayed or determined to be 
invalid, the remaining provisions or applications are severable and 
shall continue to be in effect.

List of Subjects in 12 CFR Part 1024

    Banks, banking, Condominiums, Consumer protection, Credit unions, 
Housing, Mortgage insurance, Mortgages, National banks, Reporting and 
recordkeeping requirements, Savings associations.

Authority and Issuance

    For reasons set forth in the preamble, the CFPB proposes to amend 
Regulation X, 12 CFR part 1024, as set forth below:

PART 1024--REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)

0
1. The authority citation for part 1024 continues to read as follows:

    Authority:  12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5532, 
5581.

Subpart C--Mortgage Servicing

0
2. Section 1024.31 is amended by removing the definitions for COVID-19 
related hardship and Loss mitigation application, and adding, in 
alphabetical order, definitions for Loss mitigation review cycle and 
Request for loss mitigation assistance to read as follows:


Sec.  1024.31  Definitions.

* * * * *
    Loss mitigation review cycle means a continuous period of time 
beginning when the borrower makes a request for loss mitigation 
assistance, provided the request is made more than 37 days before a 
foreclosure sale, and ending when the loan is brought current or the 
procedural safeguards in Sec.  1024.41(f)(2)(i) or (ii) are met. A loss 
mitigation review cycle continues while a borrower is in a temporary or 
trial loss mitigation period, such as a forbearance or modification 
trial payment plan, and the loan has not yet been brought current.
* * * * *
    Request for loss mitigation assistance means 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. A request for loss mitigation assistance should be 
construed broadly and includes, but is not limited to, any 
communication whereby:
    (1) A borrower expresses an interest in pursuing a loss mitigation 
option;
    (2) A borrower indicates that they have experienced a hardship and 
asks the servicer for assistance with making payments, retaining their 
home, or avoiding foreclosure; or
    (3) In response to a servicer's unsolicited offer of a loss 
mitigation option, a borrower expresses an interest in pursuing either 
the loss mitigation option offered or any other loss mitigation option.
* * * * *
0
3. Section 1024.35 is amended by revising paragraphs (b)(9) through 
(11) to read as follows:


Sec.  1024.35  Error resolution procedures.

* * * * *
    (b) * * *
    (9) Making the first notice or filing required by applicable law 
for any judicial or non-judicial foreclosure process, or advancing the 
foreclosure process, in violation of Sec.  1024.41(f) or (j).
    (10) Moving for foreclosure judgment or order of sale, or 
conducting a foreclosure sale in violation of Sec.  1024.41(f) or (j).
    (11) Any other error relating to the servicing of a borrower's 
mortgage loan, including failure to make an accurate loss mitigation 
determination on a borrower's mortgage loan.
* * * * *
0
4. Section 1024.38 is amended by revising paragraph (b)(2) introductory 
text, and paragraphs (b)(2)(iv) through (vi), (b)(3)(iii), and (c)(1) 
to read as follows:


Sec.  1024.38  General servicing policies, procedures, and 
requirements.

* * * * *
    (b) * * *

[[Page 60246]]

    (2) Properly evaluating requests for loss mitigation assistance. 
The policies and procedures required by paragraph (a) of this section 
shall be reasonably designed to ensure that the servicer can:
* * * * *
    (iv) Identify documents and information, if any, that a borrower is 
required to submit for the servicer to make a loss mitigation 
determination;
    (v) Properly evaluate a borrower who makes a request for loss 
mitigation assistance for all loss mitigation options for which the 
borrower may be eligible pursuant to any requirements established by 
the owner or assignee of the borrower's mortgage loan and, where 
applicable, in accordance with the requirements of Sec.  1024.41; and
    (vi) Promptly identify and obtain documents or information not in 
the borrower's control that the servicer requires to determine which 
loss mitigation options, if any, to offer the borrower.
    (3) * * *
    (iii) Facilitate the sharing of accurate and current information 
regarding the status of any evaluation of a borrower's request for loss 
mitigation assistance and the status of any foreclosure proceeding 
among appropriate servicer personnel, including any personnel assigned 
to a borrower's mortgage loan account as described in Sec.  1024.40, 
and appropriate service provider personnel, including service provider 
personnel responsible for handling foreclosure proceedings.
* * * * *
    (c) * * *
    (1) Record retention. A servicer shall retain records that document 
actions taken with respect to a borrower's mortgage loan account, 
including records evidencing compliance with this part, until one year 
after the date a mortgage loan is discharged or servicing of a mortgage 
loan is transferred by the servicer to a transferee servicer.
* * * * *
0
5. Section 1024.39 is amended by revising paragraphs (a), (b)(2)(ii) 
through (iv), (b)(3), and (e) to read as follows:


Sec.  1024.39  Early intervention requirements for certain borrowers.

    (a) Live contact. Except as otherwise provided in this section, a 
servicer shall establish or make good faith efforts to establish live 
contact with a delinquent borrower no later than the 36th day of a 
borrower's delinquency and again no later than 36 days after each 
payment due date so long as the borrower remains delinquent. Promptly 
after establishing live contact with a borrower, the servicer shall 
inform the borrower about the availability of loss mitigation options, 
if appropriate.
    (b) * * *
    (2) * * *
    (ii) The telephone number to access servicer personnel assigned 
pursuant to Sec.  1024.40(a), the telephone number where the borrower 
can obtain a list of all loss mitigation options that may be available 
from the owner or assignees of the borrower's loan, the servicer's 
mailing address, and a website to access a list of all loss mitigation 
options that may be available from the owner or assignee of the 
borrower's mortgage loan;
    (iii) The name of the owner or assignee of the borrower's mortgage 
loan, and a statement providing a brief description of each type of 
loss mitigation option that is generally available from the owner or 
assignee of the borrower's mortgage loan;
    (iv) If applicable, a statement informing the borrower how to make 
a request for loss mitigation assistance; and
    (v) * * *
    (3) Model clauses. Model clause MS-4(C), in appendix MS-4 to this 
part may be used to comply with the requirements of this paragraph (b).
* * * * *
    (e) Borrowers in a forbearance--(1) Partial exemption. While a 
borrower is performing pursuant to the terms of a forbearance, a 
servicer is exempt from the requirements of paragraphs (a) and (b) of 
this section as to that mortgage loan.
    (2) Contact and notice requirements for forbearances nearing their 
scheduled end. If a delinquent borrower is performing pursuant to the 
terms of a forbearance, the servicer shall, at least 30 days, but no 
more than 45 days, before the scheduled end of the forbearance:
    (i) Establish or make good faith efforts to establish live contact 
with the borrower. During such live contact, the servicer shall inform 
the borrower of the following information:
    (A) The date the borrower's current forbearance is scheduled to 
end; and
    (B) The availability of loss mitigation options, if appropriate, as 
set forth in paragraph (a) of this section.
    (ii) Shall send the borrower a written notice with the following 
information:
    (A) The date the borrower's current forbearance is scheduled to 
end; and
    (B) The content of the written notice as set forth in paragraphs 
(b)(2)(i)-(v) of this section.
    (3) Resuming compliance with early intervention requirements. When 
a forbearance ends for any reason, including, but not limited to, the 
borrower's successful completion of the forbearance or the borrower's 
nonperformance under the terms of the forbearance, a servicer that was 
exempt from paragraphs (a) and (b) of this section pursuant to 
paragraph (e)(1) of this section must resume compliance with paragraphs 
(a) and (b) of this section after the next payment due date following 
the forbearance end date. For purposes of providing written notice 
under paragraph (b) after resuming compliance, the 180-day period 
referenced in paragraph (b) begins with the date the servicer provided 
the last written notice to the borrower under either paragraphs (b) or 
(e)(2)(ii), whichever is later.
0
6. Section 1024.40 is amended by revising paragraphs (b)(1)(ii) through 
(iv), and (b)(2)(ii) to read as follows:


Sec.  1024.40  Continuity of contact.

* * * * *
    (b) * * *
    (1) * * *
    (ii) Any actions the borrower must take to be evaluated for such 
loss mitigation options, and whether the borrower has the right to 
appeal the loss mitigation determination as well as the amount of time 
the borrower has to file such an appeal and any requirements for making 
an appeal, as provided for in paragraph (h) of this section;
    (iii) The status of the servicer's review of any request for loss 
mitigation assistance from the borrower to the servicer;
    (iv) The circumstances under which the servicer may make a referral 
to foreclosure or advance the foreclosure process; and
* * * * *
    (2) * * *
    (ii) All written information the borrower has provided to the 
servicer, and if applicable, to prior servicers, in connection with a 
request for loss mitigation assistance;
* * * * *
0
7. Revise Sec.  1024.41 to read as follows:


Sec.  1024.41  Loss mitigation procedures.

    (a) Enforcement and limitations. A borrower may enforce the 
provisions of this section pursuant to section 6(f) of RESPA (12 U.S.C. 
2605(f)). Nothing in Sec.  1024.41 imposes a duty on a servicer to 
provide any borrower with any specific loss mitigation option. Nothing 
in Sec.  1024.41 should be construed to create a right for a borrower 
to enforce the terms of any agreement between a servicer and the owner 
or assignee of a mortgage loan, including with respect to the 
evaluation for, or offer of, any loss mitigation option or to eliminate 
any

[[Page 60247]]

such right that may exist pursuant to applicable law.
    (b) [RESERVED]
    (c) Loss mitigation determination notices--(1) General notice and 
content requirements. Except as provided in paragraphs (c)(2) and (3) 
of this section, if a servicer receives a request for loss mitigation 
assistance more than 37 days before a foreclosure sale and makes a 
determination to offer or deny any loss mitigation assistance, the 
servicer shall promptly provide the borrower with a notice in writing 
stating that determination. The servicer shall include in this notice:
    (i) The amount of time the borrower has to accept or reject an 
offer of a loss mitigation option as provided for in paragraph (e) of 
this section, if applicable;
    (ii) A notification, if applicable, that the borrower has the right 
to appeal the loss mitigation determination as well as the amount of 
time the borrower has to file such an appeal and any requirements for 
making an appeal, as provided for in paragraph (h) of this section.
    (iii) The specific reason or reasons for the servicer's 
determination to offer or deny each such loss mitigation option;
    (iv) The key borrower-provided inputs, if any, that served as the 
basis for the determination;
    (v) A telephone number, mailing address, and website, where the 
borrower can access a list of the non-borrower provided inputs, if any, 
used by the servicer in making the loss mitigation determination;
    (vi) A list of all other loss mitigation options that may remain 
available to the borrower, if any, including a clear statement 
describing the next steps the borrower must take to be reviewed for 
those loss mitigation options or, if applicable, a statement that the 
servicer has reviewed the borrower for all available loss mitigation 
options and none remain;
    (vii) 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;
    (viii) A telephone number where the borrower can obtain a list of 
all loss mitigation options that may be available from the owner or 
assignee of the borrower's loan, pursuant to Sec.  1024.39(b)(2)(ii), 
and a website to access a list of all loss mitigation options that may 
be available from the owner or assignee of the borrower's mortgage 
loan, pursuant to Sec.  1024.39(b)(2)(ii);
    (ix) The name of the owner or assignee of the borrower's mortgage 
loan;
    (x) If there is a loss mitigation offer, a statement informing the 
borrower whether the offered option will still be available if the 
borrower requests to be reviewed for other loss mitigation options 
prior to accepting or rejecting the offer; and
    (xi) If there is a loss mitigation offer of a forbearance, a 
statement informing the borrower of the specific payment terms and 
duration of the forbearance.
    (2) Denial due to missing documents or information not in the 
borrower's control--(i) If a servicer receives a request for loss 
mitigation assistance more than 37 days before a foreclosure sale, 
except as provided in paragraph (c)(2)(ii) of this section, a servicer 
must not deny a request for loss mitigation assistance solely because 
the servicer lacks required documents or information not in the 
borrower's control.
    (ii) If the servicer has regularly taken steps to obtain required 
documents or information from a party other than the borrower or the 
servicer, but the servicer has been unable to obtain such documents or 
information for at least 90 days and the servicer, in accordance with 
applicable requirements established by the owner or assignee of the 
borrower's mortgage loan, is unable to determine which loss mitigation 
options, if any, it will offer the borrower without such documents or 
information, the servicer may deny the request for loss mitigation 
assistance and provide the borrower with a written notice in accordance 
with Sec.  1024.41(c)(2)(iii).
    (iii) The servicer shall provide the borrower a written notice, 
informing the borrower:
    (1) That the servicer has not received documents or information not 
in the borrower's control that the servicer requires to determine which 
loss mitigation options, if any, it will offer to the borrower on 
behalf of the owner or assignee of the mortgage;
    (2) Of the specific documents or information that the servicer 
lacks;
    (3) That the servicer has requested such documents or information; 
and
    (4) That, if the servicer receives the documents or information 
within 14 days of providing the written notice to the borrower, the 
servicer will complete its evaluation of the borrower for all available 
loss mitigation options promptly upon receiving the documents or 
information.
    (5) Of the information required by paragraphs (c)(1)(vi) through 
(xi) of this section.
    (3) Unsolicited loss mitigation offers. If a servicer makes an 
unsolicited offer of a loss mitigation option to a borrower based 
solely on information in the servicer's possession, the servicer shall 
provide the borrower with a notice in writing stating that 
determination. The servicer shall include in this notice:
    (i) The amount of time the borrower has to accept or reject an 
offer of a loss mitigation program as provided for in paragraph (e) of 
this section; and
    (ii) The information required by paragraphs (c)(1)(vi) and (ix).
    (d) [RESERVED]
    (e) Borrower response--(1) In general. Subject to paragraphs 
(e)(2)(ii) and (iii) of this section, if a request for loss mitigation 
assistance is received 90 days or more before a foreclosure sale, a 
servicer may require that a borrower accept or reject an offer of a 
loss mitigation option no earlier than 14 days after the servicer 
provides the offer of a loss mitigation option to the borrower. If a 
request for loss mitigation assistance is received less than 90 days 
before a foreclosure sale, but more than 37 days before a foreclosure 
sale, a servicer may require that a borrower accept or reject an offer 
of a loss mitigation option no earlier than 7 days after the servicer 
provides the offer of a loss mitigation option to the borrower.
    (2) Rejection--(i) In general. Except as set forth in paragraphs 
(e)(2)(ii) and (iii) of this section, a servicer may deem a borrower 
that has not accepted an offer of a loss mitigation option within the 
deadline established pursuant to paragraph (e)(1) of this section to 
have rejected the offer of a loss mitigation option.
    (ii) Trial Loan Modification Plan. A borrower who does not satisfy 
the servicer's requirements for accepting a trial loan modification 
plan, but submits the payments that would be owed pursuant to any such 
plan within the deadline established pursuant to paragraph (e)(1) of 
this section, shall be provided a reasonable period of time to fulfill 
any remaining requirements of the servicer for acceptance of the trial 
loan modification plan beyond the deadline established pursuant to 
paragraph (e)(1) of this section.
    (iii) Interaction with appeal process. If a borrower makes an 
appeal pursuant to paragraph (h) of this section, the borrower's 
deadline for accepting a loss mitigation option offered pursuant to 
paragraph (c)(1) or (3) of this section shall be extended until 14 days 
after the servicer provides the notice required pursuant to paragraph 
(h)(4) of this section.
    (f) Prohibition on foreclosure referral--(1) Pre-foreclosure review

[[Page 60248]]

period. A servicer shall not make the first notice or filing required 
by applicable law for any judicial or non-judicial foreclosure process 
unless:
    (i) A borrower's mortgage loan obligation is more than 120 days 
delinquent;
    (ii) The foreclosure is based on a borrower's violation of a due-
on-sale clause; or
    (iii) The servicer is joining the foreclosure action of a superior 
or subordinate lienholder.
    (2) Foreclosure process procedural safeguards during a loss 
mitigation review cycle. 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 a loss mitigation review cycle 
begins, the servicer must 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:
    (i) No remaining loss mitigation options. 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 paragraph (c) of this section, 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
    (ii) Unresponsive borrower. 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.
    (3) Fee protections. 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.
    (g) [RESERVED]
    (h) Appeal process--(1) Appeal process required for loss mitigation 
determinations. A servicer shall permit a borrower to appeal the 
servicer's determination regarding any loss mitigation option available 
to the borrower.
    (2) Deadlines. A servicer shall permit a borrower to make an appeal 
within 14 days after the servicer provides a loss mitigation 
determination to the borrower pursuant to paragraph (c) of this 
section. An appeal that meets the procedural requirements of section 
1024.35 and is submitted within 14 days after the servicer provides a 
loss mitigation determination to the borrower pursuant to paragraph (c) 
of this section shall be treated as both an appeal and an error 
assertion for purposes of paragraph (h) of this section.
    (3) Independent evaluation. An appeal shall be reviewed by 
different personnel than those responsible for making the loss 
mitigation determination that is the subject of the appeal.
    (4) Appeal determination. Within 30 days of a borrower making an 
appeal, the servicer shall provide a notice to the borrower stating the 
servicer's determination of whether the servicer will offer the 
borrower a loss mitigation option based upon the appeal and, if 
applicable, how long the borrower has to accept or reject such an offer 
or a prior offer of a loss mitigation option. If a borrower has 
asserted an error under Sec.  1024.35(b)(11) that meets the procedural 
requirements of Sec.  1024.35 and is submitted within 14 days after the 
servicer provides a loss mitigation determination to the borrower 
pursuant to paragraph (c) of this section, a servicer may not make this 
appeal determination until it has either corrected the error or 
conducted a reasonable investigation and determined that no error 
occurred, as required in Sec.  1024.35. A servicer may require that a 
borrower accept or reject an offer of a loss mitigation option after an 
appeal no earlier than 14 days after the servicer provides the notice 
to a borrower. A servicer's determination under this paragraph is not 
subject to any further appeal.
    (i) Duplicative requests. A servicer must comply with the 
requirements of this section for a borrower's request for loss 
mitigation assistance during the same loss mitigation review cycle, 
unless the procedural safeguards in paragraph (f)(2)(i) and (ii) have 
been met.
    (j) Small servicer requirements. A small servicer shall be subject 
to the prohibition on foreclosure referral in paragraph (f)(1) of this 
section. A small servicer shall not make the first notice or filing 
required by applicable law for any judicial or non-judicial foreclosure 
process and shall not move for foreclosure judgment or order of sale, 
or conduct a foreclosure sale, if a borrower is performing pursuant to 
the terms of an agreement on a loss mitigation option.
    (k) Servicing transfers--(1) In general--(i) Timing of compliance. 
Except as provided in paragraphs (k)(3) and (4) of this section, if a 
transferee servicer acquires the servicing of a mortgage loan for which 
a request for loss mitigation assistance is pending as of the transfer 
date, the transferee servicer must comply with the requirements of this 
section for that request within the timeframes that were applicable to 
the transferor servicer based on the date the transferor servicer 
received the request for loss mitigation assistance. All rights and 
protections under this section to which a borrower was entitled before 
a transfer continue to apply notwithstanding the transfer.
    (ii) Transfer date defined. For purposes of this paragraph (k), the 
transfer date is the date on which the transferee servicer will begin 
accepting payments relating to the mortgage loan, as disclosed on the 
notice of transfer of loan servicing pursuant to Sec.  
1024.33(b)(4)(iv).
    (2) [RESERVED]
    (3) Requests for loss mitigation assistance pending at transfer. If 
a transferee servicer acquires the servicing of a mortgage loan for 
which a request for loss mitigation assistance is pending as of the 
transfer date, the transferee servicer must comply with the applicable 
requirements of this section, including the procedural safeguards 
referenced in paragraph (f)(2).
    (4) Determinations subject to appeal process. If a transferee 
servicer acquires the servicing of a mortgage loan for which an appeal 
of a transferor servicer's determination pursuant to paragraph (h) of 
this section has not been resolved by the transferor servicer as of the 
transfer date or is timely filed after the transfer date, the 
transferee servicer must make a determination on the appeal if it is 
able to do so or, if it is unable to do so, must treat the appeal as a 
pending request for loss mitigation assistance.
    (i) Determining appeal. If a transferee servicer is required under 
this paragraph (k)(4) to make a determination on an appeal, the 
transferee servicer must complete the determination and provide the 
notice required by paragraph (h)(4) of this section within 30 days of 
the transfer date or 30 days of the date the borrower made the appeal, 
whichever is later.
    (ii) Servicer unable to determine appeal. A transferee servicer 
that is required to treat a borrower's appeal as a pending request for 
loss mitigation assistance under this paragraph (k)(4) must comply with 
the requirements of this section for such request.

[[Page 60249]]

    (5) Pending loss mitigation offers. A transfer does not affect a 
borrower's ability to accept or reject a loss mitigation option offered 
under this section. If a transferee servicer acquires the servicing of 
a mortgage loan for which the borrower's time period under paragraph 
(e) or (h) of this section for accepting or rejecting a loss mitigation 
option offered by the transferor servicer has not expired as of the 
transfer date, the transferee servicer must allow the borrower to 
accept or reject the offer during the unexpired balance of the 
applicable time period.

Appendix MS-4 to Part 1024 [Amended]

0
8. In Appendix MS-4 to Part 1024, remove and reserve MS-4(A) and MS-
4(B).
0
9. In Supplement I to part 1024:
0
a. Revise Sec.  1024.31--Definitions;
0
b. Under Section 1024.38--General servicing policies, procedures, and 
requirements:
0
i. Revise Paragraph 38(b)(1)(iv) and Paragraph 38(b)(1)(vi);
0
ii. Revise the paragraph heading of 38(b)(2) Properly evaluating loss 
mitigation applications;
0
iii. Revise Paragraph 38(b)(2)(v), Paragraph 38(b)(3)(iii), 38(b)(5) 
Informing borrowers of written error resolution and information request 
procedures, and 38(c)(1)Record retention.
0
c. Under Sec.  1024.39--Early intervention requirements for certain 
borrowers:
0
i. Revise 39(a) Live Contact, Paragraph 39(b)(2)(iii), and Paragraph 
39(b)(2)(iv).
0
d. Revise Sec.  1024.41--Loss mitigation procedures.
0
e. Under Appendix MS to Part 1024--Mortgage Servicing Model Forms and 
Clauses:
0
i. Revise Appendix MS-4--Model Clauses for the Written Early 
Intervention Notice.
    The revisions read as follows:

Supplement I to Part 1024--Official Bureau Interpretations

* * * * *

1024.31--Definitions

Delinquency

    1. Length of delinquency. A borrower's delinquency begins on the 
date an amount sufficient to cover a periodic payment of principal, 
interest, and, if applicable, escrow becomes due and unpaid, and 
lasts until such time as no periodic payment is due and unpaid, even 
if the borrower is afforded a period after the due date to pay 
before the servicer assesses a late fee.
    2. Application of funds. If a servicer applies payments to the 
oldest outstanding periodic payment, a payment by a delinquent 
borrower advances the date the borrower's delinquency began. For 
example, assume a borrower's mortgage loan obligation provides that 
a periodic payment sufficient to cover principal, interest, and 
escrow is due on the first of each month. The borrower fails to make 
a payment on January 1 or on any day in January, and on January 31 
the borrower is 30 days delinquent. On February 3, the borrower 
makes a periodic payment. The servicer applies the payment it 
received on February 3 to the outstanding January payment. On 
February 4, the borrower is three days delinquent.
    3. Payment tolerance. For any given billing cycle for which a 
borrower's payment is less than the periodic payment due, if a 
servicer chooses not to treat a borrower as delinquent for purposes 
of any section of this subpart, that borrower is not delinquent as 
defined in Sec.  1024.31.
    4. Creditor's contract rights. This subpart does not prevent a 
creditor from exercising a right provided by a mortgage loan 
contract to accelerate payment for a breach of that contract. 
Failure to pay the amount due after the creditor accelerates the 
mortgage loan obligation in accordance with the mortgage loan 
contract would begin or continue delinquency.

Loss Mitigation Option

    1. Types of loss mitigation options. Loss mitigation options 
include temporary and 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 programs sponsored by a locality, a 
State, or the Federal government.
    2. Available through the servicer. A loss mitigation option 
available through the servicer refers to an option for which a 
borrower may request to be evaluated, even if the borrower 
ultimately does not qualify for such option.

Request for Loss Mitigation Assistance

    1. Borrower's representative. A request for loss mitigation 
assistance is deemed to be submitted by a borrower if the request is 
submitted by an agent of the borrower. Servicers may undertake 
reasonable procedures to determine if a person that claims to be an 
agent of a borrower has authority from the borrower to act on the 
borrower's behalf.

Qualified Written Request

    1. A qualified written request is a written notice a borrower 
provides to request a servicer either correct an error relating to 
the servicing of a mortgage loan or to request information relating 
to the servicing of the mortgage loan. A qualified written request 
is not required to include both types of requests. For example, a 
qualified written request may request information relating to the 
servicing of a mortgage loan but not assert that an error relating 
to the servicing of a loan has occurred.
    2. A qualified written request is just one form that a written 
notice of error or information request may take. Thus, the error 
resolution and information request requirements in Sec. Sec.  
1024.35 and 1024.36 apply as set forth in those sections 
irrespective of whether the servicer receives a qualified written 
request.

Service Provider

    1. Service providers may include attorneys retained to represent 
a servicer or an owner or assignee of a mortgage loan in a 
foreclosure proceeding, as well as other professionals retained to 
provide appraisals or inspections of properties.

Successor in Interest

    1. Joint tenants and tenants by the entirety. If a borrower who 
has an ownership interest as a joint tenant or tenant by the 
entirety in a property securing a mortgage loan subject to this 
subpart dies, a surviving joint tenant or tenant by the entirety 
with a right of survivorship in the property is a successor in 
interest as defined in Sec.  1024.31.
    2. Beneficiaries of inter vivos trusts. In the event of a 
transfer into an inter vivos trust in which the borrower is and 
remains a beneficiary and which does not relate to a transfer of 
rights of occupancy in the property, the beneficiaries of the inter 
vivos trust rather than the inter vivos trust itself are considered 
to be the successors in interest for purposes of Sec.  1024.31. For 
example, assume Borrower A transfers her home into such an inter 
vivos trust for the benefit of her spouse and herself. As of the 
transfer date, Borrower A and her spouse would be considered 
successors in interest and, upon confirmation, would be borrowers 
for purposes of certain provisions of Regulation X. If the lender 
has not released Borrower A from the loan obligation, Borrower A 
would also remain a borrower more generally for purposes of 
Regulation X.
* * * * *
    Section 1024.38--General Servicing Policies, Procedures, and 
Requirements.
* * * * *

Paragraph 38(b)(1)(iv)

    1. Accurate and current information for owners or assignees of 
mortgage loans relating to loss mitigation. The relevant current 
information to owners or assignees of mortgage loans includes, among 
other things, information about a servicer's evaluation of borrowers 
for loss mitigation options and a servicer's agreements with 
borrowers on loss mitigation options, including loan modifications. 
Such information includes, for example, information regarding the 
date, terms, and features of loss mitigation options, the components 
of any capitalized arrears, the amount of any servicer advances, and 
any assumptions regarding the value of a property used in evaluating 
any loss mitigation options.

Paragraph 38(b)(1)(vi)

    1. Identification of potential successors in interest. A 
servicer may be notified of the existence of a potential successor 
in interest in a variety of ways. For example, a person could 
indicate that there has been a transfer of ownership or of an 
ownership interest in

[[Page 60250]]

the property or that a borrower has been divorced, legally 
separated, or died, or a person other than a borrower could make a 
request for loss mitigation assistance. A servicer must maintain 
policies and procedures reasonably designed to ensure that the 
servicer can retain this information and promptly facilitate 
communication with potential successors in interest when a servicer 
is notified of their existence. A servicer is not required to 
conduct a search for potential successors in interest if the 
servicer has not received actual notice of their existence.
    2. Documents reasonably required. The documents a servicer 
requires to confirm a potential successor in interest's identity and 
ownership interest in the property must be reasonable in light of 
the laws of the relevant jurisdiction, the specific situation of the 
potential successor in interest, and the documents already in the 
servicer's possession. The required documents may, where 
appropriate, include, for example, a death certificate, an executed 
will, or a court order. The required documents may also include 
documents that the servicer reasonably believes are necessary to 
prevent fraud or other criminal activity (for example, if a servicer 
has reason to believe that documents presented are forged).
    3. Examples of reasonable requirements. Because the relevant law 
governing each situation may vary from State to State, the following 
examples are illustrative only. The examples illustrate what 
documents it would generally be reasonable for a servicer to require 
to confirm a potential successor in interest's identity and 
ownership interest in the property under the specific circumstances 
described.
    i. Tenancy by the entirety or joint tenancy. Assume that a 
servicer knows that the potential successor in interest and the 
transferor borrower owned the property as tenants by the entirety or 
joint tenants and that the transferor borrower has died. Assume 
further that, upon the death of the transferor borrower, the 
applicable law of the relevant jurisdiction does not require a 
probate proceeding to establish that the potential successor in 
interest has sole interest in the property but requires only that 
there be a prior recorded deed listing both the potential successor 
in interest and the transferor borrower as tenants by the entirety 
(e.g., married grantees) or joint tenants. Under these 
circumstances, it would be reasonable for the servicer to require 
the potential successor in interest to provide documentation of the 
recorded instrument, if the servicer does not already have it, and 
the death certificate of the transferor borrower. Because in this 
situation a probate proceeding is not required under the applicable 
law of the relevant jurisdiction, it generally would not be 
reasonable for the servicer to require documentation of a probate 
proceeding.
    ii. Affidavits of heirship. Assume that a potential successor in 
interest indicates that an ownership interest in the property 
transferred to the potential successor in interest upon the death of 
the transferor borrower through intestate succession and offers an 
affidavit of heirship as confirmation. Assume further that, upon the 
death of the transferor borrower, the applicable law of the relevant 
jurisdiction does not require a probate proceeding to establish that 
the potential successor in interest has an interest in the property 
but requires only an appropriate affidavit of heirship. Under these 
circumstances, it would be reasonable for the servicer to require 
the potential successor in interest to provide the affidavit of 
heirship and the death certificate of the transferor borrower. 
Because a probate proceeding is not required under the applicable 
law of the relevant jurisdiction to recognize the transfer of title, 
it generally would not be reasonable for the servicer to require 
documentation of a probate proceeding.
    iii. Divorce or legal separation. Assume that a potential 
successor in interest indicates that an ownership interest in the 
property transferred to the potential successor in interest from a 
spouse who is a borrower as a result of a property agreement 
incident to a divorce proceeding. Assume further that the applicable 
law of the relevant jurisdiction does not require a deed conveying 
the interest in the property but accepts a final divorce decree and 
accompanying separation agreement executed by both spouses to 
evidence transfer of title. Under these circumstances, it would be 
reasonable for the servicer to require the potential successor in 
interest to provide documentation of the final divorce decree and an 
executed separation agreement. Because the applicable law of the 
relevant jurisdiction does not require a deed, it generally would 
not be reasonable for the servicer to require a deed.
    iv. Living spouses or parents. Assume that a potential successor 
in interest indicates that an ownership interest in the property 
transferred to the potential successor in interest from a living 
spouse or parent who is a borrower by quitclaim deed or act of 
donation. Under these circumstances, it would be reasonable for the 
servicer to require the potential successor in interest to provide 
the quitclaim deed or act of donation. It generally would not be 
reasonable, however, for the servicer to require additional 
documents.
    4. Additional documentation required for confirmation 
determination. Section 1024.38(b)(1)(vi)(C) requires a servicer to 
maintain policies and procedures reasonably designed to ensure that, 
upon receipt of the documents identified by the servicer, the 
servicer promptly notifies a potential successor in interest that, 
as applicable, the servicer has confirmed the potential successor in 
interest's status, has determined that additional documents are 
required, or has determined that the potential successor in interest 
is not a successor in interest. If a servicer reasonably determines 
that it cannot make a determination of the potential successor in 
interest's status based on the documentation provided, it must 
specify what additional documentation is required. For example, if 
there is pending litigation involving the potential successor in 
interest and other claimants regarding who has title to the property 
at issue, a servicer may specify that documentation of a court 
determination or other resolution of the litigation is required.
    5. Prompt confirmation and loss mitigation. A servicer's 
policies and procedures must be reasonably designed to ensure that 
the servicer can promptly notify the potential successor in interest 
that the servicer has confirmed the potential successor in 
interest's status. Notification is not prompt for purposes of this 
requirement if it unreasonably interferes with a successor in 
interest's ability to make a request loss mitigation assistance.

8(b)(2) Properly Evaluating Requests for Loss Mitigation Assistance.

* * * * *

Paragraph 38(b)(2)(v)

    1. Owner or assignee requirements. A servicer must have policies 
and procedures reasonably designed to evaluate a borrower for a loss 
mitigation option consistent with any owner or assignee 
requirements, even where the requirements of Sec.  1024.41 may be 
inapplicable. For example, an owner or assignee may require that a 
servicer implement certain procedures to review a borrower who makes 
a request for loss mitigation assistance less than 37 days before a 
foreclosure sale. Further, an owner or assignee may require that a 
servicer implement certain procedures to re-evaluate a borrower who 
has demonstrated a material change in the borrower's financial 
circumstances for a loss mitigation option after the servicer's 
initial evaluation. A servicer must have policies and procedures 
reasonably designed to implement these requirements even if such 
loss mitigation evaluations may not be required pursuant to Sec.  
1024.41.

38(b)(3) Facilitating Oversight of, and Compliance by, Service 
Providers.

Paragraph 38(b)(3)(iii)

    1. Sharing information with service provider personnel handling 
foreclosure proceedings. A servicer's policies and procedures must 
be reasonably designed to ensure that servicer personnel promptly 
inform service provider personnel handling foreclosure proceedings 
that the servicer has received a request for loss mitigation 
assistance and promptly instruct foreclosure counsel to take any 
step required by Sec.  1024.41(f) sufficiently timely to avoid 
violating the prohibition against making the first notice or filing 
required by applicable law for any judicial or non-judicial 
foreclosure process, or before advancing the foreclosure process.
* * * * *

38(b)(5) Informing Borrowers of Written Error Resolution and 
Information Request Procedures

    1. Manner of informing borrowers. A servicer may comply with the 
requirement to maintain policies and procedures reasonably designed 
to inform borrowers of the procedures for submitting written notices 
of error set forth in Sec.  1024.35 and written information requests 
set forth in Sec.  1024.36 by informing borrowers, through a notice 
(mailed or delivered electronically) or a website. For example, a 
servicer may comply with Sec.  1024.38(b)(5) by including in the 
periodic statement required pursuant to 12

[[Page 60251]]

CFR 1026.41 a brief statement informing borrowers that borrowers 
have certain rights under Federal law related to resolving errors 
and requesting information about their account, and that they may 
learn more about their rights by contacting the servicer, and a 
statement directing borrowers to a website that provides a 
description of the procedures set forth in Sec. Sec.  1024.35 and 
1024.36. Alternatively, a servicer may also comply with Sec.  
1024.38(b)(5) by including a description of the procedures set forth 
in Sec. Sec.  1024.35 and 1024.36 in the written notice required by 
Sec. Sec.  1024.35(c) and 1024.36(b).
    2. Oral complaints and requests. A servicer's policies and 
procedures must be reasonably designed to provide information to 
borrowers who are not satisfied with the resolution of a complaint 
or request for information submitted orally about the procedures for 
submitting written notices of error set forth in Sec.  1024.35 and 
for submitting written requests for information set forth in Sec.  
1024.36.
    3. Notices of error incorrectly sent to addresses associated 
with submission of requests for loss mitigation assistance or the 
continuity of contact. A servicer's policies and procedures must be 
reasonably designed to ensure that if a borrower incorrectly submits 
an assertion of an error to any address given to the borrower in 
connection with a request for loss mitigation assistance, the 
continuity of contact pursuant to Sec.  1024.40, or a loss 
mitigation determination, the servicer will inform the borrower of 
the procedures for submitting written notices of error set forth in 
Sec.  1024.35, including the correct address. Alternatively, the 
servicer could redirect such notices to the correct address.

38(c) Standard Requirements

38(c)(1)Record Retention

    1. Methods of retaining records. Retaining records that document 
actions taken with respect to a borrower's mortgage loan account, 
including records evidencing compliance with this part, does not 
necessarily mean actual paper copies of documents. The records may 
be retained by any method that reproduces the records accurately 
(including computer programs) and that ensures that the servicer can 
easily access the records (including a contractual right to access 
records possessed by another entity). For example, a servicer may 
use a computer program to create and retain records of the date a 
borrower makes a request for loss mitigation assistance, so long as 
the servicer ensures it can easily access those records.
* * * * *

1024.39--Early Intervention Requirements for Certain Borrowers

39(a) Live Contact

    1. Delinquency. Section 1024.39 requires a servicer to establish 
or attempt to establish live contact no later than the 36th day of a 
borrower's delinquency. This provision is illustrated as follows:
    i. Assume a mortgage loan obligation with a monthly billing 
cycle and monthly payments of $2,000 representing principal, 
interest, and escrow due on the first of each month.
    A. The borrower fails to make a payment of $2,000 on, and makes 
no payment during the 36-day period after, January 1. The servicer 
must establish or make good faith efforts to establish live contact 
not later than 36 days after January 1--i.e., on or before February 
6.
    B. The borrower makes no payments during the period January 1 
through April 1, although payments of $2,000 each on January 1, 
February 1, and March 1 are due. Assuming it is not a leap year; the 
borrower is 90 days delinquent as of April 1. The servicer may time 
its attempts to establish live contact such that a single attempt 
will meet the requirements of Sec.  1024.39(a) for two missed 
payments. To illustrate, the servicer complies with Sec.  1024.39(a) 
if the servicer makes a good faith effort to establish live contact 
with the borrower, for example, on February 5 and again on March 25. 
The February 5 attempt meets the requirements of Sec.  1024.39(a) 
for both the January 1 and February 1 missed payments. The March 25 
attempt meets the requirements of Sec.  1024.39(a) for the March 1 
missed payment.
    ii. A borrower who is performing as agreed under a loss 
mitigation option designed to bring the borrower current on a 
previously missed payment is not delinquent for purposes of Sec.  
1024.39.
    iii. During the 60-day period beginning on the effective date of 
transfer of the servicing of any mortgage loan, a borrower is not 
delinquent for purposes of Sec.  1024.39 if the transferee servicer 
learns that the borrower has made a timely payment that has been 
misdirected to the transferor servicer and the transferee servicer 
documents its files accordingly. See Sec.  1024.33(c)(1) and comment 
33(c)(1)-2.
    iv. A servicer need not establish live contact with a borrower 
unless the borrower is delinquent during the 36 days after a payment 
due date. If the borrower satisfies a payment in full before the end 
of the 36-day period, the servicer need not establish live contact 
with the borrower. For example, if a borrower misses a January 1 due 
date but makes that payment on February 1, a servicer need not 
establish or make good faith efforts to establish live contact by 
February 6.
    2. Establishing live contact. Live contact provides servicers an 
opportunity to discuss the circumstances of a borrower's 
delinquency. Live contact with a borrower includes speaking on the 
telephone or conducting an in-person meeting with the borrower but 
not leaving a recorded phone message. A servicer may rely on live 
contact established at the borrower's initiative to satisfy the live 
contact requirement in Sec.  1024.39(a). Servicers may also combine 
contacts made pursuant to Sec.  1024.39(a) with contacts made with 
borrowers for other reasons, for instance, by telling borrowers on 
collection calls that loss mitigation options may be available.
    3. Good faith efforts. Good faith efforts to establish live 
contact consist of reasonable steps, under the circumstances, to 
reach a borrower and may include telephoning the borrower on more 
than one occasion or sending written or electronic communication 
encouraging the borrower to establish live contact with the 
servicer. The length of a borrower's delinquency, as well as a 
borrower's failure to respond to a servicer's repeated attempts at 
communication pursuant to Sec.  1024.39(a), are relevant 
circumstances to consider. For example, whereas ``good faith 
efforts'' to establish live contact with regard to a borrower with 
two consecutive missed payments might require a telephone call, 
``good faith efforts'' to establish live contact with regard to an 
unresponsive borrower with six or more consecutive missed payments 
might require no more than including a sentence requesting that the 
borrower contact the servicer with regard to the delinquencies in 
the periodic statement or in an electronic communication. Comment 
39(a)-6 discusses the relationship between live contact and the loss 
mitigation procedures set forth in Sec.  1024.41.
    4. Promptly inform if appropriate.
    i. Servicer's determination. It is within a servicer's 
reasonable discretion to determine whether informing a borrower 
about the availability of loss mitigation options is appropriate 
under the circumstances. The following examples demonstrate when a 
servicer has made a reasonable determination regarding the 
appropriateness of providing information about loss mitigation 
options.
    A. A servicer provides information about the availability of 
loss mitigation options to a borrower who notifies a servicer during 
live contact of a hardship for which a loss mitigation option may be 
available.
    B. A servicer does not provide information about the 
availability of loss mitigation options to a borrower who has missed 
a January 1 payment and notified the servicer that full late payment 
will be transmitted to the servicer by February 15.
    ii. Promptly inform. If appropriate, a servicer may inform 
borrowers about the availability of loss mitigation options orally, 
in writing, or through electronic communication, but the servicer 
must provide such information promptly after the servicer 
establishes live contact. A servicer need not notify a borrower 
about any particular loss mitigation options at this time; if 
appropriate, a servicer need only inform borrowers generally that 
loss mitigation options may be available. If appropriate, a servicer 
may satisfy the requirement in Sec.  1024.39(a) to inform a borrower 
about loss mitigation options by providing the written notice 
required by Sec.  1024.39(b)(1), but the servicer must provide such 
notice promptly after the servicer establishes live contact.
    5. Borrower's representative. Section 1024.39 does not prohibit 
a servicer from satisfying its requirements by establishing live 
contact with and, if applicable, providing information about loss 
mitigation options to a person authorized by the borrower to 
communicate with the servicer on the borrower's behalf. A servicer 
may undertake reasonable procedures to determine if a person that 
claims to be an agent of a borrower has authority from the borrower 
to act on the borrower's behalf, for example, by requiring a person 
that claims to be an agent of the borrower to provide documentation 
from the borrower stating that the purported agent is acting on the 
borrower's behalf.

[[Page 60252]]

    6. Relationship between live contact and loss mitigation 
procedures. If the servicer has established and is maintaining 
regular contact with the borrower during a loss mitigation review 
cycle under Sec.  1024.41, the servicer complies with Sec.  
1024.39(a) and need not otherwise establish or make good faith 
efforts to establish live contact. A servicer must resume compliance 
with the requirements of Sec.  1024.39(a) for a borrower who becomes 
delinquent again after curing a prior delinquency.
* * * * *

Paragraph 39(b)(2)(iii)

    1. Types of loss mitigation options that are generally 
available. The servicer must list each type of loss mitigation 
option that is generally available from the owner or assignee of the 
borrower's loan. The servicer may include a statement that not all 
borrowers will qualify for the listed options. A type of loss 
mitigation option may be described in one or more sentences. If the 
owner or assignee of the borrower's mortgage loan offers a type of 
loss mitigation option comprising several loss mitigation programs, 
the servicer may provide a generic description of the option without 
providing detailed descriptions of each program. For example, if the 
owner or assignee of the borrower's mortgage loan offers several 
loan modification programs, the servicer may provide a generic 
description of ``loan modification.''

Paragraph 39(b)(2)(iv)

    1. Explanation of how the borrower may obtain more information 
about how to make a request for loss mitigation assistance. A 
servicer may comply with Sec.  1024.39(b)(2)(iv) by directing the 
borrower to contact the servicer for more detailed information on 
how to make a request for loss mitigation assistance. For example, a 
general statement such as, ``contact us for instructions on how to 
request assistance'' would satisfy the requirement to inform the 
borrower how to obtain more information about how to make a request 
for loss mitigation assistance. However, to expedite the borrower's 
timely request for loss mitigation assistance, servicers may provide 
more detailed instructions, such as by listing representative 
documents, if any, the borrower should make available to the 
servicer (such as tax filings or income statements), and an estimate 
of how quickly the servicer expects to evaluate the request for loss 
mitigation assistance and make a decision on loss mitigation 
options.
* * * * *

1024.41--Loss Mitigation Procedures

41(c) Evaluation of Loss Mitigation Applications

41(c)(1) General Notice and Content Requirements

    1. Investor requirements. Except as pursuant to Sec.  
1024.41(c)(3), if a loss mitigation option is offered or denied 
because of a requirement of an owner or assignee of a mortgage loan, 
the specific reasons in the notice provided to the borrower must 
identify the requirement that is the basis of the determination. A 
statement that the offer or denial of a loss mitigation option is 
based on an investor requirement, without additional information 
specifically identifying the relevant investor or guarantor and the 
specific applicable requirement, is insufficient.
    2. Reasons listed. A servicer is required to disclose the actual 
reason or reasons for the determination.
    3. Loss mitigation options available to a borrower. The loss 
mitigation options available to a borrower are those options offered 
by an owner or assignee of the borrower's mortgage loan. Loss 
mitigation options administered by a servicer for an owner or 
assignee of a mortgage loan other than the owner or assignee of the 
borrower's mortgage loan are not available to the borrower solely 
because such options are administered by the servicer. For example:
    i. A servicer services mortgage loans for two different owners 
or assignees of mortgage loans. Those entities each have different 
loss mitigation programs. loss mitigation options not offered by the 
owner or assignee of the borrower's mortgage loan are not available 
to the borrower; or
    ii. The owner or assignee of a borrower's mortgage loan has 
established pilot programs, temporary programs, or programs that are 
limited by the number of participating borrowers. Such loss 
mitigation options are available to a borrower. However, a servicer 
evaluates whether a borrower is eligible for any such program 
consistent with criteria established by an owner or assignee of a 
mortgage loan. For example, if an owner or assignee has limited a 
pilot program to a certain geographic area or to a limited number of 
participants, and the servicer determines that a borrower is not 
eligible based on any such requirement, the servicer shall inform 
the borrower that the investor requirement for the program is the 
basis for the denial.
    4. Offer of a non-home retention option. A servicer's offer of a 
non-home retention option may be conditional upon receipt of further 
information not in the borrower's possession and necessary to 
establish the parameters of a servicer's offer. For example, a 
servicer complies with the requirement for evaluating the borrower 
for a short sale option if the servicer offers the borrower the 
opportunity to enter into a listing or marketing period agreement 
but indicates that specifics of an acceptable short sale transaction 
may be subject to further information obtained from an appraisal or 
title search.
    5. Other notices. A servicer may combine other notices required 
by applicable law, including, without limitation, a notice with 
respect to an adverse action required by Regulation B, 12 CFR part 
1002, or a notice required pursuant to the Fair Credit Reporting 
Act, with the notice required pursuant to Sec.  1024.41(c)(1), 
unless otherwise prohibited by applicable law.

41(f) Prohibition on Foreclosure Referral

    1. Prohibited activities. Section 1024.41(f) prohibits a 
servicer from making the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process 
under certain circumstances. Whether a document is considered the 
first notice or filing is determined on the basis of foreclosure 
procedure under the applicable State law.
    i. Where foreclosure procedure requires a court action or 
proceeding, a document is considered the first notice or filing if 
it is the earliest document required to be filed with a court or 
other judicial body to commence the action or proceeding (e.g., a 
complaint, petition, order to docket, or notice of hearing).
    ii. Where foreclosure procedure does not require an action or 
court proceeding, such as under a power of sale, a document is 
considered the first notice or filing if it is the earliest document 
required to be recorded or published to initiate the foreclosure 
process.
    iii. Where foreclosure procedure does not require any court 
filing or proceeding, and also does not require any document to be 
recorded or published, a document is considered the first notice or 
filing if it is the earliest document that establishes, sets, or 
schedules a date for the foreclosure sale.
    iv. A document provided to the borrower but not initially 
required to be filed, recorded, or published is not considered the 
first notice or filing on the sole basis that the document must 
later be included as an attachment accompanying another document 
that is required to be filed, recorded, or published to carry out a 
foreclosure.

41(f)(2) Foreclosure Process Procedural Safeguards During a Loss 
Mitigation Review Cycle

    1. Dispositive motion. The prohibition on a servicer advancing 
the foreclosure process includes moving for judgment or order of 
sale by, for example, making a dispositive motion for foreclosure 
judgment, such as a motion for default judgment, judgment on the 
pleadings, or summary judgment, which may directly result in a 
judgment of foreclosure or order of sale. A servicer has not moved 
for a foreclosure judgment or order of sale and is not advancing the 
foreclosure process if the servicer takes reasonable steps to avoid 
a ruling on such motion or issuance of such order, notwithstanding 
whether any such action successfully avoids a ruling on a 
dispositive motion or issuance of an order of sale.
    2. Interaction with foreclosure counsel. The prohibitions in 
Sec.  1024.41(f)(2) against advancing the foreclosure process 
(including moving for judgment or sale) may require a servicer to 
act through foreclosure counsel retained by the servicer in a 
foreclosure proceeding. If a servicer has received a request for 
loss mitigation assistance, the servicer must instruct counsel 
promptly not to advance the foreclosure process or make a 
dispositive motion for foreclosure judgment or order of sale; where 
such a dispositive motion is pending, to avoid a ruling on the 
motion or issuance of an order of sale; and, where a sale is 
scheduled, to prevent conduct of a foreclosure sale, unless one of 
the procedural safeguards in Sec.  1024.41(f)(2) is met, if 
applicable. A servicer is not relieved of its obligations because 
foreclosure counsel's actions or inaction caused a violation.
    3. Requests for loss mitigation assistance submitted 37 days or 
less before foreclosure sale. Although a servicer is not required to

[[Page 60253]]

comply with the requirements in Sec.  1024.41 with respect to a 
borrower's request for loss mitigation assistance submitted 37 days 
or less before a foreclosure sale, a servicer is required 
separately, in accordance with policies and procedures maintained 
pursuant to Sec.  1024.38(b)(2)(v) to properly evaluate a borrower 
who makes a request for loss mitigation assistance pursuant to any 
requirements established by the owner or assignee of the borrower's 
mortgage loan. Such evaluation may be subject to requirements 
applicable to a review of a request for loss mitigation assistance 
submitted by a borrower 37 days or less before a foreclosure sale.
    4. Advancing the foreclosure process prohibited. Section 
1024.41(f)(2) prohibits a servicer from advancing the foreclosure 
process if a borrower submits a request for loss mitigation 
assistance more than 37 days before a foreclosure sale unless one of 
the procedural safeguards in Sec.  1024.41(f)(2) is met. For 
example, advancing the foreclosure process includes conducting a 
foreclosure sale, even if a person other than the servicer 
administers or conducts the foreclosure sale proceedings. Where 
Sec.  1024.41(f)(2) is applicable but none of the procedural 
safeguards under Sec.  1024.41(f)(2) have been met, scheduling a 
sale date or conducting a sale violates Sec.  1024.41(f)(2).
    5. Short sale listing period. An agreement for a short sale 
transaction, or other similar loss mitigation option, typically 
includes marketing or listing periods during which a servicer will 
allow a borrower to market a short sale transaction. A borrower is 
deemed to be performing under an agreement on a short sale, or other 
similar loss mitigation option, during the term of a marketing or 
listing period.
    6. Short sale agreement. If a borrower has not obtained an 
approved short sale transaction at the end of any marketing or 
listing period, a servicer may deny the short sale option. An 
approved short sale transaction is a short sale transaction that has 
been approved by all relevant parties, including the servicer, other 
affected lienholders, or insurers, if applicable, and the servicer 
has received proof of funds or financing, unless circumstances 
otherwise indicate that an approved short sale transaction is not 
likely to occur.
    7. Successors in interest--i. 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 need not, comply 
with the foreclosure process procedural safeguards in Sec.  
1024.41(f)(2) with respect to that person. If a servicer complies 
with the requirements of Sec.  1024.41(f)(2) before confirming a 
person's successor in interest status, Sec.  1024.41(i)'s limitation 
on duplicative requests applies to that person, provided the 
servicer's evaluation of loss mitigation options available to the 
person would not have resulted in a different determination due to 
the person's confirmation as a successor in interest if it had been 
conducted after the servicer confirmed the person's status as a 
successor in interest.
    ii. If a servicer receives a request for loss mitigation 
assistance from a potential successor in interest and elects not to 
comply with the foreclosure process procedural safeguards in Sec.  
1024.41(f)(2) with respect to that person before confirming that 
person's identity and ownership interest in the property, the 
servicer must comply with those foreclosure process procedural 
safeguards with respect to that person as soon as that 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.

41(f)(2)(ii) Unresponsive Borrower

    1. Communication. For purposes of Sec.  1024.41(f)(2)(ii), a 
servicer has not received a communication from the borrower if the 
servicer has not received any written or electronic communication 
from the borrower about the mortgage loan obligation, has not 
received a telephone call from the borrower about the mortgage loan 
obligation, and has not received a payment on the mortgage loan 
obligation.
    2. Borrower's representative. A servicer has received a 
communication from the borrower if the communication is from an 
agent of the borrower. A servicer may undertake reasonable 
procedures to determine if a person that claims to be an agent of a 
borrower has authority from the borrower to act on the borrower's 
behalf, for example, by requiring that a person that claims to be an 
agent of the borrower provide documentation from the borrower 
stating that the purported agent is acting on the borrower's behalf. 
Upon receipt of such documentation, the servicer shall treat the 
communication as having been submitted by the borrower.
    3. Regular contact. 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.

41(h) Appeal Process

Paragraph 41(h)(3)

    1. Supervisory personnel. The appeal may be evaluated by 
supervisory personnel that are responsible for oversight of the 
personnel that conducted the initial evaluation, as long as the 
supervisory personnel were not directly involved in the loss 
mitigation evaluation that is the subject of the appeal.

41(k) Servicing Transfers

    1. Pending request for loss mitigation assistance. For purposes 
of Sec.  1024.41(k), a request for loss mitigation assistance is 
pending if it was subject to Sec.  1024.41. For example, the 
borrower is still in a loss mitigation review cycle, or the 
transferor servicer denied the request for loss mitigation pursuant 
to Sec.  1024.41(c)(2)(ii) but the 14 days referenced in Sec.  
1024.41(c)(2)(iii) has not elapsed as of the transfer date.

41(k)(1) In General

41(k)(1)(i) Timing of Compliance

    1. Obtaining loss mitigation documents and information. i. In 
connection with a transfer, a transferor servicer must timely 
transfer, and a transferee servicer must obtain from the transferor 
servicer, documents and information submitted by a borrower in 
connection with a request for loss mitigation assistance, consistent 
with policies and procedures adopted pursuant to Sec.  
1024.38(b)(4). A transferee servicer must comply with the applicable 
requirements of Sec.  1024.41 with respect to a request for loss 
mitigation assistance received as a result of a transfer, even if 
the transferor servicer was not required to comply with Sec.  
1024.41 with respect to that request.
    ii. A transferee servicer must, in accordance with Sec.  
1024.41(f)(2)(ii), regularly take 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. In the transfer context, a transferee servicer must ensure 
that a borrower is informed of any changes to the loss mitigation 
determination process, such as a change in the address to which the 
borrower should submit documents and information, as well as 
ensuring that the borrower is informed about which documents and 
information are needed by the transferee servicer to determine which 
loss mitigation options, if any, it will offer to the borrower.
    iii. A borrower may provide documents and information to a 
transferor servicer after the transfer date. Consistent with 
policies and procedures maintained pursuant to Sec.  1024.38(b)(4), 
the transferor servicer must timely transfer, and the transferee 
servicer must obtain, such documents and information.
    2. Determination of rights and protections. For purposes of 
Sec.  1024.41, a transferee servicer must consider documents and 
information that constitute a request for loss mitigation assistance 
for the transferee servicer to have been received as of the date 
such documents and information were received by the transferor 
servicer, even if such documents and information were received by 
the transferor servicer after the transfer date. See comment 
41(k)(1)(i)-1.iii.
    3. Duplicative notices not required. A transferee servicer is 
not required to provide notices under Sec.  1024.41 with respect to 
a particular loss mitigation assistance request that the transferor 
servicer provided prior to the transfer.

41(k)(1)(ii) Transfer Date Defined

    1. Transfer date. Section 1024.41(k)(1)(ii) provides that the 
transfer date is the date on which the transferee servicer will 
begin accepting payments relating to the mortgage loan, as disclosed 
on the notice of transfer of loan servicing pursuant to Sec.  
1024.33(b)(4)(iv). The transfer date is the same date as that on 
which the transfer of the servicing responsibilities from the 
transferor servicer to the transferee servicer occurs. The transfer 
date is not necessarily the same date as either the effective date 
of the transfer of servicing as disclosed on the notice of transfer 
of loan servicing pursuant to Sec.  1024.33(b)(4)(i) or the

[[Page 60254]]

sale date identified in a servicing transfer agreement.

41(k)(4) Determinations Subject to Appeal Process

    1. Obtaining appeal. A borrower may submit an appeal of a 
transferor servicer's determination pursuant to Sec.  1024.41(h) to 
the transferor servicer after the transfer date. Consistent with 
policies and procedures maintained pursuant to Sec.  1024.38(b)(4), 
the transferor servicer must timely transfer, and the transferee 
servicer must obtain, documents and information regarding such 
appeals.
    2. Servicer unable to determine appeal. A transferee servicer 
may be unable to make a determination on an appeal when, for 
example, the transferor servicer denied a borrower for a loss 
mitigation option that the transferee servicer does not offer or 
when the transferee servicer receives the mortgage loan through an 
involuntary transfer and the transferor servicer failed to maintain 
proper records such that the transferee servicer lacks sufficient 
information to review the appeal. In that circumstance, the 
transferee servicer is required to treat the appeal as a pending 
request for loss mitigation assistance, and it must permit the 
borrower to accept or reject any loss mitigation options offered by 
the transferor servicer, even if it does not offer the loss 
mitigation options offered by the transferor servicer, in addition 
to the loss mitigation options, if any, that the transferee servicer 
determines to offer the borrower based on its own review of a 
borrower who makes a request for loss mitigation assistance. For 
example, assume a transferor servicer denied a borrower for all loan 
modification options but offered the borrower a short sale option, 
and assume that the borrower's appeal of the loan modification 
denial was pending as of the transfer date. If the transferee 
servicer is unable to determine the borrower's appeal, the 
transferee servicer must review the borrower's request for loss 
mitigation assistance in accordance with Sec.  1024.41. At the 
conclusion of such review, the transferee servicer must permit the 
borrower to accept the short sale option offered by the transferor 
servicer, even if the transferee servicer does not offer the short 
sale option, in addition to any loss mitigation options the 
transferee servicer determines to offer the borrower based upon its 
own review.

41(k)(5) Pending Loss Mitigation Offers

    1. Obtaining evidence of borrower acceptance. A borrower may 
provide an acceptance or rejection of a pending loss mitigation 
offer to a transferor servicer after the transfer date. Consistent 
with policies and procedures maintained pursuant to Sec.  
1024.38(b)(4), the transferor servicer must timely transfer, and the 
transferee servicer must obtain, documents and information regarding 
such acceptances and rejections, and the transferee servicer must 
provide the borrower with any timely accepted loss mitigation 
option, even if the borrower submitted the acceptance to the 
transferor servicer.

Appendix MS to Part 1024--Mortgage Servicing Model Forms and Clauses

* * * * *

Appendix MS-4--Model Clauses for the Written Early Intervention Notice

    1. [RESERVED]
    2. [RESERVED]
    3. Model MS-4(C). These model clauses illustrate how a servicer 
may provide contact information for housing counselors, as required 
by Sec.  1024.39(b)(2)(v). A servicer may, at its option, provide 
the website and telephone number for either the Bureau's or the 
Department of Housing and Urban Development's housing counselors 
list, as provided by paragraphs Sec.  1024.39(b)(2)(v).

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-15475 Filed 7-23-24; 8:45 am]
BILLING CODE 4810-AM-P