CFPB servicing rule change raises alarm for bankers

The American Bankers Association voiced its concerns over a proposed Consumer Financial Protection Bureau final rule to eliminate a pandemic-era policy affecting loss-mitigation procedures that brought flexibility to servicers. 

While stating its support to the easing of some regulations proposed since the beginning of the second Trump term, the ABA urged the bureau to retain the anti-evasion exception the bureau's rule would remove. The exception was introduced in 2021 during the Covid-19 pandemic and amended Regulation X in the Real Estate Settlement Procedures Act.

In a letter to CFPB acting director Russell Vought, the ABA said the exception provided "critical flexibility for servicers" to offer assistance to borrowers, regardless of the issues behind the distress, through loan modifications. Servicers are able to continue working with borrowers even when their loss-mitigation applications are incomplete.  

"As a result, servicers may rely on this exception to offer streamlined modifications to borrowers struggling to pay their mortgages for reasons unrelated to Covid," the banking group's letter said. 

Upon release of the proposal in May, mortgage attorneys also advised that rescinding the exception would likely require servicers to make procedural changes. 

The bureau made public its plans to revise certain rules in the Federal Register last month, leaving its proposal open for comment for 30 days per government policy. The comment period closed June 16. 

Apart from the exception, the ABA offered broad support for the rescission of other "outdated" servicing policies. Prior changes introduced during the pandemic brought a more streamlined review process that even the CFPB said brought favorable outcomes, the letter mentioned. 

"During the pandemic, the exceptions provided in the 2020 and 2021 final rules allowed servicers to review borrowers for loss-mitigation options sequentially rather than simultaneously. These provisions were instrumental in allowing servicers to provide targeted loss mitigation options to millions of struggling borrowers — resulting in faster, more efficient relief," ABA said. 

How mortgage bankers are approaching the proposal

Also noting its support to Regulation X changes was the Mortgage Bankers Association, who similarly stressed the value in continuing to offer borrowers loss mitigation services with incomplete applications in its comment. 

MBA has long pushed for reforms to RESPA, offering "numerous recommendations to refresh the rules to better serve consumers," the group said in a statement to National Mortgage News.

The trade group also suggested adding foreclosure requirements whenever a servicer offered loan modifications in such circumstances, while adding clear terms stipulating when loss protections would end. 

The moves at the CFPB are among many regulatory changes proposed by Vought since President Trump took office in January. In June, the bureau sent to the Office of Management and Budget five rules affecting the mortgage industry for possible revision, including updates to RESPA policy. Also included was a regulation governing loan officer compensation, which the CFPB appeared to recommend be rescinded. 

While mortgage bankers have generally welcomed a more relaxed regulatory environment under Trump compared to the strict guidelines frequently imposed by the CFPB during the Biden era, many have also raised warning flags about the danger of removing too many rules. MBA leadership remarked earlier this year that some CFPB guardrails needed to remain in place to protect consumers and lenders and ensure a sound market.