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MortgagePoint ยป Your Trusted Source for Mortgage Banking and Servicing News 26 F I V E S T A R C O N T R I B U T O R S P O T L I G H T CFPB UNVEILS HIGHLY ANTICIPATED UPDATES TO REGULATION X B y R O B E R T D . F O R S T E R , I I O n July 10, 2024, the Consumer Financial Protection Bureau (CFPB) introduced a proposed regulatory amendment aimed at intensifying the obligations of mort- gage servicers to assist borrowers prior to initiating foreclosure proceedings. This proposal represents a substantial modification of existing regulations mandating that servicers exhaust all potential loss mitigation options before commencing foreclosure. The proposed rule introduces significant procedural safeguards that activate upon a borrow- er's request for loss mitigation assistance. These include prohibitions against dual tracking, a practice where servicers pursue foreclosure while simultaneously engaging in loss mitigation and restric- tions on the fees servicers may impose during the review process. Additionally, the rule mandates enhanced disclosure requirements and obligates servicers to offer communication options in multiple languages. The CFPB then solicited industry feedback on several aspects of the proposed rule, including its implications for the use of borrower credit data, the reporting practices of servicers, and the potential introduction of a special code to flag mortgages under loss mitigation review. Background and Evolution of the Regulatory Framework T he proposed regulation is derived from the demonstrated efficacy of streamlined loan modifications ob- served during the COVID-19 pandemic, aiming to establish these processes as a permanent fixture. This initiative extends the regulatory framework developed in response to the foreclosure crisis between 2006 and 2014, during which the CFPB enacted the 2013 Mortgage Servicing Rules under the Real Estate Settlement Procedures Act (RESPA) and Regulation X. These rules mandated that mortgage servicers assess borrowers for all viable loss mitigation options within a reasonable period following the receipt of a complete loss mitigation application. During the COVID-19 pandemic, mortgage delinquencies surged to levels not witnessed since the foreclosure crisis. In response, the CFPB issued an interim final rule on June 30, 2020, allowing servicers to offer loss mitigation options without the need for a complete application. This regulatory flexibility was further extended with additional rules in 2021, which enabled quicker enrollment of borrowers into streamlined loan modifications without the prerequisite of a full application process. Expanded Obligations for Mortgage Servicers T he proposed rule seeks to amend and expand the 2013 regulations by imposing new requirements on servicers when borrowers seek assistance during periods of financial distress. Once a bor- rower requests loss mitigation assistance, the servicer must ensure one of the fol- lowing procedural safeguards is satisfied before proceeding with foreclosure or imposing certain fees: (1) the borrower is deemed ineligible for any loss mitigation options; or (2) the borrower has failed to communicate with the servicer for at least 90 days despite the servicer's efforts. A notable aspect of the proposal is the extension of foreclosure and fee protections throughout the loss mitigation review cycle, until either the borrower has become current on their payments or one of the procedural safeguards has been met. The CFPB anticipates that these measures will incentivize servicers to conduct loss mitigation reviews with greater expediency and accuracy. Clarifications and New Definitions T he proposed rule introduces and defines the term "loss mitigation review cycle," delineating it as the con- R O B E R T D . F O R S T E R , I I , is the Managing Partner/CEO of the BDF Law Group and is based in the Addison, Texas, location. The BDF Law Group provides a range of legal services to creditors on defaulted commercial and residential mortgage loans and is comprised of the following firms: Barrett Daffin Frappier Turner & Engel, LLP, (Texas & Georgia); Barrett Daffin Frappier Treder & Weiss, LLP (California, Nevada & Arizona); and Barrett Frappier & Weisserman, LLP (Colorado). He is licensed to practice law with the State Bars of Texas, Arizona, and Georgia, all United States District Courts in Texas and Arkansas, and the United States Supreme Court.