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The Community Home Lenders of America (CHLA) on Monday submitted a letter to Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, urging the agency to balance the time frame and processes of loss mitigation in its revisions to Regulation X proposed in July.
The proposals require mortgage servicers to emphasize borrower assistance and loss-mitigation options over foreclosure when homeowner struggles to make their required mortgage payments. CHLA wants the bureau to maximize the impact of the changes on both borrowers and servicers by more narrowly circumscribing different aspects of the proposals.
“CHLA’s comment letter asks the CFPB to create a more defined loss mitigation timeframe and to permit servicers to continue to recover foreclosure-related fees when a borrower defaults,” CHLA executive director Scott Olson said in a statement.
“We believe these changes are critical to balancing the CFPB’s dual stated goals of streamlining the loss-mitigation process and protecting borrowers. We look forward to continuing to work with the CFPB, and other policymakers, to ensure policies benefit all those involved in the housing ecosystem.”
The letter makes three key recommendations to accomplish these goals. It delineates “a clearly defined timeline and number of appeals for a borrower’s right to request loss mitigation on a defaulted loan.” It restores the right of servicers to recoup “legitimate expenses” incurred during the loss-mitigation process. And it tailors language translation requirements more narrowly to the need for a translation.
As it currently stands, the proposal allows a borrower to request loss mitigation “unlimited times” within a 90-day period, which then restarts the “loss mitigation clock.” This is one factor that needs to be addressed, CHLA said.
“CHLA is concerned that this proposal provides incentives for some to extend the process over and over again, with no incentive to conclude a workout agreement, nor proceed to foreclosure,” the letter stated. “This will conflict with some state laws and regulations, and will inject uncertainty and costs such that the capital markets and lending community may raise rates overall, or adjust effective minimum FICO thresholds, to contain these costs.”
CHLA contends that this could lead to a potentially “endless” loss-mitigation cycle, which will “cause some IMBs with Ginnie Mae execution to curb their exposure to this market, limiting consumer choice in certain markets to bank models,” the letter said.
CHLA urges a more concrete completion phase so that the market does not “price in extreme uncertainty and uncapped losses for some mortgages.” It suggests that the CFPB permit one review cycle per delinquency.
The proposal also means that “lenders and servicers cannot recover administrative and technology costs to cover higher processing expenses incurred during the cycle when consumers request assistance,” CHLA said. It suggests that the bureau “strike a balance between consumer needs and the need to not harm smaller and mid-size servicers.”
The organization believes that servicers should not collect fees during a 120-day delinquency period connected to its first proposal but that “any extension beyond this period would allow servicers to recover processing costs fully.”
Regarding document availability and translations, unnecessary translations could add unneeded complexity to the servicing communications process, CHLA said.
“CHLA believes it does make sense to require servicing documents when any portion of the loan origination documentation was provided to and executed by the borrower in their preferred language,” the organization said. This also applies to instances in which a borrower has completed a supplemental information form as part of their loan application.
“CHLA believes that having servicing documents in multiple languages not used in the loan origination process, or as indicated by the consumer on the Supplement Consumer Information form, does not add value, as it adds needless complexity that cannot be proven to help families better access a wider range of loss mitigation options,” the letter said. “This complexity — that cannot be proven in advance to help more families — will increase the cost of servicing for all families.”
The CHLA submitted its letter on Monday, which was the due date for comments on the proposal. When the proposal was first announced, Chopra said that the move is being made in an effort to more aggressively stand against preventable instances of foreclosure.
“When struggling homeowners can get the help they need without unnecessary obstacles, it is better for borrowers, servicers, and the economy as a whole,” Chopra said in July. “The CFPB’s proposal would reduce avoidable foreclosures and make the mortgage market more resilient during future crises.”
