On July 10, 2024, the Consumer Financial Protection Bureau (“CFPB”) issued a Notice of Proposed Rulemaking (“NPRM”) related to mortgage servicing rules.  The proposed rule would amend various sections of Regulation X, 12 CFR Part 1042. The proposed rule would impact the mortgage foreclosure process, mainly by adding consumer protections when a borrower seeks loss mitigation.

The proposed rule seeks to streamline existing loss mitigation requirements to provide borrowers with quicker loss mitigation solutions.  Most notably, the CFPB proposes to add a new defined term, “loss mitigation review cycle,” which cycle would generally begin when a borrower made a request for loss mitigation assistance more than 37 days before a foreclosure sale.  During a “loss mitigation review cycle,” a servicer may not move forward with scheduling a foreclosure sale, nor advance the foreclosure action. 

As proposed, the “request” may be oral or in writing. Servicers and borrowers alike may seek clarification as to what constitutes an oral request, as such a rule would likely lead to conflict as to whether a request for loss mitigation was sought by a borrower.  At a minimum, if the rule is passed, courts will likely need to clarify this section, which may become a fact-specific and case-by-case analysis. 

The “loss mitigation review cycle” would end either when: (1) a resolution was reached or (2) the servicer and borrower exhausted loss mitigation “safeguards.”  Those “safeguards” are described in the proposed rules as: (1) the servicer reviewing the borrower for all available loss mitigation options, sending CFPB notices stating as much, and the borrower’s time to appeal the servicer’s decision lapsing and (2) the borrower failing to communicate with the servicer for 90 days despite the “servicer having regularly taken steps to communicate with the borrower.” 

The enactment of a “loss mitigation review cycle” could frustrate the servicer’s efforts to expeditiously move towards a foreclosure sale, and lead to conflict with state court deadlines and standards and goals. Furthermore, there could be ambiguity surrounding a servicer’s communication with the borrower and whether the servicer “regularly [took] steps to communicate with the borrower.” These sections, if part of the final rule, would likely lead to increased litigation.

Furthermore, the proposed rule proposes to provide borrowers with access to certain mortgage servicing communication in languages other than English.  More specifically, certain notices – such as notices concerning the availability of loss mitigation programs – must be sent to borrowers in English and Spanish. The proposed rule does not draw a bright line as to when such notices must be provided in Spanish, so servicers would need to provide the subject notices in English and Spanish as part of its regular practice.

The proposed rule will now go through a commenting stage through September 9, 2024. The proposed rule may receive comments regarding the various servicing issues covered, including on servicer practices for consumer reporting. Following comment and any additional revisions, the proposed rule may go into effect within twelve months of publication of the final rule in the Federal Register, likely sometime in 2026.