Borrowing to buy a home is one of the biggest financial decisions a family will make. Mortgage servicers are the companies responsible for processing payments and managing mortgage accounts, and they play a critical role in assisting homeowners with repayment. Borrowers don’t choose these companies – servicers are chosen by the lender or investor that owns the mortgage.
In the mid-2000s, predatory mortgage practices spread throughout the country. Many large financial institutions with mortgage servicing operations experienced serious breakdowns. This resulted in a crisis where 10 million homes ended up in foreclosure between 2006 and 2014.
The foreclosure crisis was an important catalyst for the creation of the Consumer Financial Protection Bureau. Congress required the CFPB to implement new rules to make the mortgage market work better. These new rules first took effect in 2014. During the COVID-19 pandemic, we saw how these rules worked when unemployment spiked. The CFPB observed that there were places where the rules could be revised to reduce unnecessary complexity.
Last fall, the CFPB asked the public for input on ways to reduce risks for borrowers who experience disruptions in their ability to make mortgage payments, including input on the mortgage forbearance options available to borrowers. In particular, we sought input on the features of pandemic-related forbearance programs and whether there are ways to automate and streamline long-term loss mitigation assistance. We received comments from housing organizations, homeowner advocates, mortgage servicers, and many others.
Many commenters noted that borrowers seeking help on their mortgages can face a paperwork treadmill that hurts both homeowners and mortgage servicers. According to commenters, the temporary pandemic-related changes we made to the mortgage servicing rules helped alleviate this problem and get borrowers accommodations more quickly.
Commenters also expressed concern that borrowers often incur servicing fees and experience negative credit reporting while waiting for their mortgage servicers to review their options. These penalties can hurt borrowers even after loss mitigation options have been implemented, and they can sometimes even prevent loan modifications and other interventions that allow borrowers to keep their homes.
When homeowners who struggle to make payments get the help they need without unnecessary delay or hurdles, it is better for borrowers, servicers, and the economy as a whole. The CFPB will be using this input from commenters to propose ways to simplify and streamline mortgage servicing rules. We will propose streamlining only if it would promote greater agility on the part of mortgage servicers in responding to future economic shocks while also continuing to ensure they meet their obligations for assisting borrowers promptly and fairly.
We also continue to welcome petitions on potential amendments to the CFPB’s rules.