CFPB Releases Long-Awaited Regulation X Updates
On July 10, the Consumer Financial Protection Bureau (CFPB) released its long-awaited update to Regulation X (Reg X). The first version of Reg X was released in 2013 following the passage of the Dodd-Frank Act and the establishment of the CFPB. The pre-cursor to the changes in this proposed rule came in 2022 when the CFPB first sought industry feedback on how to improve protections for consumers facing financial hardship in an industry request for input (RFI); much of what can be found in the proposed rule is in response to feedback from that RFI as well as lessons learned from the protections extended to consumers during COVID-19 pandemic, including provisions of the CARES Act.
The proposed updates a few key areas of the existing regulation outlined below:
- Changes to Loss Mitigation Application Framework and Foreclosure Protections:
One of the more significant changes proposed by the Bureau are updates to the existing application-based framework for loss mitigation. Today, Reg X requires servicers to collect a complete application before deciding on loss mitigation options available to the consumer. Under the proposed rule, a servicer would not have to collect a complete application before making a loss mitigation determination. Additionally, the Bureau creates a newly defined “loss mitigation review cycle” which creates an effective timeframe for foreclosure safeguards; under the new definition, the loss mitigation review cycle begins when a borrower requests assistance and ends when the loan is bought current or all loss mitigation options are exhausted.
- Early Intervention:
Under the proposed rule, servicers will now need to provide additional information to borrowers in early intervention notices including: the name of the owner of the loan, descriptions of the loss mitigation options available from the loan owner, and a website where these options can be accessed.
- Loss Mitigation Appeals and Determination:
The proposed rule would require servicers to provide loss mitigation appeal rights and determination notices for all types of loss mitigation. Previously, Reg X only required notices for loss mitigation denials. In addition, servicers would be required to include information regarding the key inputs that were the basis for the loss mitigation determination, a list of loss mitigation options still available to the borrower, and information about prior loss mitigation options that were not accepted by the borrower.
In addition to the updates to Reg X, the CFPB proposal addresses two additional areas of importance for mortgage servicers. First, the Bureau is soliciting feedback on potential approaches to ensure that accurate credit reporting is being furnished for borrowers undergoing loss mitigation review. Second, the proposed rule introduces new requirements to provide limited English proficiency (LEP) borrowers with greater access to early intervention and loss mitigation communications in languages other than English.
Comments must be received by the Bureau by September 9, 2024; we should expect that the Bureau will take a few months to review comments and make changes before issuing the final rule later this year or early in 2025. Implementation of the Reg X changes will be effective 12 months after the rule is finalized, while the LEP provisions will take effect 18 months after the rule is finalized. Based on that timing, the industry should expect a final implementation date in the fourth quarter of 2025 or first quarter of 2026 whereas the LEP requirements would take effect in the second or third quarter of 2026. Sagent will be closely monitoring stakeholder feedback as we look to make updates to our servicing platforms ahead of the final implementation dates.