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CFPB Urges Banks Help Struggling Homeowners Over Foreclosing

New proposal would also reduce paperwork burdens

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  • Written by  Banking Exchange staff
 
 
CFPB Urges Banks Help Struggling Homeowners Over Foreclosing

The Consumer Financial Protection Bureau (CFPB) has proposed a new rule to require banks and other mortgage servicers to prioritize helping homeowners over initiating foreclosure proceedings.

The proposal aims to simplify the process for homeowners seeking assistance when they are struggling to pay their mortgage.

It would also streamline the process of providing assistance by reducing paperwork, improving communication with borrowers and ensuring essential information is understandable to borrowers.

Rohit Chopra, director of the CFPB, said:  "When struggling homeowners can get the help they need without unnecessary obstacles, it is better for borrowers, servicers and the economy as a whole."

Under the new proposal, servicers would typically only be allowed to proceed with foreclosure after all possibilities for assistance have been explored or if the borrower has stopped communication.

The proposed changes would also limit the fees a servicer can impose on a borrower while they assess potential options to help the borrower. This measure is designed to encourage providers to act quickly and fairly when reviewing the borrower’s requests for help.

It aims to also reduce delays by simplifying paperwork requirements. Currently, servicers cannot evaluate a borrower's eligibility for assistance without a “complete application”  that includes all information needed to assess all available options.

However, under the new proposal, servicers would have more flexibility to assess borrowers for each option individually, potentially enabling quicker assistance.

This is based on studies that show streamlined loan modifications, with fewer paperwork requirements, result in more homeowners remaining in their homes.

The proposal would amend current governing mortgage servicing regulations implemented in 2014, which were established in response to the severe foreclosure crisis that resulted in the loss of 7.5 million homes to foreclosure between 2006 and 2014.

The CFPB’s proposal is now open to comments until September 9, 2024.

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