SFA Responds to the CFPB’s Proposed Amendments to Regulation X

On September 9, the Structured Finance Association (SFA) submitted a letter to the Consumer Finance Protection Bureau (CFPB) on the proposed amendments to Regulation X on mortgage servicing. The Proposal aims to improve the loss mitigation framework for mortgage servicers and streamline assistance for borrowers undergoing financial hardship.

While SFA and its members appreciate the CPFB’s goals of streamlining the loss mitigation process for distressed borrowers seeking relief, there are certain areas that raise significant concerns, including:

1. The CFPB’s Proposal misaligns borrower and servicer incentives: The Proposal would reduce incentives for borrowers to engage in good faith with their servicers during loss mitigation. The CFPB needs to define clear entry and exit points for the loss mitigation process.
2. The Proposal would increase mortgage servicing costs and harm affordability: The Proposal would greatly increase the cost of mortgage servicing. Those increases –combined with a potential prolonged loss mitigation review cycle—would lead to significant expenses to servicers that would be passed on to borrowers.
3. The Proposal undermines sanctity of contract: The Proposal’s fee prohibition undermines the longstanding principle in U.S. law that parties to a contract must fulfill their obligations. The breadth of the prohibition raises questions about the CFPB’s authority under RESPA and CFPA to impose such restrictions.
4. The Proposal lacks the necessary cost-benefit analysis required under Dodd-Frank and the Administrative Procedures Act: Throughout the Proposal, the CFPB fails to provide any meaningful cost-benefit analysis. The Proposal suffers from the absence of the detailed data and analysis on the costs that would be imposed on servicers and the purported benefits for consumers.
5. The Proposal would pose significant operational difficulties: SFA’s letter highlights concerns about the significant challenges associated with the proposed procedural safeguards, fee protections, language requirements, and interaction with state foreclosure laws.

While the SFA supports the CFPB’s mission to protect borrowers undergoing financial hardship, the Proposal raises concerns about potential impact on contractual obligations, responsibilities of the secondary mortgage market, and the efficiency of the loss mitigation review process. We believe that future revisions to Regulation X should consider the points raised by SFA and our members.