Harmonizing Regulatory Compliance and Industry Perspectives: Leveraging Consumer Protection and Mortgage Servicing Loss Mitigation
By Deb Gaveglio and Donna Schmidt
I. BACKGROUND
DLS Servicing LLC, a Michigan-based company, focuses on supporting government mortgage servicing and loss mitigation strategies for mortgage loan servicers. Founded by industry veteran, Donna Schmidt, in 1994, DLS specializes in navigating the complexities of government agency loss mitigation rules. Loss mitigation solutions are tailored utilizing WaterfallCalc.com©, a proprietary, rules-based software that follows regulatory waterfalls to determine eligible options. DLS’ expertise in regulatory compliance, operational efficiency, and sustainable loss mitigation strategies guides servicers to effectively adhere to loss mitigation rules while incorporating best practices for borrower assistance. DLS is expertly positioned to provide practical loss mitigation solutions for future consideration. We provide DLS’ suggestions throughout this document.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act established the Consumer Financial Protection Bureau (CFPB) to protect consumers from unfair, deceptive, or abusive practices. The CFPB has rigorously enforced consumer financial laws to equalize transparency, fairness, and competitiveness in financial markets. Supervision activities identifying CFPB violations have resulted in fines and restitution requirements.
We note the plethora of CFPB policies issued including the SAFE Act, FDCPA, FCRA and UDAAP prohibitions. The CFPB prohibits unfair, deceptive, or abusive acts or practices (UDAAP) in the consumer financial marketplace. This broad prohibition complements the 1977 Fair Debt Collection Practices Act (FDCPA). CFPB also issued state guidance for use of the Nationwide Mortgage Licensing System and Registry (NMLSR) as a qualifying written test under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). We also note current capabilities for oversight with data collections in embedded within Regulation X rules for ATR/QM, HOEPA, HMDA, Appraisals, Escrows, TRID, Originations, Rural lending, AVMs, and PACE
Since 2014, significant enforcement actions against mortgage servicers were announced publicly for Regulation X Subpart C Mortgage Servicing rule violations. We outline the sections of the 12 CFR Part 1024 Real Estate Settlement Procedures Act – Regulation X Mortgage Servicing Requirements are detailed below:
- 130 Scope Definitions and key terms
- 31 Servicing policies, procedures, requirements for inquiries and payments
- 32 Servicer loss mitigation procedures for borrower at risk of default options
- 33 Early intervention for troubled borrowers early contact, loss mitigation options
- 34 Continuity of contact requires Servicer assign personnel to borrowers for consistent communication
- 35 Information Request timelines & procedures for inquiry responses
- 36 Error resolution process to report, obligation to investigate, correct errors
- 37 Force-placed insurance regulates placement of insurance when borrowers fail to maintain coverage
- 38 Payment escrow administration, account accuracy
- 39 Delinquency evaluation of loss mitigation applications process, timelines
- 40 Servicemember protection foreclosure & loss mitigation REQs
- 41 Successors in interest outlines protections, rights, obligations to be same as original borrower
II. PURPOSE
Appointed and Confirmed Directors at the HUD, VA, USDA, FHA, FHFA, and CFPB in 2025 are signaling a unique opportunity to participate in evolving housing and financial policy. This communication represents thoughtful analysis supported by relevant data points of the unintended disruptions in servicer ability to assist distressed borrowers caused by duplicative, redundant, and complex regulation. Pursuant to this analysis we support and validate that mortgage servicer oversight should be borne by the loan guaranty program management experts and technicians at government insuring housing agencies, the Government Sponsored Entities and the FHFA. These agencies should collectively establish the guidance and monitor controls for the reasonable, customary, practical and sustainability of mortgage servicer providers to ensure borrower protections. The CFPB could benefit by the utilization of expertise and industry practitioners at the agencies capable of providing comprehensive quality reviews, regulatory oversight and supporting mortgage servicing guidance. We seek a reduced complexity in mortgage servicing rules and to protect borrowers by leveraging the agencies. We identify the current challenges, propose recommendations for enhancements and outline potential benefits. We seek to create a balanced approach for the mortgage servicing loss mitigation requirements.
- REGULATORY FRAMEWORKS SUPPORT CONSUMER PROTECTIONS
The Federal Housing Administration (FHA) and the U.S. Dept. Of Housing and Urban Development (HUD) Loss Mitigation requirements are outlined in the Single-Family Housing Policy Handbook 4000.1 Section III.A.2.j; specifically in HUD’s Loss Mitigation Program Section III.A.2.k Loss Mitigation Home Retention Options, and Section III.A.2.l Home Disposition Options. Loss mitigation options include Forbearance & Unemployment plans, Pre-Foreclosure Sale (PFS), Deed-in-Lieu of Foreclosure (DIL).
The U.S. Dept. Of Veteran’s Affairs (VA) Loss Mitigation requirements are in the Servicer Handbook M26-4, Ch. 5 Loss Mitigation; specifically, Section 5.01 Loss Mitigation Overview, Section 5.02 Home Retention Options, Section 5.03 Home Disposition Options. Mitigation options include Repayment Plans, Special Forbearance, Loan Modification, Disaster Modification, Compromise Sale, Deed-in-Lieu of Foreclosure, VASP.
The U.S. Dept. Of Agriculture (USDA) loss mitigation requirements are in the Single-Family Housing Guaranteed Loan Program Handbook; Servicing Non-Performing Loans, Loss Mitigation, Foreclosure and Liquidation Sections. Loss mitigation options include Repayment Plans, Special Forbearance, Loan Modification, Mortgage Recovery Advance, Pre-Foreclosure Sale, and Deed-in-Lieu of Foreclosure.
Established in 1968, Government National Mortgage Association (GNMA) is a wholly owned government corporation within HUD. Its primary mandate supports liquidity and stability in the housing finance system and expanding equitable access to available credit and housing. Unlike Fannie Mae and Freddie Mac, GNMA does not assume the credit risk of the pool of mortgages (mortgage-backed security or MBS). The risk remains with the issuers and the Agencies insuring the loans. GNMA guarantees the timely payment of principal and interest on MBS backed by federally insured or guaranteed mortgage loans.
Formed through the Housing and Economic Recovery Act of 2008 (HERA), The Federal Housing Finance Agency (FHFA) combined the Office of Federal Housing Enterprise Oversight (OFHEO), the Federal Housing Finance Board (FHFB), and HUD’s GSE mission team FHFA’s statutory mandate is to ensure that Fannie Mae, Freddie Mac (Government Sponsored Enterprises or GSEs), and the Federal Home Loan Banks (FHLBs) operate safe and soundly, are sources of liquidity and financed housing. FHFA sets housing goals, monitors the financial condition of the GSEs and their client base, and has managed the GSE conservatorships since 2008. The GSE portfolios have stabilized since 2008 as is evidenced by the 4Q 2024 MBA National Delinquency Survey reporting lower delinquency trending ratios as compared to FHA and VA guaranteed loans.
Freddie Mac and Fannie Mae are collectively known as the Government Sponsored Agencies (GSEs). Fannie Mae (Federal National Mortgage Association or FNMA) was created in 1938 to provide mortgage market liquidity. It was privatized in 1968 but retained its government charter. Freddie Mac (Federal Home Loan Mortgage Corporation or FRE) was established in 1970 to expand the secondary mortgage market and provide competition to FNMA. Both purchase mortgages from lenders, package them into mortgage-backed securities (MBS), and guarantee timely payment of principal and interest to investors. Mandated under HERA and as conservator, FHFA has three principal mandates that guide its activities and GSE decisions, preserve assets, ensure safe and sound operations, maximize assistance to homeowners.
The Federal Home Loan Banks (FHLB) System consists of 11 regional banks and the Office of Finance (OF), the FHLB’s fiscal agent. Each FHLBank operates independently within its geographic area, is owned by its member-co-operative required to purchase capital stock as a condition of membership. The Office of Finance (OF) issues and services FHLB debt securities (consolidated obligations) and funds operations of the FHLB system. The FHLBs have backing from the government, enhancing their ability to access funding.
FHLB MPFP – The Mortgage Partnership Finance® Program (MPFP®) provides access to the secondary market for FHLB member Participating Financial Institutions (PFIs). Launched in 1997, MPFP provides alternatives to GSEs for selling fixed-rate loans. 9 of the 11 FHLBs purchase conventional and government loans from PFIs through MPFP; the majority being small banks and credit unions.
FHFA ensures compliance of the GSEs, FHLB and the OF with regulates the housing programs of its member base. FHFA’s oversight extends of financial risks involves coordinating with other federal agencies to enforce fair housing requirements. FHFA ensures stability and accessibility of housing finance by balancing the need for market liquidity with risk management and the promotion of housing opportunities.
- LOSS MITIGATION AND CONSUMER PROTECTION DETAILS
The overall complexity of the government insured loan guaranty process versus the flexibility of GSE loss mitigation guidance reflects the varying missions, demographics, and program eligibility. These differences create significant compliance challenges for servicers as specialized processes are necessary for their borrower groups. We support a rebalanced, tailored towards increasing operational efficiency and easing the loss mitigation rules. While government-insured loans are heavily regulated to protect public funds, Servicers of Freddie Mac and Fannie Mae loans have greater flexibility to modify policy with signoff by FHFA. Both frameworks ensure credit accessibility and consumer protection, but the implementation complexity to ensure compliance in government insured loan market differs significantly from the GSE client base.
The nuances that make GNMA, FHA, VA, USDA, and HUD loan servicing and loss mitigation different from GSE, FHLB or OF requires varying approaches to determine compliance. These differences stem from the mission, demographics, and regulatory frameworks. Servicers must navigate complex and sometimes overlapping requirements from these agencies, necessitating robust compliance frameworks and specialized knowledge:
- GNMA focuses on securitization, does not service loans, requirements significantly impact servicing
- FHA serve low to moderate income, first-time buyers, tailoring loss mitigation options demographically*
- VA loans with unique servicing requirements to protect Veterans, offering zero down payment loans*
- USDA focus on rural housing servicing guidelines offering zero downpayment loans*
- HUD oversees various programs; FHA sets policies impacting servicing of multiple loan types
- FHFA establishes guidance and requirements for loans guaranteed by FNMA, FRE and the FHLBs
- CFPB sets loss mitigation standards unilaterally regardless of the authorities originating, servicing loans
*NOTE: Based on their structures, these loan types present additional risks to mortgage servicers due to lesser borrower credit quality or zero to little property equity.
The complexities, operationalization challenges and costly impacts of CFPB Servicing rules related to CFPB Loss Mitigation requirements have negatively impacted and limited the ability to offer successful borrower loss mitigation strategies. We see this pivotal arena as the CFPB assessment to recommend opportunities for the FHA, VA, and USDA Agencies to absorb control of borrower safeguards and consumer protection policy oversight within the loan guaranty program reviews. We note the significant opportunity for prudential regulators with authority to oversee, review, supervise and examine financial service entities providing mortgage services:
| # | Prudential Regulators | Focus | Relevance | Recent Action |
| 1 | Federal Reserve System (The Fed) | Central bank of the US | Monetary policy, supervises/regulates banks, maintains system stability | Collaborates on interagency guidance regarding Mods & reporting |
| 2 | Office of the Comptroller of the Currency (OCC) | Regulates & supervises national banks, federal savings Assns. | Ensures safety & soundness of the national banking system | Issued joint guidance on use of alternative data in credit underwriting |
| 3 | Federal Deposit Insurance Corporation (FDIC) | Insures deposits/oversees state-chartered banks | Protects depositors, manage bank failures | Participated in interagency Covid-19 guidance for loan Mods |
| 4 | Consumer Financial Protection Bureau (CFPB) | Regulates consumer financial products & services | Enforces federal consumer financial laws & protects consumers | Issued circulars on overdraft practices & digital intermediaries |
| 5 | National Credit Union Administration (NCUA) | Regulates federal credit unions | Ensures safety & soundness of system, federally insured CUs report to NCUA | Collaborated on HELOC interagency guidance |
| 6 | Securities & Exchange Commission (SEC) | Regulates securities markets & protects investors | Oversees public companies, brokers, & investment advisers | SEC continues to play a role in financial regulation |
| 7 | Commodity Futures Trading Commission (CFTC) | Regulates derivatives markets | Oversees swap dealers, futures markets | Amended capital & financial reporting requirements for swap dealers |
| P | Financial Stability Oversight Council (FSOC) | Identifies & responds to risks to financial stability | Coordinates among financial regulators to address systemic risks | Issued guidance on nonbank financial company determinations |
| 9 | Federal Housing Finance Agency (FHFA) | Regulates GSEs – FRE, FNMA, OF, FHLBs. Foreclosure Prevention & Refi Reports | Oversees secondary mortgage markets & ensures liquidity | FHFA plays a role in housing finance regulation |
| 10 | Department of Housing & Urban Development (HUD) | Develops & implements policy | Oversees FHA mortgage insurance & enforces housing laws | Collaborated with VA & USDA on home retention options |
| 11 | Department of the Treasury | Manages federal finances, implements tax policies | Houses several financial regulatory bodies & influences financial policies | Proposed REGs on bad debt deductions for regulated financial companies |
| 12 | Financial Crimes Enforcement Network (FinCEN) | Combats money laundering &promotes financial integrity | Implements & enforces anti-money laundering regulations | FinCEN plays a role in financial crime prevention |
| 13 | Federal Financial Institutions Examination Council (FFIEC) | Principles/standards for Exams, Banks report to FFIEC, financial condition is public – FDIC’s Central Data Repository | Coordinates regulatory efforts among agencies. Bank / Credit Union Call Reporting to FFIEC. Standard call reports contain basic loan performance data | FFIEC plays a role in standardizing financial institution exams. Mtge Loan HMDA data is reported to FFIEC.gov |
| 14 | State Banking Regulators | Regulate state-chartered banks & financial institutions | Works with federal regulators to oversee state banking systems | State regulators continue to play important roles by jurisdiction |
| 16 | Farm Credit Administration (FCA) | Regulates & examines banks, Assns. & FCA System, network of borrower-owned businesses | Provides credit & services to agricultural producers & farmer-owned cooperatives | Rules for audits, asset thresholds, annual attestation, ICFR opinion (Internal Control of Financial Reporting), GAAP & PCAOB compliance |
| 17 | Federal Trade Commission (FTC) | Dual mission to protect consumers fairness, promote competition, enforce, educate | Regulates marketing and advertising of consumer products, enforces privacy & data security standards, oversees credit reporting fairness and accuracy | Thresholds annually, GNP ADJs, keep REGs remain relevant to economy, prevent anti-competition governance |
| 18 | Government Accountability Office (GAO) | Provides Congress, Agencies, &the public with timely, fact-based, non-partisan info | Provides information on government operations to improve performance of government via audits/ investigations | Feb 2025 High Risk List 38 areas of operational vulnerabilities, fraud, mismanagement, transformation Opps |
| 19 | Office of the Inspector Generals (OIGs) | Independent oversight embedded with Agencies | Responsible for detecting fraud, waste, & abuse by audits and investigations | FDIC Workplace Culture Investigation, HUD Oversight Priorities, FHFA Annual, 2025 Plan, CFPB Oversight |
| 20 | Office of Personnel Management (OPM) | Federal government’s chief human resources agency | Implement programs and services that enable to meet strategic goals | Issued Guidance on Agency RIF and Reorganization Plans Requested via “DOGE” Workforce Optimization |
| 21 | National Institute of Standards and Technology (NIST) | Cybersecurity threat protection volunteer de facto global risk standards. OMB, OIGs, GAO to use required per under FISMA | 50% US adoption & 32 countries – EU, Japan, UK, Israel. In use by sector-specific regulators – SEC, FTC, HHS, FFIEC, state agencies | NIST’s CSF 2024 2.0 expands cybersecurity to address broader risks, supply chain security, governance |
| 22 | Financial Industry Regulatory Authority (FINRA) | Non-profit, self-regulatory org. (SRO) gov’t authorized to oversee broker, dealers, market deals | Market integrity surveillance, monitoring for fraud operates under SEC supervision; improve market integrity, dispute resolution processes | Changes in (SLATE) Securities Lending & Transparency Engine & Consolidated Audit Trail funding arbitration procedures, funding fees, AML |
- LOSS MITIGATION AGENCY REPORTING
Throughout this communication, we cite relevant examples, considered industry stakeholder perspectives and Agency loan performance, and gathered supporting metrics. We put forth this opportunity to incorporate borrower protections established by the CFPB into the applicable insuring Agency Policy Review processes. Loan Program expertise positions the Agencies to target audits as necessary and conduct ongoing monitoring of Loss Mitigation Activities in conjunction with the following reporting requirements:
- USDA Servicers must report loss mitigation activities in the Guaranteed Loan System (GLS), maintain loss mitigation docs
- VA Servicers must report loss mitigation claim activities to VA Loan Electronic Reporting Interface (VALERI) system
- FHA and HUD Servicers must report activities to SF Default Monitoring System (SFDMS/MBFRF); maintain loss mitigation docs
- HUD – National Servicing Center manages Loss Mitigation Programs, serves mortgagees, servicers, counselors, borrowers
- FHFA – The GSEs report Mortgage Metrics, Foreclosure Prevention Stats, Non-Performing Loan Sales Reports
Significant jointly created mortgage servicing interagency guidance enabled Servicers to standardize practices across loan types, to simplify compliance for handling multiple loan product. Well-intended CFPB servicing rules established a one-size-fits all loss mitigation regulatory framework. Each Agency, GSE and servicing entity is subject to the same set of CFPB rules, and the approach is not always the optimal loss mitigation option. We have compiled evidence in managing our customer activity of CFPB rules resulting in borrower harm. We recognize the inter and cross agency collaboration resulting in an alignment in process allowing for inherit differences by loan type, insurer/guarantor impact and financing option paths.
- UNINTENDED CONSEQUENCES OF CFPB REGULATION
We see timely opportunity to allow the FHA/HUD, VA, and USDA manage within its oversight of loss mitigation to layer in oversight within the applicable Agency’s Loan Guaranty Program purview. We believe allowing the subject matter experts ensures compliance with CFPB 1024.41 Loss Mitigation Procedures, Mortgage Servicing Rules, and Regulation X/RESPA. Further, CFPB currently oversees the timeliness of reviews, when a servicer can offer loss mitigation, whether all documentation necessary is collected to consider all options. We believe this oversight can be handled by an agency designed for housing finance, such as the FHFA. As the new Directors are confirmed, the CFPB is set to be restructured. We support industry participation to ensure Agency and industry expertise is considered in amending rules that lead to unintended consequences and harm borrowers. By addressing the unintended consequences of regulatory redundancy with our policymakers, we appreciate this unique opportunity to provide our expertise in creating a more cohesive and effective process to serve borrowers and Servicers.
The complex landscape of mortgage servicing regulations, characterized by overlapping rules from multiple federal agencies, has created a challenging environment for both servicers and borrowers. The CFPB, FHA, VA, USDA, and HUD share the goals of protecting homeowners. The redundancy in regulatory frameworks has led to unintended consequences that may hinder the consumers the rules aim to protect.
The servicers face significant challenges balancing regulatory compliance and effectively offering assistance to borrowers. We explored the unintended consequences of the CFPB legislation, targeted enforcement actions, severity of punitive actions impacting small and mid-size servicer success and sustainability in offering loss mitigation solutions. The table and explanations below illustrate three key Scenarios where CFPB rules result in unintended consequences across FHA, VA, USDA, and HUD. highlighting how some regulation can complicate efficient loss mitigation efforts and increase complexity for servicers and borrowers in operationalizing compliant servicing processes.
| # | CFPB | Issue | Unintended Consequence |
| 1 | CARES ACT / Covid – CFPB provided loss mitigation options requirements with incomplete applications if P&I not to increase. | Negative impacts on VA borrowers in rising interest rate environment; unintended results of CFPB guidance. | Streamlined CARES Act options included principal reduction whereas standard full package options would result in higher payments. |
| 2 | ALL Options Rule – Servicer must offer all options be explored before giving a loss mitigation option. | Inefficient options for borrower in home retention reviews if want to exit or property sale arrangements in flight. | Servicers required to consider options borrowers are not interested in pursuing. |
| 3 | REG X – must apply full payment if in suspense or unapplied. | FHA and GNMA have REQs complicating compliance with CFPB rules. | No Exception path for Trial Payment Plans (TPPs) Loans. |
Scenario #1 VA Loss Mitigation During COVID-19 Standard Practice vs. Pandemic Accommodations: The VA Loss Mitigation Process employs a structured loss mitigation waterfall that requires borrowers to submit comprehensive documentation, income verification, expense documentation, monthly budget information.
Servicers may offer Forbearance Plans that temporarily suspend payments, Repayment Plans that add arrearages to regular payments, Modifications that capitalize arrearages at current rates, and Short Sales when property retention is not financially viable. Per the 2020 CARES ACT COVID-19 provisions, the VA introduced streamlined options that did not require full documentation:
- Partial Claim – Servicers files arrearage claim, brings loan current, no modification of terms, subordinate mortgage is made payable to VA, no payments or interest due until the first mortgage is satisfied
- Refund Modification – Partial claim and modification, Servicers claim arrearages plus principal needed to reduce P&I payment by 25%, benefits borrower who cannot afford original payment
Typically, VA loans are securitized in GNMA pools that must maintain consistent characteristics. Servicers cannot modify loans within existing pools. Servicers must secure a borrower agreement to terms, purchase the loan out of the pool, and re-pool at current market terms. When market interest rates rose significantly in 2022 (during Covid), achieving the required 25% P&I reduction with substantial principal reduction through the partial claim component often was not successful.
Impacts – CFPB Regulation X, codified in § 1024.41(c)(2), created a significant obstacle. While the rule permitted servicers to offer loss mitigation options with “incomplete” (streamlined) applications, it was allowed when the P&I payment would not increase. If interest rates climb, it is impossible to reduce P&I payments even after exhausting the maximum principal reduction of 30% of unpaid principal balance as permitted by VA.
The unintended consequences include streamline option denials, borrowers had to submit complete loss mitigation applications, and standard VA loss mitigation options without principal reduction caused higher payments than the streamline option.
DLS Data Analysis of 2,544 VA loan records between September 2022 and May 2024 revealed:
- 98% that would have qualified for a Refund Modification option were denied due to increase in P&I payment
- Only 13% of affected borrowers subsequently submitted complete loss mitigation applications
- Full Borrower applications received 5.8% avg. payment increase compared to streamlined Refund Modification
- Remaining 87% sought assistance but did not submit full applications presumably resulted in alternative solutions, self-reinstated, taped Housing Assistance Fund (HAF) support, faced foreclosure
#1 Solution – The interaction of volatile interest rates and regulatory constraints creates barriers for VA borrowers seeking pandemic or other disaster related assistance. The VA’s streamlined options were designed to provide quick relief; while CFPB protects consumers. Both inadvertently limit access to programs when market conditions change dramatically. We propose addressing such scenarios to inform and reform policy. During periods of economic volatility and rate fluctuations, Servicers need to enable adaptable and flexible assistance.
Scenario #2 – CFPB Regulation X Mortgage Servicing Rules: Short Term Forbearance: According to the CFPB mortgage servicing rules in Regulation X, servicers are required to obtain a complete loss mitigation application before offering borrowers loss mitigation options. Codified in 12 CFR § 1024.41(b)(1), a complete application is one where “a servicer has received all the information that the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower.”
Regulation X contains a specific exception for short-term forbearance programs. Under 12 CFR § 1024.41(c)(2)(iii), servicers may offer short-term payment forbearance programs based on an evaluation of incomplete loss mitigation applications. Official commentary clarifies that this exception was designed specifically for situations such as unemployment, where requiring comprehensive documentation would be unnecessarily burdensome.
Impacts – Unintended Consequences to Implementation: Despite regulatory accommodation for short-term forbearance, Servicers remain hesitant to implement these provisions, often requiring unemployed borrowers to submit extensive documentation that exceeds regulatory requirements. This conservative approach stems from concerns about CFPB enforcement actions, leading servicers to demand complete documentation even when a streamlined approach is permitted. The complexity added for financially vulnerable borrowers and to process inefficiency contradicts the regulation’s intention.
#2 Solution: This situation exemplifies how regulatory intent can sometimes be undermined by implementation practices driven by compliance concerns, even when flexibility provisions exist within the regulatory framework. We propose amendments to requirements to clarify the instances whereby consideration for options such as short forbearance options due to unemployment do not trigger the 12 CFR § 1024.41(b)(1) provision.
Scenario #3 – Unintended Consequence GNMA and FHA Loan Modifications Suspense Accounts: CFPB regulation related to suspense accounts create an operational conflict with GNMA and FHA requirements for loan modifications. This misalignment complicates the loss mitigation process, particularly for loans in trial payment plans, and creates unnecessary procedural challenges for both servicers and borrowers.
CFPB Suspense Account Requirements were designed to ensure timely posting of payments and transparent accounting practices. Under Regulation Z (12 CFR § 1026.36(c)(1)(ii)), when a partial payment is deposited into a suspense account, the servicer must disclose the total amount held in suspense on periodic statements and credit accumulated funds to once it equals a full payment.
GNMA pooling requirements limit the ability to modify loans. Loans securitized in GNMA pools must maintain consistent characteristics, cannot be modified while in a GNMA pool, and must be removed from the pool to modify. Guidelines permit buyout from the pool if paid in full, foreclosed, or delinquent 3 consecutive months.
Pursuant to the FHA Handbook, loans typically need to be 3 months DQ to qualify for modifications. FHA claims filing system is programmed to receive loan data as if no trial payments were applied. The unpaid principal balance used to determine maximum statutory partial claim limits is established prior to the applying the trial payment.
Impact – Implementation Conflict arises during trial payment plan (TPPs) lasting 3-4 months. Expectations are the loan will become sufficiently delinquent. CFPB rules require the application of suspense funds once a full payment is accumulated results in not reaching delinquency thresholds. This scenario causes non-compliance with CFPB compliance and striving to meet GNMA and FHA modification requirements.
The inconsistences in Loss Mitigation rules have unintended consequences. Operationally, loan buyouts from GNMA Pools to modify terms can be risky if how to apply trial payments is not transparent. Modifications could incur delays to become permanent; introducing additional complexity.
#3 Solution – We support targeted policy and rule amendments codifying the elimination of unnecessary procedural complexities. This fosters and facilitates achieving efficient and effective loss mitigation borrower outcomes. Specifically, we strongly suggest a simple carve-out in CFPB regulations for loans performing under loss mitigation trial payment plans. This exception would allow servicers to hold trial payments without immediately applying them. Consideration of this solution would align CFPB rules with GNMA and FHA requirements. Additionally, we note the benefit of streamlining the loss mitigation process while maintaining appropriate consumer protections.
From the Servicers perspective, the incomprehensible fact is that these unintended consequences were communicated to the CFPB on multiple occasions without consideration. We surmise the policy makers at CFPB failed to evaluate the complexity, impracticality and the magnitude of rules issued in rapid succession; nor the direct impacts in operationalizing process and systems; significantly impairing the ability to ever be “compliant”.
- RISING DEFAULT RATES
The GSEs typically have lower delinquency rates than government insured FHA and VA loans. The GSEs have conservator controlled aligned underwriting standards and more specific borrower requirements. GSE loans often require higher credit scores, larger down payments, thus reducing default risk. FHA and VA programs assist borrowers with lower credit profiles; smaller down payments, resulting in higher delinquency rates during significant events and disasters.
According to the MBA’s 4th Quarter 2024 National Delinquency Survey, delinquency rate for mortgage loans on one-to-four-unit residential properties increased to 3.98% of all loans outstanding at year end. The delinquency rate was up 6 basis points from the third quarter of 2024 and up 10 basis points from 2023. The percentage of loans on which foreclosure actions were started in the fourth quarter rose by 1 basis point to 0.15%.
As stated in the FHA Single Family Housing Policy Handbook: “Mortgage Holders are responsible for all servicing actions, including the acts of its Servicers. Servicers are responsible for their actions in servicing FHA-insured Mortgages, including actions taken on behalf, or at the direction, of the Mortgage Holder.” Pursuant to the FHA Guide and as a Mortgage Servicer, DLS is dedicated to ensuring Quality Control, Oversight and Compliance. We believe the Agencies are uniquely positioned to monitor loan guaranty program compliance and consumer protections related to Loss Mitigation options.
|
Delinquent VA Loans |
NUMBER OF LOANS SERVICED | Total Past Due | 30 Days DQ | 60 Days | 90 DAYS OR MORE | INVENTORY END OF QUARTER | STARTED DURING QUARTE | Seriously Delinquent |
| Northeast | 227,749 | 5.43 | 2.36 | 0.89 | 2.18 | 0.76 | 0.08 | 2.94 |
| Midwest | 463,918 | 5.36 | 2.29 | 0.89 | 2.19 | 0.50 | 0.07 | 2.69 |
| South | 1,584,941 | 5.39 | 2.16 | 0.91 | 2.32 | 0.45 | 0.06 | 2.77 |
| West | 715,922 | 3.92 | 1.63 | 0.63 | 1.66 | 0.30 | 0.04 | 1.96 |
| United States | 2,999,314 | 5.04 | 2.07 | 0.84 | 2.13 | 0.45 | 0.06 | 2.58 |
|
Delinquent FHA Loans |
NUMBER OF LOANS SERVICED | Total Past Due | 30 Days DQ | 60 Days | 90 DAYS OR MORE | INVENTORY END OF QUARTER | STARTED DURING QUARTER | Seriously Delinquent |
| Northeast | 859,856 | 11.61 | 6.24 | 2.25 | 3.11 | 1.20 | 0.46 | 4.31 |
| Midwest | 1,290,565 | 11.83 | 6.29 | 2.35 | 3.19 | 1.07 | 0.50 | 4.26 |
| South | 2,802,448 | 12.25 | 6.23 | 2.42 | 3.60 | 0.75 | 0.37 | 4.35 |
| West | 1,118,785 | 9.81 | 5.29 | 1.94 | 2.58 | 0.73 | 0.44 | 3.31 |
| United States | 6,141,957 | 11.57 | 6.05 | 2.28 | 3.24 | 0.88 | 0.43 | 4.12 |
- CONCLUSION
The CFPB’s regulatory framework has both aided and constrained consumers and mortgage servicers. The widening gap between conventional and government-guaranteed loan default rates necessitates greater servicer flexibility to optimize loss mitigation outcomes. Given the multiple prudential regulators already overseeing mortgage activities, we request regulatory adjustments enabling best execution options for borrowers.
As delinquencies rise, we urge this Administration, Congress, and the Agency Directors to reassess the CFPB’s dominant role in mortgage servicing regulation, potentially redirecting oversight to agencies with established supervision processes and loss mitigation expertise, such as FHFA, HUD, or OPM. The complexity of CFPB requirements impedes efficient loss mitigation delivery, often resulting in unintended borrower harm.
- FINAL THOUGHTS
We advocate for a collaborative regulatory approach between CFPB, FHFA, and HUD that reduces complexities and shifts away from the CFPB’s enforcement-focused supervision. This modification would foster innovation while maintaining consumer protections. The CFPB’s current strategy has restricted servicers’ flexibility in assisting borrowers both as loan administrators and financial counselors. We seek revised CFPB rules that accommodate diverse loss mitigation options to better serve borrowers in need.
From a Servicer’s perspective, the current regulatory environment requires a careful balance between enforcement and flexibility. We propose innovations such as regulatory sandboxes and pilot programs that maintain consumer protections while allowing servicers to develop optimal borrower solutions. A balanced approach to CFPB regulations is essential for Agencies and GSEs to effectively manage loan guaranty programs, with the GSEs and Loan Guarantee Agencies (GNMA, FHA/HUD, VA, USDA) assuming appropriate responsibility for consumer protections under their existing authority. We advocate for layered oversight by applicable insuring Agencies to address impediments to successful loss mitigation, recognizing that servicers must navigate federal, state, and local requirements while the GSEs continue reporting loss mitigation results to FHFA and the public since entering conservatorship in 2008.
The mortgage servicing industry has evolved significantly since the 2008 financial crisis, with CFPB Mortgage Servicing and Loss Mitigation Procedural rules creating operational challenges despite their consumer protection intent. The lack of flexibility to address portfolio-specific needs has often prolonged default resolutions and inadvertently harmed borrowers. We advocate for collaboration, coordination, and consistency (the 3 C’s) across Housing Agencies to reduce compliance complexities and improve efficiency. The current broad-stroke CFPB regulation fails to accommodate unique loan program circumstances, necessitating a shift toward programmatic oversight by agencies with housing expertise. We stand ready to assist the CFPB and FHFA in developing transparent, adaptable compliance systems that better serve the mortgage ecosystem while maintaining essential fair lending compliance and complaint resolution processes.
- APPENDICES – Reference Sources
HASHTAGS
#CFPB #FHFA #FHA #VA #USDA #GNMA #HUD #GSE #DOGE #FREDDIEMAC #FANNIEMAE #FHLBs #FHLBMPP #MORTGAGE SERVICING #MBA #CONSUMER PROTECTION #OCC #FDIC #NCUA #SEC #CFTC #FSOC #TREASURY #FINCEN #AML #BSA #FFIEC #STATEBANKING #FCA #FTC #NIST #GAO #OPM #OIGs #FINRA #REGX #LOSSMITIGATION #UNINTENDEDCONSEQUENCES #CONGRESSIONALOVERSIGHT #HERA #OPM #CFPBMORTGAGESERVICINGRULES #COVID #CARESACT #FHACLAIMS #VACLAIMS #PARTIALCLAIMS #LOANMODIFICATION #VOUCHER #VAREFUND #VASP #FORBEARANCE #REGULATORYRISKFRAMEWORK #CAMELSO #RISK #SUSPENSEACCOUNTS #LOANS #LENDING #DELINQUENCIES #DEFAULT #CONSUMERPROTECTION #EVOLVINGREGULATION #HOUSING #MBANATIONALDELINQUENCY SURVEY #URBANINSTITUTE #HMDA #FRB
