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CFPB: Best practices on how to continue loss-mitigation needs

Lessons from HAMP

Besides the start of a new year, Jan.1, 2017, will also mark the first time since 2009 that the government’s Home Affordable Modification Program and Home Affordable Refinance Program will not exist.

Falling under the government’s Making Home Affordable program, HAMP and HARP were created as solutions after the housing crisis to keep struggling homeowners in their houses.

For the last seven years, the industry has had distinct mortgage modification options to reduce struggling homeowners’ monthly mortgage payments to an “affordable and sustainable” amount.

But now that the end date on these programs is rapidly approaching, government agencies are quickly reminding the industry of the loss-mitigation programs and options that are still available. This includes the Consumer Financial Protection Bureau.

On Tuesday, the bureau released a set of principles for the future of loss mitigation in light of HAMP ending.

“As the U.S. Department of Treasury’s Home Affordable Modification Program is phased out, the Consumer Financial Protection Bureau is considering the lessons learned from HAMP while looking forward to the continuing loss-mitigation needs of consumers in a post-HAMP world,” the bureau stated. “These principles build on, but are distinct from, the backdrop of the bureau’s mortgage servicing rules and its supervisory and enforcement authority.”

The bureau emphasized that these principles are not binding legal requirements and instead are intended to complement ongoing discussions on the development of loss-mitigation programs.

While the CFPB’s mortgage servicing rules are already the go-to on establishing clear guidelines for early intervention, dual tracking, and customer communication, they do not require loss-mitigation options beyond those offered by the investor nor do they define every element of loss-mitigation execution.

As a result, the CFPB published the following four principles (check here for the a more detailed list):

1. Accessibility: Consumers should easily be able to obtain and use information about loss-mitigation options, and how to apply for those options.

2. Affordability: Repayment plans and mortgage-loan modifications should generally be designed to produce a payment and loan structure that is affordable for consumers.

3. Sustainability: Loss-mitigation options used for home retention should be designed to provide affordability throughout the remaining or extended loan term.

4. Transparency: Consumers should get clear, concise information about the decisions servicers make.

The CFPB, however, is only the latest government agency to emphasize the importance of loss mitigation as the industry preps for the end of the Making Home Affordable program.

The bureau’s list reiterates a lot of same items as a list published by the Department of the TreasuryDepartment of Housing and Urban Development and the Federal Housing Finance Agency. The key difference it that their list had five principles.

The one principle the CFPB does not address: accountability.

“Although the bureau agrees with Treasury, HUD, and the FHFA that a fifth principle, accountability, is critical to the implementation of the other principles, the bureau does not discuss accountability in this document. The bureau’s mortgage servicing rules provide standards for accountability when loss-mitigation programs are offered,” it stated.

The CFPB stated that it published the principles to provide a range of approaches to loss mitigation, recognizing the legitimate interests of consumers, investors and servicers.

“We aim to help consumers avoid foreclosures, which upset their personal and financial lives,” said CFPB Director Richard Cordray. “The modification program was put in place to provide alternatives to foreclosure. Our principles will serve as helpful guardrails for servicers, investors, and regulators to consider as we continue to protect consumers who are struggling to pay their mortgages.”

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