Mortgage servicers will soon be able to embrace a digital loss mitigation process without fear of punishment by the Consumer Financial Protection Bureau.
The CFPB announced Friday that it is issuing a “No-Action Letter Template,” which will enable mortgage servicers that are “seeking to assist struggling borrowers to avoid foreclosure and engage in loss mitigation efforts” to apply for their own no-action letter.
The CFPB introduced several years ago no-action letters under former CFPB Director Richard Cordray. The letter is a bureau enforcement measure designed to aid innovation in the financial markets.
A no-action letter is an assurance from the bureau that it won’t take action against a financial services provider for trying a new product or service as long as the company provides certain information to the bureau and complies with a series of rules.
The bureau has not issued many no-action letters since the program was first introduced. In 2017, the CFPB issued its first “no-action letter” to Upstart Network, a company that uses alternative data and machine learning in making credit and pricing decisions.
The purpose of that letter was to allow the company to provide insight into whether alternative data, like education and employment history, would have an impact on credit decisions.
Then, late in 2018, the bureau released new policies surrounding no-action letters, making them easier to obtain.
According to the bureau, the updated policy includes a “more streamlined review process focusing on the consumer benefits and risks of the applicant’s product or service.”
As part of that policy, the bureau also released a policy surrounding no-action letter templates, which allow companies or trade associations to “secure a template that can serve as the foundation for (no-action letter) applications from companies that provide consumer financial products and services.”
And Friday, the CFPB announced that it was releasing a no-action letter template that would allow mortgage servicers to use Brace Software’s digital solution for loss mitigation.
According to Brace, the company worked with the CFPB to facilitate the use of its software by allowing servicers to request their own NAL template that would ensure they won’t be punished for using Brace’s software.
The template “would enable mortgage servicers to use Brace’s online platform to implement loss-mitigation efforts for their borrowers,” the CFPB said in a release.
Brace’s platform brings default servicing management into the digital environment, automating workflows and processes for mortgage service providers. Earlier this year, the company raised $10 million to fund its growth.
And now, its software received a proverbial seal of approval from the CFPB, although the bureau doesn’t refer to it those terms. Rather, the CFPB notes that Brace’s platform can help during the pandemic.
“While the bureau does not endorse particular products or providers, digitizing the loss mitigation application process has the potential to improve a process that is experiencing an increase in loss mitigation requests from consumers due to the COVID-19 pandemic,” the CFPB said.
According to Brace, its software helps servicers “streamline the information and document gathering process using automated financial integration and intelligent workflow.”
The company said that it worked with the CFPB in regards to servicers’ ability to remain compliant with the rules of the Real Estate Settlement Procedures Act and the Fair Debt Collection Practices Act when using its software.
“The United States is facing another potential housing crisis and borrowers need a way to digitally submit a request for forbearance and additional loss mitigation outcomes,” Brace said in a release.
“Before Brace, an exhaustive digital option did not exist,” it said. “Following a forbearance, mortgage servicers are required to review borrowers for a permanent loss mitigation solution. In order to complete that review, servicers may request financial information and documentation from borrowers. In a constantly changing regulatory environment, it is challenging to collect all the necessary information while also maintaining compliance with RESPA requirements.”
Now, according to the company, servicers can embrace the use of its technology and work with the CFPB directly to ensure compliance with appropriate rules.
“An end-to-end loss mitigation platform which facilitates efficient communication between borrowers and servicers is crucial in this environment and we are grateful to the bureau for issuing the No-Action Letter Template in response to our application,” Brace CEO Eric Rachmel said.