LOSS MITIGATION PRINCIPLES

I.         INTRODUCTION

The Consumer Financial Protection Bureau (CFPB) has issued a document that outlines four principles, Accessibility, Affordability, Sustainability, and Transparency, that provide a framework for discussion about the future of loss mitigation as the nation moves beyond the housing and economic crisis that began in 2007.

The document does not establish binding legal requirements.  The principles are intended to assist in the development of loss mitigation programs that span the full spectrum of both home retention options such as forbearance, repayment plans and modifications, and home disposition options such as short sales and deeds-in-lieu.

The CFPB notes that loss mitigation options appropriately include both home retention and home disposition options, depending on the individual circumstances.  As used in the document, loss mitigation options include forbearance agreements, repayment plans, modifications, short sales, deeds-in-lieu and any other option that is intended to assist borrowers in finding a solution to their short- or long-term difficulty in paying their mortgage as originally agreed.

II.        ACCESSIBILITY

  • Consumers can easily obtain and use information about loss mitigation options and application procedures from their servicers.
  • Consumers can submit a request for loss mitigation using a common and readily available form of application in order to expedite consideration and to better enable housing counselors and others to support consumers in the loss mitigation process.
  • Consumers are asked to submit only documentation necessary to enable consideration for available options, and servicers make appropriate efforts to obtain and verify information within the servicer’s control.
  • Consumers have ready access to individuals, including housing counselors and others, who can help them seek loss -mitigation and understand the effect of the terms they are being offered.
  • Consumers’ requests for loss mitigation assistance are responded to timely and effectively by servicers.
  • Consumers have access to clear and effective escalation options.
  • Consumers are considered for appropriate loss mitigation options from imminent default through late stages of -delinquency.
  • Consumers who are similarly situated receive fair and equal consideration for loss mitigation options within similar timeframes.
  • Servicers should generally be aware of and consider how they will meet the needs of those with limited English proficiency.

III.       AFFORDABILITY

  • When repayment plans and modifications are offered, they are generally designed to produce a payment and loan structure that is affordable for consumers.
  • Modifications for consumers with hardships provide a meaningful payment reduction.
  • Loss mitigation options are flexible enough to assist special populations (e.g., pre-crisis subprime loans) or unique circumstances (e.g., disasters).
  • Consumers are not required to pay upfront costs or fees to obtain a loss mitigation option from their servicer.

IV.       SUSTAINABILITY

  • The loss mitigation option offered is designed to resolve the delinquency.
  • Deficiency balances are not imposed on consumers experiencing hardship as a condition of a short sale or deed-in-lieu on their principal residence.
  • When modification options are used, they are designed to provide affordability throughout the remaining or extended loan term.
  • Where trial modifications are used, successful trials are converted to permanent modifications timely and efficiently.
  • Servicers and investors should consider modification options that reduce principal when doing so may benefit the investor, unless prohibited by statute.
  • Loss mitigation options are defined and made available for consumers who decline a loan modification offer.
  • Loss mitigation options are available for borrowers who re-default.
  • Loss mitigation outcomes are monitored by servicers and investors to determine their impact on re-default rates, and program terms are adjusted to achieve effective outcomes and respond to economic conditions.


V.        TRANSPARENCY

  • All terms (e.g., deferred interest, future rate or term changes, and repayment of forbearance amounts) are clearly described in a manner consumers can understand. Plain language should be used to the extent reasonably feasible.
  • Key loss mitigation vocabulary, e.g., hardship, imminent default, streamlined modification, etc., and data standards are defined and used consistently by mortgage servicers and investors.
  • Consumers get clear, concise information and rationales about loss mitigation decisions.
  • Consumers are not required to sign broad waivers of rights as a condition of receiving loss mitigation assistance.
  • Key loss mitigation data is reported publicly on a regular basis to ensure that loss mitigation programs are effectively meeting consumer and market needs.

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