With the end of the Department of Treasury’s Home Affordable Modification Program (HAMP) coming in January 2017, the Consumer Financial Protection Bureau (“CFPB”) has released a set of four principles for financial institutions to use when considering how to help a borrower avoid foreclosure. These principals are intended “to complement ongoing discussions among industry, consumer groups and policymakers on 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.” However, they are more suggestions at this point, as they have no legal force.
The four principles are accessibility, affordability, sustainability, and transparency. These four principles have also been articulated by the Treasury, Federal Housing Finance Agency (“FHFA”) and the Department of Housing and Urban Development (“HUD”) in various publications or conferences.
The CFPB has emphasized that, in terms of accessibility, the following issues are important. Borrowers should be able to: (1) easily identify loss mitigation options available to them; (2) apply easily for those options;(3) easily assess escalation options if there is an issue with the loss mitigation process; and (4) easily access housing counselors and others that can help them navigate the loss mitigation process.
The affordability principle means primarily that the servicer will not charge the borrower fees for any loss modification options, and that the options offer a meaningful payment reduction. Sustainability, the third principle, means that servicers should offer options to resolve any underlying delinquency, provide affordability through the remaining loan term, and provide options for both borrows that decline a loan modification and those that re-default.
Finally, loss mitigation should be transparent. The terms servicers use should be simple and easy to understand, and consistently defined in the industry (not institution specific). The key loss mitigation data should be made public, and consumers should get clear, understandable rationale for loss mitigation decisions.
All in all, these principles provide a framework but not much else for loan servicers, as many of the guidelines like “easy access to options” are not well defined. Nonetheless, servicers should be careful when instituting loss mitigation procedures or programs to hew to these four principals as much as feasible. If nothing else, these principles provide borrowers a basis to make a claim that servicers are acting unfairly or in a predatory fashion if they are unhappy with an outcome.