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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 …

We are thrilled to announce that WaterfallCalc is ready for the VASP program. VA released updated loss mitigation protocols which has been detailed in Chapter 5 and 9 of the Servicing Guide. The key highlight of Chapter 9 is a program called the VA Servicing Purchase Program (VASP). The VASP is an innovative program that allows VA to purchase loans directly from servicers for eligible veterans, taking on servicing responsibilities to ensure veterans remain in their homes. The VASP must be implemented by October 1, 2024. Be ahead of the deadline and use WaterfallCalc to assist your borrowers. Don’t miss this opportunity to enhance your servicing strategies and better support our veterans.

Be advised that Mortgagee Letter 2024-02 established the Payment Supplement loss mitigation option. The Payment Supplement will combine a standalone Partial Claim to bring the Mortgage current with a new Monthly Principal Reduction (MoPR) payment. This will temporarily reduce the Borrower’s monthly Mortgage Payment for a period of three years, without requiring the Mortgage to be modified. While Servicers aren’t required to implement the PSA until January 1, 2025, you can implement the program now with WaterfallCalc. WaterfallCalc’s benefit to servicers was recently highlighted by a valued client in an article by MortgageOrb Magazine: Essex prides itself on being a leading servicer of GNMA loans, and our partnership with WaterfallCalc has been a key factor in this success,” says Nathan Sands, Chief Servicing Officer at Essex Mortgage – a WaterfallCalc client. “Donna and her team’s exceptional expertise and commitment ensure that we can provide top-tier support to our borrowers. By swiftly implementing innovative programs like the FHA PSA, we are better equipped to assist borrowers facing financial hardships, ultimately helping them retain their homes and achieve financial stability.” You can read more here: Mortgage Servicers Can Beat FHA Deadline for Payment Supplement Agreement Using WaterfallCalc – MortgageOrb

The following changes were laid out in ML 2023-11 and were implemented through an update to WaterfallCalc on July 11, 2023. Per ML 2023-11, Non-Borrowers who have acquired Title Through Exempted Transfer should be considered for a Home Affordable Modification Program (FHA-HAMP). There will be a new box on the first page of the FHA module with the description, “Title: Exempted Transfer”. When this box is selected as YES, the borrower will be reviewed for the FHA-HAMP. All other borrowers should be reviewed for the Covid-19 Recovery Home Retention Options. What This Means for You: As a user of our platform, WaterfallCalc.com, these updates will ensure that you are using the most up-to-date rules for evaluating loss mitigation options. Our tool is designed to quickly adapt to all such changes, ensuring you have access to the most accurate information and precise calculations. WaterfallCalc.com continues to be committed to offering a comprehensive, real-time loss mitigation analysis tool that streamlines the calculation process and minimizes the need for rework. Stay tuned for more updates, and remember, we are here to help you navigate these changes and ensure that you stay compliant with industry standards. Should you have any questions or require further clarification on the new implementation from ML 2023-11, please do not hesitate to reach out to us at WFC-Help@dls-servicing.com.  

To All WaterfallCalc Users, HUD has revised their borrower support options under the Dear Lender Letter 2023-04 for Section 184 & 184A, here are the crucial changes: Borrowers 90 days or more delinquent must be reviewed for the COVID-19 Loss Mitigation Options, no matter the reason for default until October 30, 2024. Loss Mitigation Advance now allows up to 30 percent of the unpaid principal balance to be allotted to bring the borrower current. This increased from 25 percent. If Target Payment can’t be achieved, the lowest possible monthly payment should be offered under the COVID-19 Recovery Native Loan Modification or a COVID-19 Loss Mitigation Advance. Please make sure you’re aware of these updates. If you need more details, don’t hesitate to contact us at WFC-Help@dls-servicing.com

In May 2023, DLS WaterfallCalc transitioned to a new document system, Propel, to enhance your user experience. Key Highlights to note: Variations in document appearance: With the introduction of Propel, you may notice slight variations in the font, formatting, and overall appearance of your documents. Rest assured; these changes are intended to enhance the overall user experience. You will also receive prompts to download the updated documents as necessary. Change in document-related emails: Going forward, all document-related emails will be sent from noreply@asurity.com. Please ensure that you update your email filters or whitelist this address to avoid missing any important notifications. If you require any assistance or have inquiries, please don’t hesitate to reach out to our dedicated support team at WFC-Help@dls-servicing.com. We are here to provide the necessary guidance and support throughout this process. We believe that this new document system will significantly improve your user experience and productivity. Thank you for being a valued member of our community.